A competitor convinces your biggest customer to break its contract with you. A former partner calls your prospective investor and torpedoes the deal. California protects vigorous competition, but it also draws a line: intentionally disrupting someone else's contracts and business relationships can be a tort. Here is how tortious interference claims actually work — what a plaintiff must prove, where the competition privilege ends, and what these claims are worth.
Two different torts, two different burdens
California recognizes two related claims, and the difference between them decides most cases:
- Interference with contract. Under Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, the plaintiff must prove: (1) a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) intentional acts designed to induce a breach or disruption; (4) actual breach or disruption; and (5) resulting damage. Because contracts deserve strong protection, the plaintiff generally does not have to show the defendant's conduct was independently unlawful.
- Interference with prospective economic advantage. This protects relationships that have not yet ripened into binding contracts — a deal in negotiation, a customer who reorders every quarter without a long-term agreement. Under Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, the plaintiff must additionally prove the defendant's conduct was independently wrongful — unlawful by some measure other than the interference itself, such as fraud, defamation, or a statutory violation. Merely outcompeting you is not enough.
The at-will wrinkle
What about contracts either side can end at any time? In Ixchel Pharma, LLC v. Biogen, Inc. (2020) 9 Cal.5th 1130, the California Supreme Court held that interference with an at-will contract is treated like interference with prospective advantage: the plaintiff must show an independently wrongful act. The logic is that inducing someone to do what they were already free to do — walk away — looks a lot like competition. This matters enormously for employee raiding and customer poaching cases, since most employment and many customer relationships in California are at-will.
Where hard competition becomes wrongful
Courts consistently protect aggressive but honest competition: soliciting a rival's customers, offering better prices, hiring away at-will employees. The claims get traction when something extra is present, for example:
- Using misappropriated trade secrets — customer lists, pricing data — to target the relationships
- Making false statements about the plaintiff's products, finances, or integrity
- Inducing a counterparty to breach a fixed-term contract the defendant knew about
- Unlawful threats or economic coercion, or violations of statutes such as the Unfair Competition Law
Defendants, in turn, raise the competition privilege where applicable, argue they never knew of the contract, or show the relationship would have collapsed anyway. A defendant who is a party to the contract cannot be liable for interfering with its own agreement — that is a breach claim, not a tort.
Damages, punitive exposure, and deadlines
Tortious interference is a tort, so recovery is broader than in contract: the plaintiff can seek all proximately caused losses, including lost profits from the disrupted relationship, and — on a showing of malice, oppression, or fraud by clear and convincing evidence — punitive damages under Civil Code § 3294. That punitive exposure is why interference counts so often accompany breach of contract claims and why they change settlement dynamics.
The statute of limitations is two years (Code of Civil Procedure § 339). The clock generally starts when the plaintiff suffers the disruption, so businesses that discover interference late need to move quickly.
Practical moves on each side
If your relationships are being disrupted: preserve the paper trail showing the contract or relationship existed and the defendant knew about it, document lost revenue relationship by relationship, and consider a demand letter early — putting a competitor on written notice of a contract defeats the "we did not know" defense for conduct going forward. If you are the one accused: audit what your team knew and when, stop using any information of questionable origin, and evaluate whether the plaintiff can identify an independently wrongful act at all — many prospective-advantage claims fail at that step, and some can be attacked by demurrer before discovery gets expensive.
These cases are evidence-heavy and move fast once filed, which is why an early strategy assessment from a business litigation attorney can be valuable. And if the interference involved stolen confidential information, pairing the claim with trade secret remedies can strengthen the basis for injunctive relief and, in qualifying cases, add fee exposure beyond the interference tort alone.
Talk to a California business attorney
Whether someone is disrupting your contracts or you have been accused of crossing the line, an early look at the facts can tell you where the leverage sits. Schedule a free consultation or call (949) 418-2113.
This article is attorney advertising and provides general information only. It is not legal advice and does not create an attorney–client relationship. Facts matter; consult a lawyer about your specific situation.
