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Non-Compete Agreements are Illegal in California

Non-compete agreements in California are generally illegal. Many companies, and certainly many employees, are unaware that California prohibits noncompete agreements.

Most states other than California permit reasonable covenants not to compete.
There are limited non compete exceptions in California. Non-compete agreements are enforceable for partnerships, limited liability companies, and when someone is selling their ownership interest in a company.
An excellent resource discussing California non compete agreements is California Non-Compete Agreements

A related topic is the protection of trade secrets. A company can prevent the use of its trade secrets, but it cannot prevent fair competition by prohibiting competition with a non-compete contract.

Many businesses try to protect their business assets by having employees sign agreements to not compete with the company should they leave employment. This commonly can be a prohibition on working for a competitor or soliciting customers.
However, non-compete employment agreements are illegal in California.

Business and Professions Code 16600 provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

California public policy is to permit employees to work in jobs where they are most skilled. This benefits the employee, and the employer wanting to hire the best employees. California as a whole also benefits from this right-to-work policy.

Section 16600 invalidates noncompete agreements to preclude employment in a certain line of work. The statute has been construed by the courts as invalidating noncompete agreements that prevent employees from accepting work from any of the former employer's clients.

A former employee may solicit employees from his or her former employer if unlawful means or acts of unfair competition are not used.

A business, though, can protect their trade secrets. One commonly claimed trade secret is a customer list. Generally, if a company could prevent a former employee from using a customer list or trade secret to prevent unfair competition, the company can enforce an agreement that former employees will not use the confidential information.

For example, an employee can be prohibited from using a confidential list of customers for one year after leaving employment. On the other hand, even if a former employee cannot solicit his or her former employer's clients, merely informing customers of one's former employer of a change of employment, without more, is not solicitation. Neither is discussing business after being first invited by the former employer's customer.

A non-compete agreement cannot restrict this type of fair competition.

Exceptions exist for business owners, partnerships, and limited liability companies. In a common situation the owner of a company is bought-out. The buyer can protect their investment by having the former owner sign a reasonable non-compete agreement.


About the Author: Brian Kindsvater is a California attorney specializing in noncompete agreement and trade secret litigation and consultation. His articles about California noncompete agreements and other labor and employment law issues can be found at Lawzilla - California NonCompete Agreements




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