Many people have heard of a non-compete agreement but may not completely understand what it means. In fact, some people sign non-compete agreements as terms of their employment without even realizing it. A non-compete is a type of legal agreement that forbids an employee from going to work with a competitor of their current employer. These agreements exist to protect company secrets. However, it is important for employees to know whether or not a non-compete is enforceable in California, given the stringent California non-compete law.
How Does a Non-Compete Agreement Work?
A non-compete is something called a “restrictive covenant” that is used to restrict an employee’s behaviors or actions once they are no longer working for a company. Namely, they restrict where and how a former employee will work, effectively keeping them from working for a competitor. Usually, these agreements are in place for only a limited amount of time, not permanently. These agreements will usually be presented at the time a person fills out their initial hire paperwork as part of their employment contract.
Problems With Non-Compete Agreements for Current and Former Employees
Non-compete agreements are controversial, as they are very restrictive and prevent employees from certain actions if they want to avoid legal trouble. However, these agreements are very difficult to uphold in court because the employer must show that the employee caused damages as a result of breaching the non-compete agreement.
An employer would need to prove that the non-compete agreement protects a legitimate business interest, though courts have generally held an unfavorable view of non-compete agreements that infringe on a former employee’s right to earn an income. Failure to comply with these laws can result in penalties for unfair competition, which could lead to significant financial consequences for employers.
What Does California Law Say About Non-Competes?
According to the existing law in the California Business and Professions Code Section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
This existing law is particularly significant for California employees, who are protected from restrictive noncompete agreements.
In other words, a non-compete agreement is not enforceable in California. However, that does not mean that an employee will not be wrongfully presented with one or told that they have to sign one as a condition to their employment. Employers may try to say that there are extenuating circumstances in place for them to enforce a non-compete agreement, but these arguments are usually rejected by California courts.
As of January 1, 2017, non-compete agreements in California must operate under these rules:
- Employees can void any non-competes that require a court outside of California to decide disputes. In other words, the company cannot enforce an employee’s non-compete agreement in a state that allows these agreements.
- Employees are able to void contracts with illegal non-compete terms.
- Only California courts are able to rule on non-compete issues within the state, and the courts can only do so using California law.
- Employees are able to receive compensation for their attorney’s fees if they have to go to court to stand up for themselves in a non-compete dispute. Employers cannot seek attorney’s fees from the employee, even if the employer wins.
Exceptions to the Ban on Non-Compete Agreements
While California law generally prohibits non-compete agreements, there are a few notable exceptions where these agreements might be enforceable. One such exception is in the context of the sale of a business. Here, non-compete agreements can be used to protect the buyer’s interests, but they must be narrowly tailored to be valid. This means the agreement should only restrict the seller from engaging in similar business activities that could directly compete with the buyer’s new acquisition.
Another exception occurs during the dissolution of a partnership. In these cases, non-compete agreements may be enforceable if they are necessary to protect the interests of the remaining partners. Similarly, when a limited liability company (LLC) is dissolved or when a member’s interest is terminated, non-compete agreements can be used to safeguard the interests of the remaining members.
It’s important to note that these exceptions are narrowly construed by California courts. Non-compete agreements are generally disfavored under California law, and any attempt to enforce them outside these specific contexts is likely to be unsuccessful.
Impact on Current and Former Employees
The prohibition of non-compete agreements in California has significant implications for both current and former employees. Under California law, employers cannot enforce non-compete agreements, allowing employees the freedom to work for competitors or start their own businesses without fear of legal repercussions.
For current employees who have signed non-compete agreements, it’s crucial to understand that these agreements are likely unenforceable. If an employer attempts to enforce a non-compete agreement, the employee has the right to seek legal relief, which may include injunctive relief or damages.
Former employees are also protected under California law. If a former employer tries to enforce a non-compete agreement, the former employee can seek legal remedies. This protection ensures that individuals can continue their careers without being unfairly restricted by previous employment contracts.
Non-Compete Agreements and Trade Secrets
Non-compete agreements are often intended to protect trade secrets and confidential information. However, in California, these agreements are not the most effective or enforceable method for such protection. Instead, employers should rely on non-disclosure agreements (NDAs), which are enforceable under California law and provide robust protection for trade secrets and confidential information.
Employers can further safeguard their trade secrets by implementing comprehensive security measures. This includes limiting access to sensitive information to only those employees who need it, using encryption, and conducting regular audits to ensure compliance with security protocols.
By taking these steps, employers can protect their valuable trade secrets without relying on non-compete agreements, which are generally unenforceable in California.
By understanding and utilizing these alternative methods, California employers can effectively protect their trade secrets while complying with state laws that favor employee mobility and fair competition.
Do You Need an Attorney for This Case?
If you have any questions or concerns about your non-compete agreement, please speak to qualified legal counsel or an Orange County employment lawyer as soon as possible. The laws surrounding a non-compete can be complicated and difficult to understand, particularly in California. An attorney will help ensure you do everything according to the most up-to-date laws in this state and will ensure that your professional rights are protected.
Protect Your Employment Rights with Callahan & Blaine
If you’re facing a non-compete agreement or need guidance on its enforceability, understanding California’s strict laws on employee rights is essential. At Callahan & Blaine, we leverage our 40 years of experience to advise individuals and businesses alike on navigating California’s unique employment laws, including the near-total ban on non-compete agreements. We’re here to help you understand your rights and options, whether you’re a current employee, business owner, or recently separated employee facing unfair restrictions.
Our team has successfully handled complex employment cases across California, and we are prepared to guide you through any legal challenges related to non-compete agreements and employment contracts. For trusted support, contact Callahan & Blaine at (714) 241-4444, or use our contact form.
