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Non-compete agreements are contracts between an employer and employee that restrict the employee’s ability to work for competitors or start a competing business after leaving their job. These agreements are common in many states, but California has some of the strictest laws against non-compete clauses, rendering most of them unenforceable.
Employers use non-compete agreements for several reasons, but the main goal is to protect their business interests. Below are some of the most common reasons why employers ask employees to sign non-compete agreements:
Protection of Trade Secrets and Proprietary Information
In many industries, employees have access to sensitive information such as trade secrets, customer lists, marketing strategies, and product development plans. Employers are concerned that if an employee leaves the company, they could use this valuable information to benefit a competitor.
Preserving Client Relationships
In fields such as sales, consulting, and client services, employees often build strong relationships with clients. Employers fear that when an employee leaves the company, they may attempt to take those clients with them to a new job or competing business.
Preventing Unfair Competition
Employers often invest significant time and resources in training employees, providing them with industry knowledge, and helping them build a network of professional contacts. Employers may use non-compete agreements to prevent employees from using the skills and knowledge gained through their training to start a competing business or help a competitor.
Maintaining Business Stability
If key employees, such as top executives or specialized professionals, leave the company to work for a competitor, it could destabilize the business. Non-compete agreements are a way for employers to maintain continuity and stability by ensuring that employees cannot immediately leave to help a rival organization.
While employers see non-compete agreements as a way to protect their legitimate business interests, these contracts can also limit employees’ job prospects and earning potential, particularly in industries with few employers or limited opportunities.
Employees violate non-compete agreements in several common ways, including:
Each of these actions could result in legal action from the former employer if specific terms in the non-compete agreement are violated.
California’s strong stance against non-compete agreements is rooted in its public policy, which emphasizes the right of individuals to freely pursue their profession and earn a livelihood. The primary law governing non-compete agreements in California is Business and Professions Code (BPC) Section 16600, which states:
“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 means that, in general, non-compete agreements are unenforceable in California. Employers cannot restrict former employees from working for a competitor or starting their own business, even if the employee agreed to the non-compete clause as part of their employment contract. California courts have consistently upheld this law, rejecting attempts by employers to enforce non-compete agreements that limit an employee’s post-employment opportunities.
Although California’s ban on non-compete agreements is broad, there are a few narrow exceptions where non-compete clauses may be enforceable:
Sale of a Business
Under BPC Section 16601 a non-compete agreement may be enforceable if it is part of the sale of a business, partnership, or limited liability company (LLC). In these cases, the seller of the business may agree not to compete with the buyer for a certain period of time within a specified geographic area.
The rationale behind this exception is that the buyer of a business should be able to protect their investment by preventing the seller from immediately starting a competing business and undermining the sale.
Dissolution of a Partnership or LLC
Another exception applies in the context of dissolving a partnership or limited liability company. Under BPC 16602, partners or members of an LLC can agree not to compete with the partnership or company upon its dissolution. Like the sale of a business exception, this provision is intended to protect the remaining partners or members from unfair competition by former partners.
If you are dealing with a non-compete agreement issue in California, consulting an experienced Orange County executive representation attorney is critical to protect your rights. Here’s how an attorney can help:
Reviewing the Non-Compete Agreement
If you have been asked to sign a non-compete agreement, an attorney can review the terms and advise you on whether the agreement is enforceable. In most cases, California law will void non-compete agreements, but a lawyer can provide specific guidance based on your circumstances.
Challenging the Enforceability of the Agreement
If your employer is attempting to enforce a non-compete agreement, an attorney can challenge the enforceability of the agreement in court.
Protecting You from Employer Retaliation
If you have refused to sign a non-compete agreement or are facing retaliation for seeking employment with a competitor, an attorney can help protect your rights.
Assisting with Interstate Disputes
If your employer is based in another state or if you have moved out of California, an attorney can help navigate the complexities of interstate employment law. They can help ensure that California’s employee protections are upheld, even if your employer operates in a state that enforces non-compete agreements.
Pursuing Damages for Lost Opportunities
If an employer’s attempt to enforce a non-compete agreement has caused you to lose job opportunities, an attorney can help you pursue compensation for any financial harm you have suffered.
If you are facing a non-compete agreement issue, our experienced Orange County Non-Compete Agreement Lawyers can help you understand your rights and take action to protect your career and future opportunities. Call (949) 379-6250 or message us online today for a free consultation to discuss your case.