NON-COMPETITION COVENANTS IN CALIFORNIA

NON-COMPETES ARE UNENFORCEABLE IN CALIFORNIA

California law is clear on the issue of non-compete agreements: “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”  Business and Professions Code section 16600 prohibits all agreements that prevent an executive or employee from job hopping, working for a competitor or starting his or her own business.  This law has teeth. An employee can obtain damages, costs and attorney’s fees if he or she has to go to court to invalidate the agreement.  We provide a full range of litigation and counseling services to aid employees with respect to non-compete issues.

THE RESTRICTION APPLIES TO ALL CONTRACTS

Business and Profession Code section 16600 applies to every type of contract.  The statute doesn’t mention or limit itself to “non-competition clauses.”  Rather, the law applies to every contract (or contractual provision) that has the effect of restraining a person from working somewhere else.

OTHER RESTRICTIVE MEASURES ARE ALSO UNLAWFUL

Companies often try to avoid Section 16600 by referring to the employment restriction as a contractual provision aimed at preventing “unfair competition,” protecting broadly-defined and ambiguous “trade secrets,” or restricting future “solicitation” of clients, employees or vendors.  The bottom line is that if the policy or agreement prevents an employee from working, it is invalid and unenforceable under California law.

“Choice of law” provisions that state Arizona or Nevada law, rather than California law, applies are equally unenforceable with respect to the non-competition provision if the company involves a California company, California employee or work performed in California.

LIMITED EXCEPTIONS APPLY TO THE SALE OF A BUSINESS

The only exceptions to this law are those specifically included in California’s Business Professions Code. The exceptions are limited to the narrow circumstances of a business owner selling his or her ownership interest in a business entity, selling substantially all of a business’s operating assets together with the goodwill of the business, and upon the sale or dissolution of a partnership or LLC or the departure of a partner or member.  Even if one of the exceptions apply, the future restraints must be reasonable.

THE TRADE SECRET EXCEPTION

Companies may also attempt to enforce a non-competition based on their belief that the departing individual may possess trade secrets or confidential and proprietary information.  In such cases, the burden is on the company to specify the protected information at issue and prove that the departing individual has breached the trade secret or confidential information restrictions that may apply.

WE ARE NON-COMPETE EXPERTS

Issues involving non-competition clauses typically arise before employment, when negotiating an operating or employment agreement, or upon the sale of a business or departure of an employee, partner or member.  Departing employee issues also often involve unpaid wages, vacation pay and bonuses and commissions.  Every situation is different and all factors must be considered when coming up with a strategy that will allow you to engage in your craft in San Diego and throughout California.  Contact us if you would like to discuss your options with Nicholas J. Ferraro, who has a background representing businesses on these very issues.