California Employment Law: Non-Compete Clauses
A non-compete clause is a contractual term under which one party (typically an employee) agrees not to conduct business in direct or indirect competition with another party (typically an employer). The benefit to the employer is that the employee is restricted from leaving the company and going to work for a competitor of the employer (or start their own business in competition with the employer) for a duration of time stated in the agreement. The benefit to the employee is that…wait, what is the benefit? For this reason, California and other states consider non-compete clauses void as a matter of law because they are against public policy. There is no “consideration” given for an employee giving up the right to employ themselves in certain industries.
California Business & Professions Code section 16600 clearly states: “…every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extend void.”
In California, there are limited situations where a reasonable non-compete agreement may be valid:
1. If an owner is selling the goodwill in their business. (CA Bus. & Prof. Code section 16601).
2. When there is a dissolution or disassociation of a partnership. (CA Bus. & Prof. Code section 16602).
3. Where there is a dissolution of a limited liability company. (CA Bus. & Prof. Code section 16602.5).
Because non-compete clauses are enforceable in several states, coupled with the fact that many companies may be headquartered in other states, non-compete clauses are consistently found in California employee agreements. As a result, California employees regularly make career decisions based on the existence of these illegal restrictions in their employment agreements. Employees will stay at undesirable jobs longer than they would like, fearful that they could never find a new job if they are unable to work in the same industry as a potential “competitor.” California employees can take a collective sigh of relief…non-compete clauses are generally unenforceable in California.
However, a California employer can restrict an employee from utilizing, stealing, disclosing or compromising the employer’s trade secrets, data, client lists, patents, etc. Such confidential, proprietary information is owned by the employer and cannot be taken by the employee for use outside his/her employment with the employer. I will be submitting an article in the near future on this topic. Please check back soon.
If you are concerned about a non-compete clause in your employment agreement, feel free to contact Richardson “Red” Griswold of Griswold Law at (858) 481-1300 or rgriswold@griswoldlawsandiego.com.
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