Common Estate Planning Mistakes
Sep 5 2018 0

Are Non-Competition Agreements Legal in California?

A non-competition agreement, also known as a non-compete, is a contract used by employers in a variety of industries across the country.  A non-compete contains several terms which typically limit the ability of a former employee to take a job which is in direct competition with their prior company.  

Such agreements may limit the geographical territory in which a former employee may work for a competitor business or may place a time limit that the former employee must wait out before they can go to work for the competitor.  These agreements provide protection for the employer because they ensure that the employee will not leave and go directly to work for a competing business, potentially harming their former employer in the process.

California is unique in that non-compete agreements are almost universally unenforceable, except in a few limited situations.  Under Business and Professionals Code 16600, any non-competition contract which restrains a person from engaging in lawful trade or business is void. The limited exceptions provide that a non-compete agreement may be valid in the following situations:

  • A business owner sells the goodwill of the business
  • An owner sells his or her entire interest in a business
  • A businesses assets and goodwill are both sold.

In these situations, a non-compete agreement may be enforceable for the limited purpose of ensuring that the seller does not immediately go back into the local market and enter into competition with the buyer of a business.  There are many valid reasons why a potential buyer of a business might want to have a non-compete clause in place against the seller.

Protection for California Employers

Are Non-Competition Agreements Legal in California?What can an employer do to protect itself in the event it loses an employee who could cause economic damage to the company after their departure?  Although a non-compete agreement will almost certainly be struck down by a California court, many employers will choose to have their employees sign a non-disclosure agreement.

Under the California Uniform Trade Secrets Act, an employee who signs a non-disclosure agreement can be prohibited from disclosing trade secrets of their former employer, including:

  • Formulas Utilized in Business Operations
  • Patterns Created by the Employer
  • Methods Used by the Employer
  • Processes Used by the Employer in Production
  • Techniques of the Employer

Unlike non-compete agreements, a properly drafted non-disclosure agreement will typically be enforced by a California court.  Employers looking to protect vital information, including confidential customer lists, proprietary technological information, and trademarks should strongly consider the use of non-disclosure agreements as a part of their standard business practices.

California Business Attorneys

Whether you find yourself involved in business litigation or you need an attorney to create appropriate legal documents to protect your business interests, you need an experienced California business attorney by your side.

At the Leiva Law Firm, our business attorneys routinely advise all types of businesses across a variety of legal situations.  We try to anticipate problems so that business owners can avoid them later. However, if a problem does arise we are strong litigators who are not afraid of the courtroom.

To discuss your case with one of our attorneys, call us today at 818-519-4465.


You Might Also Like