Employment Non-compete Agreements: Enforceable or Not?
Known as a “non-compete clause,” many employers force their employees to sign agreements restricting former employees who are fired or resign from working for a competitor or starting a competing business.
By some estimates, about 20% of U.S. workers are bound by non-compete agreements. Many of those employees earn less than $40,000 per year which puts them in a precarious situation if they lose their job or are denied employment because they will not sign a non-compete agreement.
Generally Held Unenforceable in California
California fortunately has Business & Professions Code Section 16600. This law states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Since the passage of that law, California Courts have consistently invalidated non-compete agreements and other attempts by employers to restrict their former employees from working for competitors or working in their field.
One Major Exception
The applies only to former employees. This means that your employer can prevent you from “moonlighting” while you are currently working for the company. So, make sure before you accept a job while you are currently employed that you check your company handbook to avoid any unintentional policy violation.
California Courts Ban Attempts to Get Around the Law
Still, many companies continue to force their employees to sign non-complete agreements not because they are enforceable but largely as a scare tactic to prevent employees from moving to their competition.
Many companies still to try get around California’s ban on employee non-competes by using some of the following:
Choice of Law or Forum: Some companies use a choice of law or forum provision that says that the non-compete will be decided according to the laws of a state that allows such agreements or that any dispute must be decided in a different state then California. If you work in the State of California, Courts generally will force the employer to use California law and fight the case in California.
Waiting Period: Some companies adopt policies requiring management or director level employees to give extended periods of notice prior to their resignation (typically 90 to 180 days) during which the employee will be “benched” at home. Even if the employer pays the employee full pay and full benefits, California courts have found these mandatory provisions to be unenforceable and a form of a non-compete.
Disclosure of Trade Secrets or Confidential Information: Some companies sue their former employees claiming that they will be revealing trade secrets or confidential information. However, California courts are reluctant to allow an employer to prevent a former employee from working based on the potential of a future disclosure of trade secrets or confidential information.
Employment agreements or provisions that prevent former employees from seeking employment at competitor business are void and unenforceable. If you have any questions, please contact us to answer your questions.
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Disclaimer: The foregoing is provided for informational purposes only, is not an advertisement, does not constitute legal advice or legal opinion, and does not create an attorney-client relationship. The content may not apply to the specific facts or a particular matter. You should not act or rely on any information contained in this article without first seeking the advice of an attorney licensed to practice in your jurisdiction.