Non-compete clauses in employment agreements and entirely separate California non-compete agreements have become commonplace in today’s world. This holds true particularly when it comes to service-based and high technology industries. The purpose of a non-compete agreement or clause is to protect an employer’s legitimate business interests. These interests include theft of trade secrets, conversion of customer lists, or the use of proprietary information for a competitive advantage. It is a common concern of employers that workers will leave the company and then use the information learned on the job to start a company or help a competitor without having to undertake the financial and time consuming investment that was put into the original business.
Across the nation, non-compete agreements and cases must have the following in order to be viewed as valid and enforceable by a court the:
- Terms must be reasonable as to both time and geographic scope. The shorter the agreement and the more limited the area, the more likely a court is going to find it as reasonable;
- Agreement must be necessary to enforce a legitimate business interest. There must be a legitimate business interest that is at risk of being disclosed or used in order for a non-compete to be enforceable; and
- Terms must be narrowly tailored to protect the legitimate business interest at issue. An employer is more likely to have a court enforce a non-compete if the employee is prohibited from working with a short list of competitors or disallow the former employee from starting a new business in the same industry as the business.
Enforcement of Non-Compete Agreements
States across the nation have created wide-reaching prohibitions on non-compete agreements and/or clauses due to a concern that they reduce competition. In California, state law forbids the enforcement of a non-compete clause unless it is within a particularly expressed area such as the sale or dissolution of the business.
Some states do not enforce non-compete clauses or agreements at all. California goes further and notes that not only are California non-compete agreements and non-competes unenforceable but an employer who requires an employee to sign one can be sued even if the employer never attempts to enforce the contract. This is because the state recognizes that employees may not know these agreements are not enforceable, and an employer that mandates this from an employee is engaging in unfair competition.
Any contracts entered into, amended, or extended as of January 1, 2017 or thereafter are subject to the following:
- Employment contracts that have terms requiring California employees to resolve disputes outside of the state may be voided by the employee;
- Employment contracts with illegal non-compete clauses may be voided by the employee;
- Only California courts may decide issues regarding these disputes; and
- Only California law may be used in deciding these disputes.
The law cannot apply to contracts entered into before January 1, 2017.
California Business Attorney
California Non-compete agreements issues that arise are fact-specific. For this reason, it is essential to contact a knowledgeable business law attorney if your business is considering including a non-compete clause in an employment agreement or requiring a non-compete agreement of its employees. Michael Bassiri can guide you through the complexities of this common business issue and provide you with legal guidance as to the best options available under the law. Click here or call (888) 530-2001 today to schedule your initial case evaluation.