Can My California Employer Enforce a Non-Compete Agreement?
If you work for a California employer who requires that you sign a covenant not to compete, or a non-compete agreement, can it be enforced against you in California if you end up leaving your job for a new position elsewhere? Generally, California does not permit non-compete agreements to be enforced as against public policy and changes in the law as of 2018 provide additional protections to employees seeking to avoid enforcement of a non-compete agreement by their California employer.
How Does a Non-Compete Agreement Work?
Non-compete agreements are a form of restrictive covenant, which restricts certain employee behaviors or actions after the employee is no longer working for the employer. In other words, restrictive covenants restrict how and where an employee might be able to work if they separate from their job – such as restricting an employee from working for a competitor for a certain period of time after their employment.
Commonly, employees find themselves presented with non-compete or non-solicit agreements as part of their initial hire paperwork. They may even be (wrongfully) provided as a condition for employment. While California courts typically do not enforce non-compete agreements, an employee should always be aware of what they are signing and the potential legal obligations before the sign – and especially before they compete.
California Does Not Enforce Restrictive Covenants Against Most Employees
Under the California Business and Professions Code Section 16600 “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
Non-compete agreements are common with employers throughout the country. Across the U.S., approximately 20 percent of workers are currently “bound by non-compete agreements, including 14 percent of those earning less than $40,000 per year.” Despite the fact that California does not enforce non-compete agreements, many employers try to include them in employment contracts anyway, without much traction. While some employers may attempt to assert that extenuating circumstances warrant enforcement of non-competes under California, these arguments are routinely rejected by California courts. This lead some employers to try to get around California law by designating that the agreement is subject to a law in a state where non-compete agreements are routinely upheld. However, for agreements entered into after January 1, 2017, California Labor Code 925 provides that an employer may not require an employee (unrepresented by counsel) who primarily works and resides in California, as a condition of employment, to agree to a provision requiring the employee to adjudicate disputes arising in California in a forum outside of California or under other than California law.
Even “the inevitable disclosure doctrine” is not typically enough to lead to the enforcement of a non-compete agreement. In other words, even if an employer reasonably believes that a former employee will use confidential information from the employer’s business in performing a new job, the former employer cannot use that belief as a reason to enforce a non-compete agreement. Instead, the employer can only file a claim if the employee actually does misappropriate confidential information. There are only limited circumstances in which courts will enforce non-compete agreements in California.
Non-Solicit Agreements and California Law
Similar to a non-compete clause, non-solicit agreements are contracts between an employer and an employee in which the employee agrees that she will not solicit customers or clients of the employer after she resigns or is terminated from her current position. California courts typically have viewed non-solicit agreements “as veiled noncompetes,” and as such have refused to enforce these agreements, with exceptions.
When is a non-solicit agreement enforceable? There are only a limited number of exceptions, including:
- When the non-solicit agreement is a narrow restraint, or does not limit an employee’s access to every customer or client but only narrowly limits such access (General Commercial Packaging, Inc. v. TPS Package Engineering); and
- When the non-solicit agreement is necessary to protect trade secrets and unfair competition, but only when the non-solicit agreement is “carefully limited” (Metro Traffic Control, Inc. v. Shadow Traffic Network).
If you have questions about restrictive covenants or non-compete agreements more specifically under California law, you should discuss your concerns with a California employee rights or California non-compete law lawyer.