Are Non-Competes Enforceable in California?
Oct. 27, 2021
As the owner of a business, you want to protect yourself from unfair competition, including employees who leave to go work for a competitor, especially if those departing employees take with them proprietary information that could be used against you to gain an advantage.
For this very reason, many businesses require new hires to sign a non-compete agreement, also known as a restrictive covenant. Are such agreements enforceable in California?
Unfortunately for employers, non-compete agreements in California have almost uniformly been held void by courts in the state. The same generally goes as well for non-solicitation agreements, which are designed to prevent former employees from soliciting the business of customers from their previous place of employment. Both non-compete and non-solicitation agreements are mostly unenforceable in the Golden State.
If you and your business are involved in a dispute with a current or former employee over a non-compete agreement in or around Irvine, California, or in the counties of Orange, Los Angeles, or San Diego, contact Attorney William B. Hanley.
Attorney William B. Hanley has more than four decades of experience in business and commercial litigation. Though he has represented Fortune 500 companies, he takes a special interest in defending small entrepreneurs against powerful interests trying to take advantage of them.
Non-Compete Agreements and Their Basis in Law
Both non-compete and non-solicitation agreements fall under California’s Business and Professions Code Section 16600, which 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.”
Though this section does not invalidate the duties employees owe employers under California’s Labor Code, it does favor the mobility of labor. In other words, people have a right to earn a living by seeking gainful employment. Courts have routinely ruled in that vein.
Sections 16601, 16002, and 16002.5 do provide limited exceptions to the prohibition against non-competes, especially when it comes to a partner leaving a partnership or a shareholder or member leaving a limited liability company (LLC). Clauses in operating agreements that prevent departing partners or shareholders from competing are often enforceable.
Some businesses that are operated by out-of-state parent companies attempt to bypass California’s restrictions on non-compete and non-solicitation agreements by pointing to their home state laws that do permit such agreements. California courts, however, have consistently rejected that argument, requiring out-of-state employers to treat their California-based employees under California employment laws.
Trade Secrets Are Protected
Non-compete agreements are sometimes held enforceable if the departing employee reveals their former company’s trade secrets. The California Uniform Trade Secrets Act (UTSA) protects company “information,” which it defines as “a formula, pattern, compilation, program, device, method, technique, or process” that, according to Civil Code Section 3426.1(d):
Derives independent economic value from not being generally known by others and is not reasonably and independently ascertainable by another party
Is the subject of “reasonable efforts” to maintain its secrecy
Trade secrets, however, should also be the subject of non-disclosure agreements to show a “reasonable effort” to maintain their secrecy. Other efforts can include limiting access to the information, training employees on the necessity of not sharing or revealing the information, and even keeping the secret information under lock and key.
California law prohibits the “misappropriation” of trade secrets, as well as outright theft, bribery, inducement, or electronic espionage, among other illicit means to obtain a trade secret.
Get Experienced Legal Counsel for Your Business
In any dispute involving non-compete agreements, non-solicitation agreements, or trade secrets, William B. Hanley will work with you to resolve the situation and achieve the best possible result, whether it involves negotiation or litigation. In practice since 1974, William B. Hanley has represented countless individuals as well as business enterprises of every size.
If you’re in or near Irvine, California, or anywhere in the counties of Orange, Los Angeles, or San Diego, contact William B. Hanley, Attorney at Law with your unique challenge. Call today and put his experience and knowledge to work on your behalf.