Important Tip Any non-compete agreement must be appropriately limited in both geographic scope as well as duration.Subtitle:
Non-competition agreements are prohibited in California except in limited circumstances
Unlike many states, California law prohibits covenants not to compete except in very limited circumstances. California Business and Professions Code section 16600 provides that, with certain limited exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
As such, California employers must be cognizant of the fact that termination of an employee who refuses to sign an employment agreement containing an illegal covenant not to compete constitutes wrongful termination in violation of public policy.
The state recognizes an exception to this general rule where non-compete agreements are entered into in connection with the sale of the goodwill of a business or the shares or assets of a corporation. This exception can be found in Business and Professions Code section 16601. This sensible exception is based on the fact that a company’s value would be worth considerably less if a buyer couldn’t be assured that the seller wouldn’t simply open up a new shop right next store to the one he sold. For similar reasons, partnership agreements may include noncompetition clauses as part of the dissolution process. Of course, covenants not to compete must also be reasonable in geographic and temporal scope, which may depend on the particular facts and circumstances surrounding a given non-compete agreement.
In contrast to non-compete agreements, California courts have generally upheld as valid and enforceable “noninterference clauses” requiring a former employee to compete fairly and lawfully. For example, such clauses may prohibit misappropriation and misuse of company trade secrets, confidential customer lists, and direct solicitation of employees and customers.
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