Are Non-Competes Enforceable in California?

A non-compete is a type of legal agreement that forbids an employee from entering into competition with an employer. Non-competes exist to protect company secrets and promote employee goodwill within a company. Non-competes are enforceable in most courts as long as they are reasonable in scope and serve to protect the employer’s business interests. A new ban on non-competes in California, however, means employees may have the power to void them. Here’s what you need to know.

Problems with Non-Compete Agreements

Non-compete agreements have always been controversial. The very nature of a non-compete is restrictive, preventing the employee from certain actions if the employee wants to keep his/her job and avoid legal trouble. They are also notoriously difficult to uphold in court, due to the requirement that the employer must show the employee caused damages as a result of breaching the terms of a non-compete to win the case.

The courts generally don’t agree with non-compete agreements that infringe upon a prior employee’s right to earn income. For example, if an employee signs a non-compete with Nike and then loses his or her job, that employee might be out of employment options since he/she agreed not to work for competitors such as Adidas or Puma. Therefore, the legal system has always carefully scrutinized non-compete agreement issues that come up in court.

In contract law, an employer would have to prove that a non-compete agreement protects a legitimate business interest, is reasonable in “scope, geography, and time,” and that both parties have “valid consideration” involved in the signing of the contract. In other words, that the employee received something in exchange for his/her promise not to work for the competition. In most cases, an employee gets the ability to work for the company in return for his/her promise not to compete.

California Non-Compete Law as of January 1, 2017

One lawyer in California finally fought for a remedy to controlling non-compete agreement terms and litigations and won. That remedy became law in California starting January 1, 2017. It limits the power of the non-compete to prevent it from becoming a tool for employee abuse. As of this day, any non-compete agreements entered into or modified in the state of California must operate under the following rules:

• Employees can void non-competes that require a court outside of California to decide disputes.
• Employees can void contracts with illegal non-compete terms. This was already a rule, but employees now enjoy further protections.
• Only California courts can rule on non-compete issues within the state. The courts will only use California law when deciding these cases.
• Employees can receive compensation for attorney’s fees if they have to go to court to stand up for their rights during non-compete disputes. Employers cannot seek attorney’s fees, even if the employer wins the case.

This law applies to non-compete disputes both in courtrooms and via arbitration. Independent contractors fall outside the parameters of the non-compete law, and therefore the law does not apply to them. The law also will not apply to non-compete agreements employers created before 2017. If the new law does apply to your non-compete agreement, note your new rights and obligations depending on whether you’re an employer or employee.

Get Legal Help with Your Non-Compete Agreement in California

The California courts will no longer enforce non-compete agreements. Employers in the state cannot make signing a non-compete a required term of employment (unless employees are independent contractors) in California. If you need help with a non-compete agreement as an employer or employee, discuss your case with an employment attorney. A lawyer’s help can ensure you do everything according to the most up-to-date versions of the law, as well as protect your professional rights. If you run a business, ways do exist to protect your company without non-compete agreements.