Articles

Non-Compete Agreements are Generally Prohibited in California, But May Be Enforceable Under Limited Exceptions

A non-compete agreement is a legal agreement or clause in an employment contract that precludes employees or contractors from entering into competition with their previous employer after the employment period is over. This type of agreement also prohibits employees from revealing any information or trade secrets involving the company to outside parties.

A non-compete agreement is generally not enforceable in the California. An employer may not prohibit a former employee from actively engaging in competitive activities upon the termination of their employment. An employer may also be subject to fines and penalties if it demands that employees sign non-compete agreements as a condition of employment.

While California generally prohibits the enforceability of non-competition provisions in employment contracts, it does permit them for a limited number of circumstances. For example, with the sale of a business, the seller of the business may be bound by a contract prohibiting the seller from opening a competing business in the same geographic area as the business being sold. Likewise, if a shareholder in a limited liability company decides to sell or dispose all their shares, or if a partnership is being dissolved, a non-compete agreement may be enforced.

Non-compete agreements may also be enforceable for the protection of business trade secrets if the trade secret is found to derive independent economic value and poses a risk to the business if it is exposed to competitors or to the public. In such a scenario, the trade secret owner must show that efforts were taken to keep the information private from the public.

In lieu of non-compete agreements, California employers may instead attempt to use non-solicitation clauses in employment contracts. A non-solicitation agreement prohibits a former employee from soliciting an employer’s customers and employees after termination or resignation. Like non-compete agreements, non-solicitation agreements are generally prohibited in California, but may be enforceable if they are narrowly tailored and do not infringe upon employee rights.

Any errors in an employment agreement can be costly for the employer. California employers considering the use of non-compete or non-solicitation agreements are encouraged to seek the advice of professional legal counsel before doing so.

  • Extensive Business Knowledge
    Regardless of the complexity of your case, you can trust that your legal matters will be in competent hands when you turn to Poole Shaffery.
  • Proven Track Record
    Our team of accomplished business attorneys has consistently delivered positive outcomes for our clients, resolving complex business matters with skill and expertise.
  • Experience and Reputation
    Poole Shaffery boasts a team of Santa Clarita business attorneys with strong reputations among judges and fellow lawyers, including AV Preeminent® rated professionals and Super Lawyers® honorees.

Contact Our Firm

We’re Here to Listen
  • Please enter your first name.
  • Please enter your last name.
  • Please enter your phone number.
    This isn't a valid phone number.
  • Please enter your email address.
    This isn't a valid email address.
  • Please make a selection.
  • Please enter a message.
  • By submitting, you agree to be contacted about your request & other information using automated technology. Message frequency varies. Msg & data rates may apply. Text STOP to cancel. Acceptable Use Policy