Will Your Non-Compete Agreement Be Enforced?
If you are an employee, and a potential employer asked you to sign a non-compete agreement as a condition of employment, the odds are good that you didn’t spend too much time dwelling on the potential future ramifications of signing the agreement. The same is likely true if you were required to sign a non-compete agreement before accepting a promotion within the company. Now, however, you may be contemplating a change in employment, prompting you to wonder whether the non-compete agreement can be enforced against you. To give you some idea of what position you are in, an Orange County business litigation attorney at Brown and Charbonneau explains how California handles the enforcement of non-compete agreements.
What Is a Non-Compete Agreement?
A non-compete agreement, also referred to as a “covenant not to compete” or a “restrictive covenant,” is a contract between an employee and an employer in which the employee agrees not to enter into competition with the employer during or after employment. It is easy to see why an employer might feel the need for a non-compete agreement under certain circumstances. From an employer’s perspective, the employer wants to prevent an employee from going to work for a competitor, or starting a competing business, and making use of trade secrets, customer lists, business practices, or other sensitive information obtained while employed by the employer. By way of illustration, imagine that you are hired at an up and coming Silicon Valley computer graphics company. While working for the company, you gain access to proprietary software and revolutionary computer code that has helped the company garner a substantial share of the consumer market in record time. As a department manager, you have also formed relationships with many of the company’s most lucrative clients. In the absence of an agreement preventing you from doing so, what is to stop you from handing in your resignation, taking your knowledge and contacts with you, and opening up a competing business? The simple answer is “nothing.” In an effort to provide some protection to employers, most states enforce, to varying degrees, non-compete agreements. As is often the case, California is the exception that general rule.
California Law and Non-Compete Agreements
The State of California has long been known for its progressive laws and legislation. It may come as no surprise then to learn that California stands apart from other states with regard to the enforcement of non-compete agreements. Except under very narrow circumstances, California does not enforce non-compete agreements. Non-compete agreements are governed by California Business and Professions Code Section 16600 which states, in pertinent part, 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.”
Despite the unenforceability of a non-compete agreement in California, companies still include them in their employment contracts and/or employ a variety of methods aimed at getting around the ban on these agreements. One popular tactic has historically been for an out of state employer to include a “choice of law” provision that purports to determine ahead of time what state’s laws will govern a dispute, should one arise. The idea is that this then leaves the question of enforceability of the non-compete agreement up to a court in another state that has more favorable laws. California courts have long frowned on the use of “choice of law” provisions to enforce a non-compete agreement. That view was recently codified in California Labor Code 925 which provides that an employer may not require an employee 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 nor that would deprive the employee of the protection afforded under California law. In other words, an employer can no longer enforce a non-compete agreement by forcing the employee to litigate the issue in another state.
Contact an Orange County Business Litigation Attorney
If you have specific questions or concerns about a non-compete agreement you signed in the State of California, it is in your best interest to consult with an experienced Orange County business litigation attorney as soon as possible. Contact the team at Brown & Charbonneau today by calling 714-406-4397 to schedule your appointment.
