Non-compete agreements are a type of contract that prevents an employee from competing with their employer in a similar line of work. They will usually also prevent workers from starting their own competing business. According to the U.S. Government Accountability Office, “Two recent nationally representative studies GAO reviewed estimated that 18 percent of workers were subject to noncompete agreements (NCAs), and one of the studies estimated that 38 percent of workers had been subject to an NCA at some time in their careers.” These agreements are often exploitative and generally prohibited in California. This post will help you understand when these agreements may be enforceable within the state.
When Non-Compete Agreements Are Not Enforceable in California
In most situations, non-compete agreements are considered void within the state of California. Consider, for example, some of the following statutes.
- California Business and Professions Code § 16600: According to the statute, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
- California Labor Code §432.5: No employer shall require an employee to agree in writing to any term or condition that is prohibited by law. This will include non-compete agreements.
- California Senate Bill No. 699: This Senate bill strengthens California’s ban on non-compete agreements. The bill effectively states that employers are not able to enforce a non-compete agreement, even if it was signed in another state by an employee who is now performing their work duties within the state of California.
- California Assembly Bill No. 1076: This bill requires that employers inform their workers that any non-compete agreements that they may have signed are unenforceable.
Non-compete agreements for workers within the state of California should be examined with great skepticism.
When Non-Compete Agreements May Be Enforceable in California
Despite the general prohibition against non-compete agreements within the state, there are certain situations where these contracts may be enforceable. Consider, for example, California Business and Professions Code §§ 16601–16602.5.
- California Business and Professions Code § 16601: When a person sells a business in the state of California, they can be restricted from competing against that business within a specified geographic area.
- California Business and Professions Code § 16602: When a partnership is dissolved within the state of California, former partners may be able to form an agreement not to compete within a certain geographic area.
- California Business and Professions Code § 16602.5: When a limited liability company dissolves in California, members may be able to form a non-compete agreement within a certain geographic area.
As you can see from the examples listed above, most non-compete agreements that are enforceable within the state of California apply to businesses. They typically won’t apply to the relationships between employers and their employees.
Getting Legal Help With Employment Contracts
Despite the fact that non-compete agreements are typically unenforceable in California, employers may still try to use extrajudicial measures to enforce them. This could include threatening employees who leave for competitors or form their own competing business. If you have any questions related to a non-compete agreement you may have signed, our team of employment lawyers at The Labor Champ is here for you. You can reach out to us anytime for a risk-free consultation by calling 949-727-9300.
