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Non-Compete Agreements in California 2021

Employers in California may require new hires to enter into a non-compete agreement , an employment contract that prevents you from competing with the hiring company for a specified period. Not all types of employment require workers to sign non-competition agreements . Primarily, they are reserved for employees who learn secret information or specializations that give their employers a competitive advantage in the market.

However, many court systems routinely disapprove of non-compete agreements since it may place an undue limitation on a former employee’s ability and right to earn a living wage. As such, they are highly scrutinized by courts and unlawful in some locations, including California.

If you are asked to sign a non-compete in California, speak with California employment lawyers as soon as possible. A legal professional can provide sound advice while helping you navigate civil redress if an employer violates your rights. Avoid making legal mistakes since doing so can potentially result in future problems that limit your potential or cause you to incur civil damages against your former employer.

What is a Non-Compete Agreement?

A non-compete agreement (NCA), also known as a non-competition agreement, falls under types of employment contracts that are legally binding and require an employee to agree to not work for the competition or in a specified trade for a specific time after submitting a resignation or receiving a termination. NCAs keep valuable employees with trade secrets, such as intellectual property (IP), from exploiting internal company information in the event that you begin working for a competitor or decide to start your own business.

The majority of non-compete agreements contain the following pieces of information:

  • Names and address of the parties involved
  • Agreement’s effective date
  • Purpose of the agreement
  • Geographic areas affected by the agreement
  • Compensation provided and terms
  • Dated signatures of both agreeing parties
  • Exhibits and attachments for detailed information

For a non-compete agreement to be legally valid, it must offer compensation at the time it is signed, is used to protect legitimate employer interests, and is reasonable in scope and breadth of geographic limitations. Also, the laws that govern the contract must recognize the enforceability of such agreements.

How Does a Non-Compete Agreement Work?

While non-compete agreements seem reasonable, you must also consider how they control your actions after you have quit your job. Not only does this limitation clash with free enterprise and the right to earn a living, but it also affects whether you can start a company, work for a competitor, or hire former colleagues. For this reason, most states, including California, do not recognize them as valid employment contracts .

The Agreement Must Be Reasonable

If you live in a U.S. state that recognizes non-competition agreements, the particulars of the contract may violate local, state, and federal laws. Keep in mind that a non-compete agreement limits your future endeavors, which is why the states that allow them to require them to be reasonable in that they do not create an undue or unnecessary burden on your life after you leave your position.

Examples of reasonableness include:

  • Only prohibiting you from competing for the shortest period possible
  • Not casting too wide of a net on the competitive market
  • Defining specific elements that reasonably define competition
  • Extending contracts to specialized workers versus lower-level employees

If you are currently engaged in a non-compete agreement that is legally unenforceable, you can get out of the employment contract on this basis alone. Ensure that you speak with an attorney to determine the best way to navigate this situation legally.

Non-Competition Agreements Are Contracts

At their core, non-compete agreements are contracts that include your acknowledgment of giving up a certain amount of control that you would usually have otherwise. For your compromise, you must be given something in exchange, typically in the form of employee wages.

Is a Non-Compete Enforceable in California?

A non-compete is not enforceable in the State of California. Under California Business and Professions Codes, the law prohibits an employer from restraining anyone who is engaged in legal practice or trade. Any existing non-compete agreements in California are considered null and void by courts.

If an employer demands that employees sign non-competes as a condition of employment, each violation’s penalties are steep. For each offense, the employer is subject to a $100 fine per employee per pay period. While this may not appear to be like a lot of money, consider an example first.

Imagine that an employer has 50 employees that are under a non-compete agreement in California that has lasted for 24 weeks. In this example, the employer would be fined $120,000. This amount of money is enough to make employers think twice about remaining compliant with the law.

Aggrieved employees can also seek civil compensation if the unenforceable agreement affected their livelihoods. If an employee receives a favorable verdict, he or she can recover all reasonable attorneys’ fees and court costs and 25 percent of the imposed penalty.

California’s Ban on Non-Compete Agreements

California’s ban on non-compete agreements are clear in that an employer may not prohibit you from actively engaging in competitive activities upon the termination of your employment. While the employer can ask you not to disclose trade secrets and internal company information, it cannot make you agree to not work for a specific organization, industry, or location.

While some states do allow restrictions on non-competes, it is also worth noting that California has the most stringent laws and penalties in the country. California enforces strong public policies against employment contracts that restrict employee rights, including non-compete and independent contractor agreements.

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Exceptions To Consider

As with most rules, there are exceptions. While California prohibits the enforceability of non-competition provisions in employment contracts , it does permit them for a minimal number of circumstances where a person owns a partial interest in the business.

California employers can sidestep non-competes in the following instances:

  • EXCEPTION 1: If the employee sells business goodwill
  • EXCEPTION 2: If the owner sells his or her business interests
  • EXCEPTION 3: If the owner sells all operating and goodwill assets

Upon the business’ dissolution, a member of the company may agree to a non-compete if operating a similar business in the geographic area. Goodwill is the company’s name and brand reputation. Employees with stock options are not considered company owners for purposes of non-competition agreements.

Non-Solicitation Agreements and California Law

In lieu of non-compete agreements, California employers may attempt to use non-solicitation clauses in employment contracts. These provisions limit what employees can do between one and two years after leaving the organization.

A non-solicitation agreement prohibits a former employee from soliciting an employer’s customers and employees upon resignation. Like non-competition agreements, California Business and Professional Codes also prohibit non-solicitation agreements.

If you are engaged in a non-compete or non-solicitation agreement in California, it is vital to know that the contract could be still enforceable so as long as it is tailored reasonably for the situation and does not infringe upon employee rights. However, specific elements can make them unenforceable, which means that it is critical to get legal help from an employment attorney with experience in this area.

Mistakes in employment contacts will lead to problems in the future. Speak with California employment lawyers for personalized legal guidance. If you need to draft non-competition or non-compete agreements that are valid in California, sign-up for ContractsCounsel today and post your project for free.

ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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