California Noncompete Agreement: What's Included and Enforceability

Is a Non-Compete Agreement Enforceable in California?

No. California is one of the three states in the United States that prohibits the enforcement of non-compete agreements. California statutes explicitly state that any contract that restrains a anyone from engaging in a lawful profession, trade, or business is void.

The purpose of a non-compete agreement is to prevent a worker from engaging in a similar business after leaving a company. Non-compete agreements are meant to protect an employer’s business interest, but these restrictive contracts can often place an unfair burden on employees who are looking for work. For this reason, many states place restrictions on these contracts, or like California, ban them all together.

Can My Employer Stop Me from Going to Work for a Competitor in California

No. An employer cannot stop an employee for going to work for a competitor in California. California statutes protect employees by prohibiting any kind of contract that would restrict an employee from working in their chosen industry.

It should be noted however, that even though California prohibits non-compete agreements, confidentiality agreements are enforceable. This means that if an employee signs an enforceable confidentiality agreement, then leaves the company to work for a competitor, they will still be bound by the confidentiality agreement.

Confidentiality agreements often protect a company’s trade secrets, customer lists, documents, and proprietary information. The employee will be prohibited from sharing any of this information at their new job.

Can a Non-Compete Agreement be Used for the Sale of a Business in California?

There are only two circumstances in which a non-compete agreement may be used in the state of California:

1. Selling a business. When a business owner sells the goodwill of a business, a non-compete agreement can be used to prevent the seller from carrying on a similar business. State laws specify that the non-compete is for the goodwill of a business so the contract needs to use the term “goodwill” to be enforceable.
2. Dissolution of a partnership. When partners dissolve a business, the parties can agree to sign a non-compete agreement that prohibit each other from opening a new, similar business in the same area.

To be enforceable in these two circumstances, the non-compete agreement must include a specified duration and a specified geographic location. The contract needs to be reasonable in scope and cannot be too broad.

Unlike other states, California does not permit blue penciling. Courts cannot edit contracts to make an unenforceable contract enforceable.

How Long Does a Non-Compete for the Sale of a Business Last in California?

The maximum term that courts have ruled reasonable for a non-compete agreement for the sale of a business in California is five years. Non-competes can be longer or shorter than five years, but if a court determines that the duration is in anyway unreasonable, the contract may be deemed invalid and unenforceable.

Why Does California Not Allow Non-Compete Agreements?

California dos not allow non-compete agreements because the state recognizes the importance of allowing workers to pursue a career that allows them to earn a living and provide for themselves. Non-compete agreements can be overly restrictive and impose an undue burden on employees who are seeking new employment.

When an employee works in a specific industry, they gain knowledge, skill, and experience in that industry. An employee could spend years learning their trade and non-compete could potentially limit their ability to find a job that fits their skillset.

Furthermore, non-compete agreements often discourage workers from seeking new opportunities that could provide better pay, flexibility, or working conditions. If an employee fears legal repercussions, they might believe that their only option is to continue to work for their current company.