Most Non-Competes Are Unenforceable in California
In an ideal employer-friendly world, business could require workers to sign agreements barring their competing with the company upon termination. California, however, bans most non-competes in the single, unequivocal sentence of Business and Professions Code 16600: “[With very limited exceptions], every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
While section 16600 generally renders non-competition agreements unenforceable, the exceptions are:
- Barring employees from misappropriating an employer’s trade secrets and other confidential information in a competing business (e.g., soliciting customers or patients from employer’s confidential list); and
- Requiring associates as a condition of part ownership in a professional practice to reasonably limited non-competition on their departure and sale back of that part interest. Business and Professions Code 16601.
Section 16600’s ban on employee non-competes has existed since 1941. Other states have been catching up, with different levels of prohibition.
Congress has unsuccessfully sought to create a national non-compete law through numerous bills introduced in recent years. Latest is the Workforce Mobility Act, pending in both houses.
Concurrently, Biden Administration’s July 9, 2021 executive order directs various federal agencies to implement multiple pro-competition initiatives.
Take-Aways: Know what is legally permitted before implementing employee non-competes. California permits trade secret non-disclosure and non-appropriation agreements but bars non-competes. Stay tuned regardless on the federal developments in this area.
See also:
- Workplace Coordination, Defined (July 22, 2021)
- Between a Rock and a Hard Place – When It’s Time to Call Your Lawyer (April 27, 2018)
- The Need for Written Employment Agreements – Well-Drafted Contracts Eliminate Uncertainty and Ambiguity (March 30, 2018)
For more information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin
Helena Kobrin
July 23, 2021