Non-compete agreements affect both employees and employers. If you are an employee, this clause aims to restrict your ability to work for a competitor. If you are an employer, you can use this clause to protect your business.
Do non-compete agreements hold up in California? Understanding state laws can help you find answers.
California’s strong stance on free trade
Under section 16600 in the California Business and Professions Code, any contract restraining a person from engaging in a lawful profession or business is void. This means that non-compete agreements are unenforceable in California.
The law publicly advocates open competition and employee mobility, promoting workers to pursue jobs that benefit them. It also prevents employers from stopping you from going to work for a rival, even if you sign an agreement outside of the state. Although employers cannot ban competition, they can enforce separate agreements to protect genuine trade secrets and proprietary information.
The narrow exceptions for business owners
While the general rule prohibits non-compete clauses, certain exceptions apply to business owners. If you are selling your business or dissolving a partnership, you can agree not to compete with the buyer or the remaining partners.
This exception applies because you are being compensated for the goodwill of the business, and the restriction is necessary to protect the value of that sale or transfer.
Seeking counsel before reacting to your case
Whether you are an employee or employer facing a threat of litigation, the biggest mistake is acting without information. Instead of reacting, choose a proactive approach by understanding your rights and responsibilities under California law.
The complexity of the matter requires legal assistance, especially when the stakes are high. Having available legal resources can help you prepare before responding to an employee or a former employer’s demands.