Are Non Compete Agreements Valid in California

Non-compete agreements, also known as “restrictive covenants,” are contracts between an employer and employee that limit the employee`s ability to work for a competing company or start a competing business for a certain period of time after leaving their current employer. These agreements are popular among employers who want to protect their trade secrets and confidential information, but they can also be a source of frustration for employees who feel trapped in their job or unable to pursue new career opportunities.

In California, non-compete agreements are generally not enforceable, unless they fall under a few very limited and specific exceptions. This is because California has a strong public policy in favor of employee mobility and competition, and the state`s legislature has enacted laws to protect employees` ability to work freely in their chosen profession or industry.

The main law that governs non-compete agreements in California is Business and Professions Code Section 16600, which states that “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.” This means that non-compete agreements are generally unenforceable in California, unless they fall under one of the few exceptions listed in the statute.

The main exceptions to the non-compete rule in California are:

– Sale of a business: Non-compete clauses may be enforceable in the context of selling a business, where the buyer needs to protect the goodwill and customer relationships of the business they are acquiring.

– Partnership or LLC agreements: Non-compete clauses may be enforceable in partnership or LLC agreements, where the agreement is necessary to protect the company`s interests or to dissolve the partnership or LLC.

– Trade secrets and inventions: Non-compete clauses may be enforceable to protect trade secrets or inventions, as long as the clause is narrowly tailored to protect specific confidential information and is not overly broad in preventing the employee from working in their chosen industry or profession.

However, even in these limited circumstances, non-compete clauses must still be reasonable in scope and duration, and must not be used to unfairly restrict an employee`s ability to work. Employers who attempt to enforce non-compete clauses outside of these exceptions may face legal challenges and penalties.

In conclusion, non-compete agreements are generally not valid in California, except in limited circumstances where they are necessary to protect a business`s legitimate interests. Employers and employees in California should be aware of the state`s strict laws on non-compete agreements and consult with legal counsel before including or signing such agreements.