Are Non-Compete Agreements Enforceable In California?

Often, employment agreements contain some form of a covenant to prevent an employee from working for a competitor after he leaves his current employer. Such agreements generally contain the following type of language:

Employee will not render services, directly or indirectly, for a period of one year after separation of employment with a competitor of a former employer.

The enforceability of these types of agreements depends on the nature of the information that the employer is trying to protect. Unlike many other states, in California these types of non-compete or anti-solicitation agreements are generally void and not enforceable. This is true even if the non-compete agreement is narrowly tailored, i.e., limited in geographic location and time. This is because California Business and Professions Code §16600 states: "Except as provided in this Chapter, every contract by which anyone is restrained from engaging in lawful profession, trade, or business of any kind is to that extent void." However, the Business & Professions Code provides an exception to this general rule where the (a) non-compete agreement is in the context of dissolution of a partnership/limited liability company; or (b) the sale of the goodwill of a business.

As one court recently stated: "California courts have consistently declared section 16600 is an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice…[and]…the interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the employers, where neither the employee nor his new employer has committed any illegal act accompanying the employment change.” D'sa v. Playhut Inc. (2000) 85 Cal.App.4th 927. This means that even if an employee has agreed in writing not to compete, he has a right to work with competitors of the former employer and even transact business with customers of the former employer.

There is, however, a third exception to the above-referenced rule that arises in the context of protecting trade secrets. California courts have routinely held that a non-compete agreement is valid and enforceable if it is necessary to protect trade secrets of the former employer. It is also important to understand that even if an employee has not signed a non-compete agreement, he or she may still be enjoined from working for a competitor if the employee is disclosing or using the trade secrets of the former employer. Thus, a written and fully executed non-compete agreement is not necessary to prevent an employee from working for a competitor if the employee is using trade secrets of the former employer. But, in the context of protecting trade secrets, a non-compete agreement is enforceable and generally strengthens an employer's legal position in the event a lawsuit is filed.

In sum, the enforceability of non-compete agreements depends on the underlying interest sought to be protected. If the employer is able to establish that the information is a legitimate trade secret of the company, the court will likely grant an injunction preventing the former employee and his or her new employer from misappropriating the trade secrets.

If you are involved in a trade secrets misappropriation claim it is vital to have the experienced business litigation attorneys of Fisher & Talwar on your side. Attorneys at Fisher & Talwar are skilled in litigating misappropriation of trade secret claims. Contact Los Angeles trade secret attorneys at Fisher & Talwar at 213-891-0777 or vt@fishertalwar.com for immediate assistance.