In work with creative businesses, I have witnessed the California non-compete trap many times. Here is what I am talking about: you work for a California company and that company has you sign an employment agreement that contains a non-compete clause. A few years later, you want to start your own company doing the same type of work that you were doing as an employee. Not long after, a letter from a lawyer arrives telling you that you are violation the non-compete provision of your employment agreement. So what gives?
What Is The California Non-Compete Trap?
Image by Vlastimil Koutecký.
The California non-compete trap arises because California law finds non-compete provisions to be unenforceable (with certain exceptions). The California Business and Professions Code §16600 states: 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.
That means that not only will California courts not enforce a non-compete agreement (since they tend to restrain someone from engaging in a profession), but they may also find the entire contract to be void. That’s why I call it a trap – employers that include these clauses are setting a trap for themselves, not for the employee.
If you watched HBO’s “Silicon Valley”, you saw exactly how this played out at the end of Season 2. The writers of the show got the law pretty much correct.
The idea behind the prohibition on California non-compete provisions is to ensure that employees are mobile, which foster greater competition and makes the state a lure for top talent.
How Do You Avoid The California Non-Compete Trap?
As an employee, the trap tends to work in your favor. You might want to review employment agreements that you have already signed to see if they contain these types of non-compete clauses. Unscrupulous (or legally-deficient) employers sometimes use these provisions to bully their former employees.
As an employer, you want to exercise caution when including non-compete provisions in your California employment agreements. Note that there are situations in which you can include these provisions, but make sure you speak with your attorney to see if they apply.
If you are an employer concerned with former employees using trade secrets from your business at their new job. Here, you will want to think about how to protect things such as customer lists and other valuable intellectual property. As always, this is something that requires some thought and expertise, so make sure to speak with your attorney about the specifics.
