Also known as a non-compete agreement, a non-competition clause is a portion or term of an employment contract which prohibits an employee from interacting in a way that competes with the present employer. These types of agreements are generally illegal and unenforceable in the state of California, so it is important to consult with a non-compete lawyer to determine if your specific agreement is enforceable.
Non-compete agreements prevent employees or workers from providing services in a certain market or from giving businesses to certain clients. For instance, an employee of a company may agree not to work for a competitor company even after the employee quits or is terminated.
The main purposes of a non-competition clause are to:
- Protect the integrity of an organization or corporation, so companies do not put time and money into an employee only for the employee to take these skills to a competitor
- Make employees reluctant to quit, as they would be prohibited from working for a competitor company for a certain period of time
Typically, non-competition clauses will specify a time frame that the employee is prohibited from working for a competitor. Some clauses even specify a geographic area that employees are prohibited from working if the work competes with the company.
Often this means protection of a company’s interests or proprietary information. The clause will include terms involving protection of a company’s trade secrets, marketing plans, business practices, contacts, sales strategies or other important business information which the employer desires to keep confidential from competition.
The non-compete agreement lawyers at Shegerian & Associates help workers across California challenge or negotiate non-compete agreement clauses with their employers.
Why Non-Competition Clauses Are Generally Unenforceable
Generally, state law governs employment contracts and the enforceability of non-competition clauses. This enforceability varies from state to state, but most states will only enforce a non-competition clause when it is necessary to protect the employer.
With that said, most non-compete agreements are not enforceable under California Business and Professions Code 16600. By making these types of overly broad non-competition clauses legally void, the state of California aims to promote public policy of people by giving them the freedom and mobility to find work elsewhere without fear of legal repercussion from former employers.
While these types of clauses carry no legal weight in California, many employers will put them in employment contracts anyway, causing confusion among employees who may be unaware that there is no way for employers to enforce this specific clause. These workers may stay in their current positions or turn down other opportunities because they feel trapped.
Enforceable Types of Non-Competition Clauses in California
Some states do permit “reasonable” non-compete agreements in employment contracts, however, California employers are prohibited from using “choice-of-law provisions” to force employees to adhere to non-competition clauses in another state’s jurisdiction. This could be the case if, for instance, an employer tried to interpret the employment agreement according to another state’s law either because the employee worked there or the company was based there.
There are certain situations where non-compete agreements are permissible in California employment contracts. These include:
- Sale of a Business. Business and Professions Code 16601 specifies that, when a business owner sells their business, the buyer and the seller can lawfully agree that the seller will not compete with the business in the same geographic area.
- Partnerships. Business and Professions Code 16602 specifies that, whenever a business partner leaves the business, both parties can lawfully agree that the exiting partner will not continue business in the same geographic area.
- LLC’s. Business and Professions Code 16602.5 specifies that, whenever a member of a limited liability company (LLC) leaves the business, both parties can lawfully agree that the exiting partner will not continue business in the same geographic area.
Some states such as California do not allow non-competition clauses except in certain very specific circumstances. Legally allowed non-competition clauses have specific limitations to prevent public policy violations in California. They must:
- Limit the scope of the clause to a specific geographic area
- Set a specific time period to which the terms of the cause apply
For instance, an employee may be asked to refrain from working with all similar companies in the Pacific region of the United States for a period of 5 years.
Other states will allow non-competition agreements, but only if the scope is sufficiently narrow. For instance, in Virginia, the agreement must be reasonable in that it covers only what is necessary for legitimate business interests, is not unduly harsh or restrictive and does not offend public policy.
In Florida, where non-competition clauses and agreements are quite common, courts are more likely to uphold and enforce them. In Texas, non-competition agreements and clauses are allowed when reasonable and not unduly restrictive, but the state makes special exceptions for some workers and professions such as physicians.
Issues Arising from Non-Competition Clauses
One of the main issues that can arise with non-competition agreements is litigation against an employee accused of violating the terms. If a non-competition agreement is in place, non-compete lawyers can confirm that an employee is bound by its terms after leaving a particular job and must abide by them for the number years specified. Sometimes, this severely limits an employee’s alternatives. However, there are a few ways that non-competition clauses can be rendered invalid and thus non-enforceable.
A non-competition clause may be invalid if it is a part of an employment contract that has been breached by an employer. Additionally, since many states base the validity of non-competition clauses in relation to legitimate business interests, an employee may be able to show that the clause is invalid because it goes beyond the scope of necessity. Also, when a non-competition is too broad in scope it could be deemed a violation of public policy and thus unenforceable by a court of law.
When You Have a Non-Competition Clause Issue
When a non-competition clause issue arises, employees need competent legal counsel on board to handle the complexities of such cases. It is also wise to consult a non-compete attorney before signing employment contracts which contain such clauses. Some California employers may even threaten to sue their former employees who go on to compete against them, but workers should remember that judges will dismiss such cases, unless it is one of the exceptions listed.
For assistance with your non-competition clause issue, Shegerian & Associates is the best possible resource. Our team of experienced non-compete agreement attorneys in Los Angeles are standing by to deliver the skilled legal assistance you need for the successful resolution of your employment law dispute. Contact us today.
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In California, it’s illegal to enforce non-compete agreements that put limits on an employee’s future job prospects.
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In most states, a non-competition clause is not enforceable without the signature of the employee. However, the same document may be unenforceable when there is a change in the terms and the remuneration stated therein. Consult with a lawyer to help you.
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Yes. A non-competition clause may be terminated subject to the provisions of the agreement. Another way of terminating the non-competition clause is by proving that there exists a breach in the agreement.
For assistance with your non-competition clause issue, Shegerian & Associates is the best possible resource. Our team of experienced non-compete agreement attorneys in Los Angeles are standing by to deliver the skilled legal assistance you need for the successful resolution of your employment law dispute. Contact us today.
