Non-Compete Agreements in California: Why Most Are Void

The basic rule

Business and Professions Code §16600 provides that, except as the law itself allows, every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is void to that extent. The California Supreme Court has read this broadly, and the Legislature has confirmed that it applies to non-compete agreements in employment, no matter how narrowly they are worded.

In practice, this means that a clause preventing you from working for a competitor, or from starting a competing business after you leave, is generally unenforceable against a California employee. Clauses that bar you from soliciting your former employer's customers are often treated the same way, unless they are needed to protect trade secrets.

Recent changes in the law

Section 16600.5 makes non-competes void regardless of where and when the contract was signed, and provides that an employer shall not attempt to enforce one against a California employee. An employee or former employee can bring a private action for injunctive relief, damages and attorney's fees.

Section 16600.1 made it unlawful to include a non-compete clause in an employment contract or to require an employee to enter one. It also required employers to notify current and certain former employees that such clauses are void. If you received such a notice, keep it.

The exceptions

The law allows restrictions in narrow situations, mainly when someone sells the goodwill of a business or their ownership interest in it (§16601), or when partners dissolve a partnership or members leave a limited liability company (§§16602 and 16602.5). These are business sale situations, not ordinary employment.

• Sale of a business or of an ownership interest
• Dissolution of or withdrawal from a partnership or LLC

What still applies after you leave

Even without an enforceable non-compete, you are not free to take your former employer's trade secrets. California's Uniform Trade Secrets Act protects confidential information that derives value from not being generally known, such as customer lists that were developed with effort, pricing data or source code. Using such information at a new job can lead to a lawsuit.

Return company devices and files when you leave and do not forward company documents to a personal account. While you are still employed, you also owe your employer a duty of loyalty, so preparing to compete is different from actually competing before you resign.

If your former employer threatens you

If a former employer or its attorney sends you or your new employer a letter claiming that a non-compete applies, do not ignore it, but do not panic either. Have the agreement and the letter reviewed. Depending on the facts, the attorney may explain why the clause is void, address any trade secret concerns, or advise on a claim under §16600.5.