Non-compete agreements in California are usually void in employment contracts. State law strongly protects a worker’s ability to move jobs, start a business, and work in a lawful profession, trade, or business.
This does not mean every employment restriction is invalid. Employers may still protect trade secrets, confidential information, and certain business interests through lawful agreements. However, a clause that stops an employee from working for a competitor after leaving a job usually creates serious legal concerns.
Are Non-Compete Agreements Enforceable in California?
In most employment situations, no. California Business and Professions Code Section 16600 states that every contract restraining a person from engaging in a lawful profession, trade, or business is void, except as provided by law.
California also makes it unlawful for an employer to include a non-compete clause in an employment contract or require an employee to sign a non-compete agreement unless a statutory exception applies. This rule appears in Business and Professions Code Section 16600.1.
In practical terms, an employer usually cannot stop a California employee from taking a new job with a competitor after employment ends. A company also cannot usually make continued employment depend on signing an unlawful non-compete.
California Employer Notice Duties
California added notice duties for certain old non-compete agreements. Under Section 16600.1, employers had to notify current employees and certain former employees employed after January 1, 2022, if they had a non-compete clause or agreement that did not satisfy a legal exception.
The notice had to explain that the non-compete clause or agreement is void. The law required individualized written notice to the employee’s last known mailing address and email address.
Although the February 14, 2024 notice deadline has passed, old non-compete language may still create problems. A worker may still see restrictive language in an offer letter, equity agreement, severance agreement, confidentiality agreement, or employee handbook.
Exceptions to California’s Non-Compete Ban
California allows narrow exceptions. These exceptions usually involve ownership interests, not ordinary employee mobility.
For example, Business and Professions Code Section 16601 allows certain non-compete restrictions when a person sells the goodwill of a business, sells an ownership interest, or disposes of all ownership interest in a business entity. The restriction must fit the statute and often must relate to a specified geographic area.
Other exceptions may involve partnership or LLC ownership interests. Because these exceptions are narrow, an employer should not assume that giving an employee a title, bonus, or small equity interest automatically makes a non-compete enforceable.
Non-Competes, Confidentiality, and Trade Secrets
California’s non-compete ban does not give employees permission to take trade secrets. Employers may still use lawful confidentiality agreements, invention assignment agreements, and trade secret protections.
A valid confidentiality agreement can protect sensitive business information. However, the agreement should not function like a hidden non-compete. For example, a clause that broadly prevents an employee from using general skills, industry knowledge, or ordinary experience may create problems.
Trade secret disputes often involve customer lists, source code, pricing data, strategy documents, product plans, formulas, or other information that derives value from secrecy. The key issue is whether the information truly qualifies as protected confidential information or a trade secret.
Out-of-State Non-Competes and California Workers
Some employers try to use another state’s law or require workers to litigate outside California. California law limits those strategies in many employment relationships.
Labor Code Section 925 restricts employers from requiring employees who primarily reside and work in California to agree, as a condition of employment, to adjudicate claims outside California or give up California law protections for claims arising in California. The statute applies to contracts entered into, modified, or extended on or after January 1, 2017.
This issue can matter for remote workers, national companies, executives, sales employees, and employees asked to sign agreements governed by another state’s law.
What If an Employer Threatens Enforcement?
An employer may still threaten to enforce a non-compete even when California law makes the clause void. A threat can affect a worker’s job search, new employment, references, severance, equity, or professional reputation.
Helpful evidence may include:
- Employment agreement
- Offer letter
- Non-compete clause
- Confidentiality agreement
- Severance agreement
- Equity or stock documents
- Employer emails
- Cease-and-desist letters
- New job communications
- Employee handbook
- Trade secret policies
A worker should avoid taking confidential files, client databases, or proprietary documents when leaving a job. Even if the non-compete is void, trade secret or confidentiality claims may still create risk.
FAQs About Non-Compete Agreements in California
Are non-compete agreements legal in California?
Most employee non-compete agreements are void in California unless a narrow statutory exception applies. California law generally protects a worker’s right to engage in a lawful profession, trade, or business.
Can an employer require a California employee to sign a non-compete?
Usually, no. Business and Professions Code Section 16600.1 makes it unlawful to include or require a non-compete in an employment contract unless an exception applies.
Can a confidentiality agreement still be valid?
Yes. Employers may still protect trade secrets and confidential information. However, a confidentiality agreement should not operate as an unlawful non-compete.
Can a non-compete apply after selling a business?
Sometimes. California allows certain non-compete restrictions tied to the sale of a business, goodwill, or ownership interest when the statutory requirements apply.
Legal Help With a Non-Compete Agreement
A non-compete agreement can affect job changes, severance negotiations, business plans, equity rights, trade secret disputes, and employer threats. A strong next step often depends on the agreement language, work location, employer conduct, ownership interests, and whether any statutory exception applies.
Her Lawyer, A Professional Law Corporation, assists with California employment matters involving non-compete agreements, restrictive covenants, confidentiality disputes, severance agreements, and workplace rights. Contact Her Lawyer to request a confidential consultation and discuss possible next steps.