Non-compete agreements which limit your future job possibilities are unenforceable in California. Business and Professions Code 16600 renders “null and void” any contractual provision that restricts you from “engaging in a lawful profession, trade, or business.”
Therefore, if you signed an employment contract with a non-compete agreement, you should still be able to lawfully work at a competing business without time- or geographic constraints.
Also called a non-competition agreement, a non-compete agreement is where an employee of a company agrees not to compete with that company if the employee ever quits or is terminated. Non-compete agreements are usually found in an employment contract.
Typically, non-compete provisions spell out a specific time frame (such as a year) during which the former employee is prohibited from working for a competitor. Some non-compete clauses specify a geographic area where the former employee may not compete against the company.
The purpose of non-compete agreements is to make employees think twice about quitting since – if they do – they would be prohibited from working in the same profession for a significant period of time. Without non-compete agreements, employers risk putting time and expense into training workers only to have the workers leave and bring their skills to a competitor.
California non-compete laws protect employee rights by voiding non-compete clauses.
No, non-compete agreements are usually unenforceable under California state law. By voiding non-compete agreements, California law promotes the public policy of people having the freedom and mobility to work where they want without fear of repercussion from their former employers. 1
Even though non-compete agreements may carry no legal weight in California, employers often put them in employment agreements anyway. And not realizing they are void, employees may feel trapped in their jobs or may give up on their chosen profession altogether.
Note that many states do permit “reasonable” non-compete agreements in employment contracts. Though California law forbids employers from using “choice-of-law provisions” to rope California employees into another state’s jurisdiction for non-compete purposes. 2
Also note that the FTC (Federal Trade Commission) has moved to prohibit non-compete agreements completely. If implemented, this measure could be enforced in 2024. Learn more.
Non-compete agreements are permissible in California in the context of 1) selling a business, 2) partnerships, and 3) LLCs.
When a business owner sells their business (or interest in the business), the seller and buyer can lawfully agree that the seller will not compete with the business in the same geographic area. 3
Since the person selling the business is in a position of power (unlike employees at a company), California law permits sellers to enter into non-compete agreements with their buyers.
Whenever a business partner leaves a partnership, the parties can lawfully agree that the exiting partner will not carry on a similar business in the same geographic area. 4
Since partners are on equal footing with each other (unlike employers and their workers), California law allows them to enter into non-compete agreements.
Whenever a member of a limited liability company (LLC) leaves the LLC, the parties can lawfully agree that the exiting member will not carry on a similar business in the same geographic area. 5
Note that sometimes LLC members are also employees of the LLC. Though California law will still enforce non-compete agreements so long as the terms are customized to the employee’s role as a member.
California employees who quit or are fired are not bound by non-compete agreements they signed.
California employers may threaten to sue former workers who go on to compete with them. Though their legal departments should already know that any judge will dismiss their case (unless one of the exceptions discussed above applies).
People who have been sued for violating a non-compete agreement should consult an attorney about filing a motion to dismiss the case right away.
Non-solicitation agreements prohibit a company’s former employees from then hiring (“poaching“) the company’s current employees. Plus like non-competition agreements, non-solicitation agreements are usually unenforceable under California law. 6
(Note that California courts usually enforce non-disclosure agreements prohibiting former employees from revealing trade secrets, intellectual property, and other confidential information as long as the agreements are not overbroad.)
