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What You Should Know About Non-Compete Agreements

A non-compete agreement has the potential to threaten future employment prospects, compromise your livelihood and prohibit you from making use of the skills you have harnessed. It is essential to keep yourself informed of your rights as an employee. Our Los Angeles team explains non-compete agreements, whether they are enforceable in California, and how to protect yourself if presented with one.

What Is a Non-Compete Agreement?

A non-compete agreement is defined as a legal agreement or clause in a contract specifying that an employee must not compete with an employer after the employment period is over.

Section 16600 of the California Business and Professions Code provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Non-compete-agreements are not enforceable in California against former employees. However, non-compete agreements can be enforced against;

  • Former members of a limited liability company
  • Former business partners
  • Parties to the sale of a business.

Commonly, non-compete agreements prohibit former employees from working for a competitor for a specified amount of period. It may additionally ban you from;

  • Starting a business in the same industry
  • Utilizing skills learned in the job
  • Revealing former employer's trade secrets
  • Discussing whistleblower actions witnessed

If you doubt whether a non-compete agreement is enforceable in your situation, seek legal counsel. An experienced employment lawyer will be able to assess your particular case and ensure your rights are protected.

California Trade Secret Exception

California is not friendly to non-compete agreements from an employer's point of view. However, California courts strictly enforce trade secret misappropriation. A trade secret is defined as "information, including a formula, pattern, compilation, program, device, method, technique, or process." The information protected by the trade secret clause include;

  • Customer list
  • Supplier list
  • Contracts, costs, and strategies
  • Marketing strategies and processes
  • Technical and Industry Specific Knowledge
  • Correspondence
  • Equipment and products

In California, for something to be considered a trade secret, it must meet the following two criteria:

  • The trade secret "derives independent economic value" and poses a risk to the business's financial well-being if information about it is exposed to competitors or the public.
  • The trade secret owner has made efforts to protect the information from the public.

Out-of-State Non-Compete Agreements

​​California allows businesses set up in other states to operate within its borders. In these cases, a business owner can draw up a non-compete agreement and specify the agreement was made in another state. A situation like this is known as a choice of law provision, which means the restrictions may be enforceable.

Though the contract contains a choice of law provision, it does not mean your employer has the right to enforce the non-compete agreement. For example, suppose an employee works in California for a company headquartered in Texas. In that case, the company may ask that the employee signs a non-compete agreement stating the "choice of law" is New York. In instances like this, California courts will review the rules pertaining to conflict of law.

Understanding Your Rights

If your employer approaches you with a non-compete agreement, it is highly recommended that you have an employment attorney review the document before signing.

It is unlawful for California employees to be terminated for refusing to sign a non-compete agreement. Being terminated for refusing to sign the agreement could be considered wrongful termination, which is grounds for a lawsuit.

How We Can Help

Employment law can be intimidating to handle by yourself. If you face legal action or have been wrongfully terminated due to an alleged violation of a non-compete agreement, we can help. Here at Law Office of Jeffrey D. Fulton our experienced legal team will help you settle the dispute and ensure you get the compensation you deserve.

To schedule a free consultation with our team, do not hesitate to contact us today through our website or give us a call at (916) 318-3388!

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