While common in most other states, non-compete and non-solicitation agreements are generally illegal in California. Despite this, out-of-state employers, and even California employers, sometimes insist that their California employees sign an employment contract that contains a non-compete or non-solicitation provision. They may even refuse to hire a new employee, or fire an existing employee, when the employee refuses to sign the agreement. The employment attorneys at Minnis & Smallets help California employees understand their rights if they are asked to sign (or have signed) a non-compete agreement or a contract with a non-solicitation provision.
In many states, employers may condition employment upon the employee’s willingness to agree that, after employment ends, the employee will not compete against the employer. “Compete” is usually defined as doing the same kind of work for a competitor that the employee did for the employer.
A non-solicitation provision in an employment contract seeks to prohibit an employee from taking on the former employer’s clients or customers after the employee is no longer employed by that business. For example, a non-solicitation agreement would seek to prohibit a salesperson from soliciting the employer’s customers or clients. In states that permit them, a non-solicitation agreement is often combined with a non-compete agreement.
California law generally prohibits employers from requiring their employees to enter into non-compete agreements. The same rule generally holds for non-solicitation agreements that seek to prevent the employee from soliciting the employer’s customers.
California is one of only a few states in which non-compete agreements are considered to be against public policy. California Business and Professions Code section 16600 provides that “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The exceptions to this rule are very limited, and deal mainly with the sale of a business or dissolution of a partnership.
However, California does make it unlawful for employees to misappropriate trade secrets from a former employer or to use confidential information or trade secrets to solicit customers of the former employer. In other words, a California business cannot prohibit a former employee from working for a competitor, but it can legally require the former employee to maintain confidentiality of the employer’s trade secrets and confidential information, even while working for another company.
Employees should be aware that some employers headquartered outside of California have tried to enforce non-compete and non-solicitation agreements against California-based employees through contract terms that require disputes to be decided in a state other than California, using that state’s laws. Those contract provisions are referred to as choice of law and forum selection clauses.
California law, however, generally prohibits an employer from requiring an employee who primarily resides and works in California to agree to waive the protections of California law or adjudicate a claim outside of California. Any employee who is asked to sign a non-compete agreement should obtain legal advice, particularly if the employee’s employer is not based in California.
It is generally unlawful for an employer to fire an employee or to refuse to hire an employee for refusing to sign an unenforceable non-compete agreement. The employee should seek legal advice to determine whether the employee has a claim for wrongful termination in violation of public policy if the employment relationship was terminated after the employee refused to sign what he or she believed to be an invalid non-compete agreement.
While many employers are aware that non-compete provisions are unenforceable in California, there are still employers who require their employees to sign them. Employees should understand their legal rights before they sign a contract with non-compete or non-solicitation provisions. While California law generally prohibits such agreements, non-compete and non-solicitation agreements can raise complicated legal questions.
The employment lawyers at Minnis & Smallets have advised many executives, salespersons, professionals, and employees regarding non-compete and non-solicitation agreements. Before you sign or refuse to sign a contract containing a non-competition or non-solicitation provision, please call us at 1-415-551-0885 or submit our online contact form.