California noncompete agreements are basically void. California’s legislature routinely passes its own version of federal laws, often with crucial differences that can trip up multistate employers. Noncompete agreements are one such topic. While most states do not give employees protection (or only do so by limiting the scope of these agreements), they’re generally not allowed in California. In a CER webinar titled "Employers' 2012 California Compliance Update: Breaks, Harassment Training, and More," Margaret Grover and Kristianne Seargeant explained why and gave employers some tips on how to protect their intellectual property in other ways.
"Under California Business and Professions Code Section 16600, every contract that restrains anyone from engaging in a lawful profession, trade, or business, is void to the extent that it restrains. What that basically says is, any time that you write a noncompete agreement you’re writing an invalid agreement – a void agreement – in California." Grover explained.
Other states have only limited protections, such as limiting the time frame or the geographic area that a noncompete agreement can cover. In these cases, sometimes courts will cut down an over-broad noncompete agreement to make it more appropriate (called blue penciling). Even this, however, is not allowed in California. The agreement is simply void.
Grover went on to explain the exception: "The only time, really, that you can write a noncompete is when you are purchasing an existing business. Why is that? Well, if you are an accounting firm [for example] and you want to buy-out the accounts of someone who says they’re going to retire or they’re going to take a break from accounting, you don’t want them hanging out their own shingle next month and trying to get those same customers and clients back." Even that, however, only goes so far.
What is a California employer to do when noncompete agreements are basically void? How do you protect yourself?
"What you can do is protect confidential data, trade secrets, and inventions," Grover explained. What constitutes confidential information or trade secrets depends on your specific circumstances. Here are some tips:
To register for a future webinar, visit CER webinars.
Attorney Margaret J. Grover practices employment law in the California-based law firm of Kronick Moskovitz Tiedemann & Girard. Her areas of emphasis include personnel policies and procedures, human resources and employment consulting, workplace training and investigations, employment litigation, and alternative dispute resolution.
Attorney Kristianne T. Seargeant is an associate at Kronick Moskovitz Tiedemann & Girard. Practicing in the firm’s labor and employment law department, she represents both private and public sector clients with such matters as employment litigation, collective bargaining, arbitrations, administrative agency appeals, in-house training, and general advice and counsel.