California Non-Compete Laws for Employees

We receive many calls about non-compete agreements throughout California, primarily in Silicon Valley area. There is new law that greatly helps employees compete with former employers after they leave a company – voluntarily or involuntarily. California takes the position, by law, that they will not restrict anyone’s right to work in the chosen profession. Specifically, the California Professions and Business Code provides as follows:

CHAPTER 1. Contracts in Restraint of Trade [16600 – 16607]. “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.”

A lot of companies that are based outside of California do not understand that California is the only state that does not allow employers to have or enforce a non-compete clause in an employer/employee contract.

Our lawyers explain non-compete clauses and employee rights in a YouTube video which you can access.

What is a non-compete agreement?

A non-compete clause or contract states that they employee agrees not to compete:

  • Within a specific geographical radius (such as 100 miles) from where they’ve been working – or certain counties close to where they’ve been working
  • For a specific time period such as one year (or even up to five years) after you leave the company
  • Within the same industry as the one they were doing work for the employer.

Are there any exceptions to California’s prohibition against non-compete agreements?

Yes. California will allow an employer that buys or sells an entire business to restrict the right of the prior owner to compete with the new business venture. Essentially, the party to the contract (such as the seller) agrees not to compete as part of the “good will” value of the sale.

Employers can also require that current employees refrain from freelancing at any other job – especially with a competitor. Employers do have the right to expect employers will work to help their current employer prosper.

There are a few other exceptions that apply that experienced California employment lawyers can explain. For example, if you enter into a partnership agreement and the agreement precludes competition, then as a former partner, you may be bound by any non-compete provisions in the partnership agreement – when you leave the partnership to start a competing business.

A sample non-compete case

We helped someone who was informed by a Minnesota court that the non-compete agreement the employee signed was valid. The worker who was in California asked the California court to decide whether they would honor the non-compete agreement or void it. Companies often try to argue (often unsuccessfully) that a non-compete agreement doesn’t apply to them because the company is headquartered in a state other than California. Generally, this argument will fail if the company also does business in California.

To help protect employees form employers who try to state that disputes should be decided by forums or jurisdictions other than traditional California forums, the state passed California Labor Code § 925 (2017) which provides:

  • “(a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
    • Require the employee to adjudicate outside of California a claim arising in California.
    • Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.”

What damage claims apply in non-compete cases?

If an employer tries to enforce an illegal non-compete agreement, then a possible cause of action claim may exist against that employer for interfering with the employee’s right to earn a living.

Interference claims involve the following:

  • An expectancy of future employment. This is called interference in “prospective economic advantage.” This requires some illegal act in addition to the interference itself – such as fear raised by the employer of violating the non-compete agreement or a defamation claim by the employer.
  • Contract. An interference of contract means that you have entered into an employment contract with a new employer. The old employer interferes by demanding that the new employer not hire you. This type of interference generally involves a very high level of protection. It does not require that the employee show an illegal act – other than the interference itself.

Damages can include:

  • Any lost income the employee suffers due to the interference
  • Legal fees and costs
  • Possible punitive damage

[Not sure if any other damages apply].

Why do employers try to enforce non-compete agreements?

Employers may fear that you are going to bring trade secrets of the old employer to the new employer.

Employers may fear that you are going to direct old customers to the new employer.

If you are being threatened with non-compete enforcement action by your prior employer or if you are being asked to sign a non-compete agreement, please contact the California Law Offices of Stephen A. Danz and Associates.

Why employees need non-compete protections?

It can be tough to find new work in any economy, let alone one like technology where employees must continually update their skills. Employees shouldn’t be asked to relocate themselves and their families just to be able o work. New jobs help employees become better workers, become innovative, and to take jobs which are more stable. California is a large economy, as big as some countries. It’s not only fair to employees but also good for the state if workers can take new jobs when the opportunity arises.

Additionally, employers may have other protections. While employees should be able to shift jobs freely, employers may still be able to enforce intellectual property rights such as trade secrets..

At the California Law Offices of Stephen A. Danz and Associates, we have the experience and resources to help employees fight for the rights and benefits. Our offices work with local independent counsel in many of the major counties across the state. We’re ready to fight for your right to work in your chosen profession in your chosen job. To discuss your employee rights, call us at 877-789-9707 or fill out our online contact form to make an appointment. Se habla espanol.