Non-compete (noncompete) clauses are becoming more and more commonplace in all sorts of jobs today. Traditionally, noncompete clauses were expected in high technology jobs, sales positions, and corporations with valuable secrets; however, in recent years, noncompete clauses have began popping up in other types of jobs, including: event planners, chefs, investment managers, and even yoga instructors. With the proliferation of noncompete clauses, often a non-negotiable condition of employment, the New York Times even ran an article recently that highlights some of the unexpected jobs where noncompete clauses are popping up.

From the employers perspective, these restrictive covenants are seen as essential to protect their business secrets and make sure their high ranking employees from leaving to become competitors. Unfortunately, many employees often don’t think twice about agreeing to a noncompete clause because they either haven’t had any experience with them before, or don’t imagine a situation where it would be a concern. Also, in today’s job environment, many employees are simply happy to get a job and don’t want to rock the boat before the offer is finalized.

Whether a noncompete clause is enforceable is a matter of state law. Just because there is a noncompete clause in your employment contract doesn’t mean that you can sue or be sued for breach. While every state is different, California law strongly disfavors noncompete clauses. Courts disfavor these restrictive covenants and see them as an unfair restraint on competition. While the blanket rule in California is that a noncompete clause is not enforceable, there are a few expectations where courts have held that a noncompete clause will be enforceable. This is often true even if the company is not located in California, but merely hires a California resident.

Noncompete clauses are generally unenforceable in California

Below is a brief overview of the enforceability of noncompete clauses in California. If you have a question about a specific clause in your employment agreement, please contact me to discuss your options and whether it is enforceable under California (or Texas) law.

  • Noncompete clauses are generally invalid. As stated above, there is a blanket rule that noncompete clauses are unenforceable in California. California Business and Professions Code § 16600 provides that “ever contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This language is interpreted broadly, and California courts will typically invalidate any convenient not to compete. For further explanation you can also read the holding in Hill Medical Corp. v. Wycoff, 86 Cal.App.4th 895 (2001).
  • Noncompete clauses will not be rewritten/reinterpreted to make them enforceable. If any part of the noncompete clause is deemed unenforceable by the court, then the whole clause is unenforceable. Unlike other contractual provisions, the courts may rewrite the terms to conform with the law where the parties intent was clear to enter into that agreement. The court may, however, narrowly construe clauses to keep them within the bounds of an exception to § 16600.

Exceptions where noncompete clauses may be enforceable

There are a couple, narrowly construed exceptions to California’s blanket rule not to enforce noncompete clauses, which apply when the restriction arises from:

Keep in mind, however, that there are still some rules that apply even if the situation falls under one of the above listed exceptions. The first rule is that the noncompete clause must be limited in terms of geographic area in which the company has transacted business, which can be as large of an area as the entire United States. The next rule deals with the time or duration of the restriction, which can be “as long as the buyer, or any person deriving title to the goodwill or shares from him, carries on a like business therein.” In other words, the covenants may last for many years. Finally, the restriction must be reasonable in terms of the type of activity it limits.

An important note is that the holdings in California Federal Courts may differ, because they follow different precedents than California state courts. Generally, this means that noncompete clauses are more likely to be held enforceable in federal court than state court in California. There are also additional rules that may make your noncompete clause unenforceable, depending on the facts and circumstances of the agreement.

Alternatives to noncompete clauses in California

While the blanket rule is that noncompete clauses are unenforceable in California, there are some other ways that employers can protect their business interests. Some of the alternatives to noncompete clauses include:

  • Confidentiality agreements;
  • Covenant not to solicit customers;
  • Covenant not to solicit employees;
  • Covenant not to compete during employment;
  • Return of property covenant;
  • Choice of law provision; and
  • File first to better ensure a court outside California hears the case.

With a little creativity and planning, employers can still protect their business interests. A knowledgable Long Beach business attorney can help your business plan for the future and protect itself.

If you have a question about a noncompete clause or some other language in your employment contract (or other type of contract), please contact me today to discuss your matter. I actually enjoy interpreting contractual language, and look forward to helping you.