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Non-Compete Agreements

We are often asked about using non-compete agreements. What many California employers don't realize - non-competes are illegal in California. The California courts have used Business and Professions Code Section 16600 to prohibit non-compete agreements. Section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is void.”

In November 2001, a California Court of Appeal upheld a $1.26 million award for an account manager terminated because she refused to sign a non-compete agreement. In Walia v. Aetna Inc., the court said the termination constituted wrongful discharge in violation of public policy, making damages available to the fired employee.

While non-compete agreements are not valid in California, this does not mean employers are without protection. The best approach is to be proactive, and examine what the employer can do to keep the employee from leaving in the first place.

However, employers also should know that:

• Agreements not to reveal trade secrets are fully enforceable in California.
• Employers may make bonuses conditioned upon retention of employment for a specified period of time, or require repayment of certain expenses if employees accept other employment within a certain timeframe.
• Employers should review all employment agreements, handbooks and policies and remove any non-compete provisions.
• Employers should not include non-compete language in offers of employment.
• Employers can and should uniformly enforce policies related to disclosure of trade secrets.

If you have any questions about this topic, or any other HR related topic, please feel free to call upon us.