What should an employer do if they want to make sure their employees don’t steal their customers from them after they leave? The obvious answer is to have the employee sign a contract not to compete, also known as a non-compete agreement. But that raises another question — are non-compete agreements enforceable?
It’s an important question for any business owner who might be concerned about employees or business partners capitalizing on the specialized knowledge and experience they gained at their company, and then going out on their own and stealing business. However, California law has adopted a general policy against contracts which restrict people from engaging in their “lawful profession, trade, or business of any kind.” This policy puts a serious damper on non-compete agreements in California, except when they fall under an established exception to this rule.
Some companies try to get around California law by using choice-of-law provisions in their contracts, in an attempt to force California courts to apply the laws of other states where non-compete clauses are viewed more favorably. However, California courts have generally rejected this argument, and have refused to apply the law of other states to non-compete clauses.
Two notable exceptions where non-compete agreements are allowed in California are in the context of partnerships and limited liability companies, also known as LLCs. Under the California Business & Professions Code, a non-compete agreement to prevent a partner from competing with his or her partnership is generally enforceable. Similarly, the same type of agreement is typically enforceable when an LLC wants to prevent competition from one of its “members,” which are the LLC equivalent of partners. So to sum things up, non-compete agreements in California are usually enforceable against partners and members of LLCs, but they’re usually unenforceable against run-of-the-mill employees.
If you are a business owner, equity holder, or ordinary employee who has a question about non-compete agreements in California, then you should seek the advice of an attorney who’s familiar with the legal landscape. If you would like an attorney’s advice regarding a non-compete agreement, then don’t hesitate to call DK Law Group, LLP at (805) 498-1212, or email our office at email@example.com.
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