Non-compete agreements are almost always found to be unenforceable in California, with only a small list of very specific exceptions listed in the statute. A notable exception is that non-compete agreements are enforceable against former owners of a company who agree to such a clause with reasonable limitations in time and geographic scope. As for employees, the window for these non-compete agreements to be a valid restriction are very limited. Specifically, these are found in Business and Professions Code Section 16600 and Business and Professions Code Section 16601. An employer attempting to hold an employee liable for violating a non-compete agreement will likely be unsuccessful in their efforts to get any kind of recourse against the employee unless the employee is unaware of their rights.
Definition of a Non-Compete Agreement
“Covenants not to compete” or “non-compete agreements” are sections of a contract employers require employees to sign prior to being hired, or being promoted to a higher position. These provisions of the contract restrict the employee from entering into a competing business in the event they are terminated or leave the company for a certain period of time following. California made these clauses unenforceable in most situations for many reasons. Some examples include protection of a free market and protecting individuals from being unable to find work to feed their family or go into business for themselves.
Unfair Competition Law is Still Legally Enforceable
While non-compete agreements are not generally legally enforceable, cases where unfair competition can be discovered are still legally enforceable.
Unfair competition, per California law, is simply any business operation that is “unfair” and operates similar to a monopoly, making it difficult for other businesses to compete or even exist in the first place. While there is not a great deal of guidance on this matter, generally unfair business practices once defined in court make sense for being questioned.
Why does this matter? If you are an employee who did not own a substantial portion of the business and signed a non-compete agreement in California and that business took you to court for failure to comply, such as starting a competing business following your separation, you shouldn’t be found legally liable. However, if in separating from their business you built a new business using proprietary knowledge of marketing systems, equipment, partners, or otherwise to compete, you may be found in violation of unfair competition law and could be liable for theft of trade secrets.
Additionally, no business should operate in a manner that intends to deceive the public for profit or operate in a manner that is unlawful or fraudulent. Operating a business outside regulations or lying about returns on investments or the company’s earnings would be examples of unlawful and fraudulent behavior. False advertising is another example of unfair competition, as it is an attempt to deceive the public about the company’s product.
If you are the plaintiff in a case involving a non-compete agreement in California, you are better off suing for violation of unfair competition law in most cases. However, there are some stipulations:
- You cannot obtain money damages in the way of compensatory or punitive damages from taking the person to court. While you can receive injunctive relief or restitutionary disgorgement to restore money or property taken by means of an unfair competition law violation, that is the extent of the monetary damages you can receive.
- Usually, the main effect on the individual committing the unfair practice is to have to change their method of doing business. In other words, you won’t put the person out of business simply by taking them to court, unless, of course, they cannot do business any other way.
- While you cannot receive money damages in many ways, you still can petition the court for attorney fees not only on hours expended but also the supposed public benefit that has been achieved due to the lawsuit. This is a potential monetary benefit worth considering, particularly in risking the attorney fees and hassle to take the person to court.
Because of these stipulations, taking a person to court for unfair competition is more about stopping the loss of money to the plaintiff due to the unfair competition of the defendant, rather than getting money for damages through compensation at that time.
Are You Seeking an Attorney in an Unfair Competition or Non-Compete Agreement Case?
For the most part, you shouldn’t have any issues dealing with a non-compete agreement case in California. If you are an employee and your previous employer is claiming a certain exception to the rule, or if you are an employer that feels your case has an exception, feel free to contact our office about your legal options.
If you are considering bringing an unfair competition law case to court, it is important to consult with an attorney as soon as possible about your options. While an unfair competition law case can be a waste of time in certain situations, there are many benefits that can be obtained from it for a competing business in other cases. Only a professional attorney can give you the best advice on how to proceed with your case.
Whether you are the plaintiff or defendant in an unfair competition law case, WB Law Group is able to assist you. Our law firm has years of experience dealing with business litigation matters including cases involving unfair competition. We are happy to review your case and advise you on how we can help and what to do next.
For questions, or to schedule a consultation, contact us today at 559.431.4888 (Fresno) or 619.399.7700 (San Diego).