Covenants Not to Compete

Many employers consider covenants not to compete in employment agreements essential to protecting their confidential information, their companies, and their top employees from former employees whose departures raise the threat of unfair competition.

It is vitally important for employers who rely on covenants not to compete to understand and realize that California courts disfavor covenants that hinder or restrain competition.  In fact, in most instances, with limited exception, Courts refuse to enforce covenants not to compete.

California Business and Professions Code Section 16600 provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Courts in California typically refuse to enforce such covenants because they violate California’s public policy, which promotes and encourages the freedom of competition and an employee’s right to move between jobs.

Generally speaking, California employers cannot force their California employees to sign non-compete agreements.  Further, given that covenants not to compete are typically invalid, including such a covenant subjects the employer to claims of unfair competition under California Business and Professions Code Section 17200.

Exceptions to the general rule of invalidity of the covenant not to compete include, but are not limited to, situations wherein an individual is selling the goodwill of his or her business, all of his or her ownership in a business, and/or the disassociation of any member or shareholder of an LLC, partnership, or corporation.

                                      Other Factors to Consider – Trade Secrets

Even if you do not fall within the “exceptions” to the covenant not to compete, it is still important to consider other factors before starting your own business to ensure that you do not run afoul of California law.

Most importantly, as a former employee you may not unlawfully use your former employer’s “trade secrets” for your own gain in your new business.  California courts will recognize that common, every-day pieces of data can be afforded protection as a trade secret.  For example, customer lists, business plans, spreadsheets, corporate minutes and agendas, and bid specifications, among other things, can be afforded protection as trade secrets.

Consequently, if you are starting your own business it is important that you consult with an experienced attorney who can advise you of what you can and cannot do within the constraints of the law when it comes to setting up a competing enterprise.  To set up a consultation with one of our attorneys, please contact Webb & Bordson, APC today by email at Office@WebbLawGroup.com, or by telephone at (559) 431-4888 or (619) 399-7700.

Fresno Branch:
466 W. Fallbrook,
Suite 102
Fresno, CA 93711
T: (559) 431-4888
F: (559) 821-4500

San Diego Branch:
10509 Vista Sorrento Pkwy., Suite 430
San Diego, CA 92121
T: (619) 399-7700
F: (619) 819-8400

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