All California businesses have a vested interest in protecting certain proprietary information. This is why some employers seek to restrict the ability of key employees to work for a competitor. After all, if an employee has special knowledge of an employer’s clients, methods, and practices, that would be valuable information for a competitor to exploit.
Historically employers have asked employees to sign non-compete agreements. But in recent years California has cracked down on such agreements. Today, the general rule in the Golden State is that non-compete agreements are illegal and unenforceable in the courts. Yet this does not mean employers are without options to protect their business interests. The experienced non-compete agreement attorneys at Valiant Law can advise your business on the particulars of California law, and how it does (and does not) restrict your ability to negotiate broad-based employment agreements with your workers.
Some states allow employers and employees to enter into voluntary agreements setting “reasonable” restrictions on the employee’s ability to seek future work after the employment relationship ends. In contrast, California largely prohibits such restrictions as an illegal restraint of trade. This applies to persons classified as either employees or independent contractors.
Many employers may not be aware of California’s general prohibition on non-compete agreements, especially if they are corporations based in a state where such restrictive covenants are enforceable.
In the past, some California employers have tried to work around the state’s non-compete ban by having employees sign employment agreements that specify another state’s law should apply in interpreting the contract. But as of January 2017, California law now prohibits such agreements. Specifically, the new law states that an employer cannot require an employee “who primarily resides and works in California” to “adjudicate” an employment-related claim outside of California, or in any way deprive the employee “of the substantive protection of California law.”
Despite California’s strong stance, there are still situations where non-compete agreements may be enforced. The first is when a sole proprietor sells his interest in a business. The buyer can seek a non-compete agreement preventing the seller from turning around and immediately starting a competing business. Similarly, members of a partnership can agree not to compete against one another should any individual partner leave the firm.
With respect to employees, businesses can insist on non-compete agreements that apply during the term of employment. In other words, a company can ban an employee from “moonlighting” while on the payroll. And an employer can take steps to protect trade secrets from disclosure. But the law is tricky in this area, which is why you should always work with a qualified southern California labor and employment attorney before attempting to negotiate any agreements in this area.
While California may not be as open to other states when it comes to non-compete agreements, employers still have certain legal rights. If you need help understanding and applying these rights to your own business, contact Valiant Law today at (909) 677-2270.
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