Non-competition agreements, typically referred to as non-compete agreements, are promises made by an employee not to compete against their employer during and/or after the employment relationship has ended. Non-compete agreements can take a variety of forms and can be included as either a clause in an employment contract, or as a stand-alone agreement into which an employee enters at anytime during the employment process. Non-compete agreements can include a variety of promises related to the employee’s promise not to compete with an employer. Some of the typical types of competition prohibited by non-compete agreements include:
- Soliciting an employer’s customers or clients;
- Disclosing the employer’s confidential information, trade secrets, etc., to outside parties such as the employer’s competitors;
- Working in a similar field or location as the employer for a specific period of time; and
- Urging or convincing other employees of the employer to either work for the employee subject to the agreement, or to work with another one of the employer’s competitors.
Many states find non-compete agreements in the employment context as being valid and enforceable, but not California. Non-compete agreements in California employment contracts are illegal and unenforceable. This is because under Section 16600 of the California Business and Professions Code:
“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
Thus, no matter how reasonable and justified a non-compete agreement may be, that promise will still be considered illegal under California state law. As a result, you will have a cause of action under California state law if you are discriminated, harassed or retaliated against because of your unwillingness to sign and/or enter into a non-compete agreement at the urging of your employer. This is because it is illegal for an employer to require an employee to enter into a non-compete agreement as a condition of the receipt of employment or an employment benefit. An employer cannot fire, deny employment, demote an employee for refusing to sign a non-compete agreement, and cannot make the provision of employment benefits, vacation time and work leave based on an employee’s agreement to sign a non-compete agreement, in Los Angeles.
However, it is important to note that California provides two special protections whereby promises that are considered to constitute non-compete agreements are actually valid and enforceable. First, owners of limited liability corporations (LLCs), partnerships, businesses and corporations can enter into non-compete agreements when they sell their ownership stake in their business or organization to a third party. California law allows the business owner to promise to the third party that they will not immediately begin to solicit employees and clients the moment after they conclude the sale of the ownership stake to a third party.
Second, a non-compete agreement can be found to be enforceable and valid under California state law if it contains a promise not to disclose or use an employer’s trade secrets in competition against the employer both during the employment relationship, and after the relationship has ended. A trade secret is all information about or in possession of a business that provides a competitive advantage. The trade secret is protected by a non-compete agreement when the competitive advantage that the trade secret provides is not easily accessible or readily known by non-employees. This information must not be capable of being otherwise accessed by a competitor or any other person who could materially benefit from the trade secret.
Los Angeles, California Employment Law Attorneys
Before entering into any contract that creates an employment relationship, both employers and employees should have their employment contracts reviewed by an attorney. Not doing so could result in an illegal non-compete clause being slipped into an employment contract. If an employer does not review their employment contracts for potentially enforceable or unenforceable non-compete agreements, they could be missing out on providing the legal protection necessary to protect sensitive trade secrets and to protect their business from competition by past owners. For an employee, employment contracts must be reviewed in order to understand what the employee can and cannot do during the employment relationship and after it ends.
Don’t hesitate to contact the Los Angeles employment lawyers at HKM Employment Attorneys LLP for legal help regarding your specific case.