Running a successful business isn’t easy. Whether it’s a smaller business or a fortune 500 corporation, one of the biggest challenges, aside from being profitable, is managing the employer-employee mutually beneficial relationship. It’s not just dealing with varying personalities and ensuring productivity but also making sure to abide by the country’s extensive labor laws.
Labor laws and the profit objective of most companies can seem incompatible, particularly with regard to non-compete clauses. Non-compete clauses generally prohibit someone from leaving one company and going to work for a competitor for a certain period. Also known as covenants not to compete, non-compete clauses can serve the interests of a business. They can also impose an unfair burden on an employee.
Can a Non-Compete Clause Be Enforced in California?
In many states, non-compete clauses aren’t viewed by the courts or the law in a favorable light. When it comes to non-compete clauses, the courts tend to side with the employee. California courts do not generally enforce non-compete clauses in employment contracts between an employer and their former employee.
According to California Business and Professions Code § 16600, any contract that restricts or seriously limits someone’s ability to work in their desired profession, business, or trade is void as far as that restriction goes. This means a contract of this nature, which would be one containing a non-compete clause, is unenforceable. Specifically, non-compete clauses that constrain employees are unenforceable.
What Makes a Non-Compete Clause Enforceable in California?
The exception to non-compete clauses being enforceable against former employees concerns what type of position the former employee held with the business. If the former employee was a partner or limited liability company (LLC) member in the business or owned stock in the business, a non-compete clause against them could be enforceable.
A non-compete clause between a partner and a company could be enforceable. Non-compete clauses are extremely common in partnership contracts. For example, a partner at a law firm may have a non-compete clause in their employment contract with the firm. This non-compete clause typically states that the partner can’t leave their current law firm and go to work for a competing law firm in the same geographical area the next month. The same is largely true of non-compete clauses against members of an LLC.
Non-compete clauses can also be enforceable against the seller of a business. If a business owner sells a business to a buyer, the buyer could have the right to enforce a non-compete clause against the seller of the business to not compete with the business they just sold. For example, a tech company may be sold to a buyer. The parties to the sale of the tech company may agree to a non-compete clause stating that the seller of the tech company won’t start a competing tech company in the same city over the next five years.
Non-compete clauses can’t be for an infinite amount of time, however. The clause has to specify that it’s restrictive only for a certain period, or they may not be enforceable because they’re overly burdensome. The same would be true for a non-compete clause that restricts similar work in an overly broad geographical area, like the entire country, for example.
Contact Wagner Zemming Christensen, LLP, for Help
Our skilled California attorneys can help you protect your business and help you devise employment contracts that contain feasible non-compete clauses. For years, we’ve been representing employers in various areas of employment law. Call us at 951-686-4800 or contact us online to discuss your employment-related legal matter.