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August 20, 2019

Noncompete Agreements in California

During the hiring process, many employers ask new employees to sign noncompete agreements, in which the employee agrees not to start a competing business or go to work for a competitor for a period of time after the employment relationship ends. It’s easy to see why companies think this is in their best interests. However, noncompete agreements also let a company control its former employees’ actions long after they leave the company, which can severely limit their access to future employment.

In many states, including here in California, noncompete agreements are unenforceable. However, this doesn’t stop some companies from requiring them. Often, employees at every level, from janitors to programmers to executives, are asked to sign noncompetes. By and large, the state of California has rejected all forms of these agreements for all employees. Some businesses argue that because their company is headquartered in a state that recognizes non-compete agreements, they shouldn’t be subjected to California laws. Companies have also attempted to go around the law using “choice of law provisions,” arguing that contracts should to be interpreted according to a different state’s laws (one that recognizes noncompetes). California courts have consistently and broadly rejected these arguments.

Some may think this is an unfriendly and burdensome business rule from California, but the laws are based in legitimate policy reasons to keep the state’s residents gainfully employed, and able to provide for themselves and their families. Noncompete agreements often hurt employees by reducing both their wages and mobility, with negative consequences for the economy at large. They pose a particular burden for lower wage workers, who often have limited employment options to begin with.

But it’s not just California that is rejecting noncompete agreements. Nationally, the tide seems to be turning on this issue. Since the beginning of 2017, legislators in about a half dozen states, including Maryland, Massachusetts and New York, have been considering bills that would restrict non-compete agreements. And other states are beginning to recognize that one of the reasons California has such a robust economy, especially in the tech sector, is because of the freedom workers have to move around and spread knowledge.

California’s position on noncompetes is unambiguous. Any company doing business in the state needs to understand the rules and precedent set by case law on this issue. It’s understandable that a company wants to protect its intellectual property, trade secrets, proprietary and confidential information, and processes. But noncompetes are not the way to achieve that. Non-disclosure agreements, copyrights, patents, and trademarks are far more effective than noncompetes. These tools have the benefit of giving legal protection to assets, rather than embroiling companies in costly litigation over employees’ rights.

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