Are Non-Compete Agreements Valid in California?
If you have been searching for a way to reduce employee turnover at your San Diego business, you may have considered asking your workers to sign a non-compete agreement. These types of agreements are commonplace in employment contracts throughout the US. They generally seek to prevent workers from:
- Accepting a job with a competing company
- Starting their own company in the same industry
- Developing competing products or services, or
- Contacting former customers
In many states, agreements of this nature are valid and enforceable. That is not the case in California.
California Business and Professions Code (BPC) § 16600 explains that:
“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
This regulation invalidates almost all non-compete agreements in the state of California.
There are three main exceptions to this general rule. They are:
Limited Liability Companies (LLCs)
California law allows for the enforcement of non-compete agreements against former members of an LLC.
In order to be permissible, however, the non-compete must be narrow in focus. It cannot broadly restrict a member from starting a new business or accepting a job at a different company.
Generally speaking, a non-compete entered into by an LLC member can only restrict them from engaging in a similar type of business within a specified geographic area where the LLC operates.
These types of non-competes may become invalid if the LLC is dissolved and no other member carries on a similar business.
California law also permits non-compete agreements in the context of a business partnership.
As with non-competes involving LLC members, agreements between business partners in California must not be overly broad. In general, they can only prevent partners from engaging in a similar type of business within the area where the partnership operates.
California Business and Professions Code (BPC) § 16602 states that these types of agreements can only be enforced “so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein.”
Sales of Businesses
Under California law, parties to the sale of a business may agree that the seller will not compete with their former company.
Such an agreement is permitted in the context of the sale of:
- Limited liability companies (LLCs)
- Partnership interests, and
- Capital stock in a corporation
Non-competes of this nature are typically limited to the geographic area in which the business operates.
Your Trusted Business Attorney in San Diego
Do you need a skilled California business lawyer to help you draft employment contracts that comply with state law? If so, please don’t hesitate to reach out to the team at the Semanchik Law Group. We’ve been protecting companies like yours for years, and we would love to add your name to our ever-growing list of satisfied clients!
To set up a consultation with a member of our team, all you need to do is fill in our online contact form or give us a call at (619) 535-1811.