Non-Compete Clauses In Employment Or Sales Contracts: Are They Enforceable in California?
By: Richard E. Korb[1] 
Non-compete clauses are agreements included in a contract to stop a former employee or business partner from entering the same trade or profession in competition against their former employer, or partner. They can usually be found in the employment agreement proposed at the time of hire, or in a severance agreement. Such clauses are usually proposed in order to avoid, upon the employee’s resignation or termination, a competing company from gaining a competitive advantage by abusing confidential information or using revealed trade secrets from the former company. Trade secrets can include customer or client lists, marketing strategies, or other sensitive information.
Simple Example:
“During employment with (Company), and for a period of ____ after employment is terminated by the company or myself for any reason:
- I will not, in (Geographic Territory) engage in, own, or control any interest in a company substantially similar to (Company), and
- I will not recruit or hire any of the former employees of (Company) or induce said employees to leave to be employed or associated with any company or business with which I am associated with.
-The preceding restrictions are limited to (the type of job or activity that the employee is prevented from engaging in).”
Most jurisdictions (in other states) enforce such clauses as long as they contain reasonable limits as to the time period in which they are valid, the geographical area to which they restrict competition, and the type of activity they exclude the former employee from engaging in.
Non-compete clauses as well as other restrictions that inhibit competition are banned in the state of California, except under a few limited circumstances that are authorized by statue. California’s Business and Professions Code Section 16600 explicitly states 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.”
The law of the state in which the employee is located and attempting to enter a profession will normally be enforced. Clauses in the contract that attempt to assign another state’s law to a California employee are generally invalid. Out of state agreements between an out-of-state employer and a California employee are subject to California law even where the employment contract specifies that some other state’s law shall apply. Why? Because California has a strong public policy promoting open competition and California does not want to give employers a loophole to undermine this policy.
The few cases that constitute an exception to the invalidity of non-compete clauses are stated in California’s Business and Profession’s Code §§ 16601-16602.5. The first exception is when there is a dissolution of a Partnership or Limited Liability Company. The non-compete agreement is valid in enforcing restricted competition in a certain geographical area for a specific duration upon the event that a partner in a partnership or company withdraws.
California law has also allowed agreements for the departing partner to pay the former partner for the amount that he/she would be expected to take away from the partnership through competition, in order to allow the departing partner to accept future work without restraint.
The second exception to a non-compete’s invalidity is when an owner is selling his or her ownership interest in a company to another. For example, if the owner of 500 shares in company X sells his shares to an owner of company Z, the owner of company Z can engage in a non-competition agreement with the former owner of company X so that he can restrain him from being in the same business and competing against company Z with all of his insider knowledge about the company.
Either of these situations can be cited as exceptions to California’s restriction on non-compete clauses as long as the agreement provides reasonable restrictions on the time limits, geographic limits, and activity or job restriction limits. The restrictions should not impose unreasonable restraints or unreasonable hardships on the ex-owner or partner for finding new employment, or else run the risk of being rejected by state law. Most states will void a non-compete agreement and not allow modification or re-writing of the clause if unreasonable restrictions have been made.
There is one last related exception that provides an opportunity for non-compete stipulations in an agreement to be declared valid in a California court. This is when the restraints in the clause are sufficiently unrestricting and specific, only limiting certain activities that are a direct threat to the former company’s trade secrets.
This is because non-compete and protection of trade-secret provisions are regarded very differently in California, with protection of trade-secrets provisions being very consistent with California’s Business and Profession’s code. Trade secrets are defined in California Civil Code §3426.1. In order to be enforceable, they must meet three guidelines:
(1) The company takes reasonable measures to protect the secrecy of its information;
(2) The information is not available to the general public; and
(3) The non-public information is valuable because it provides the company with an economic advantage.
If the provisions in a non-compete clause are strictly limited to activity that would expose the former business’ trade secrets, and do not provide any additional unnecessary restraints on trade, the case can be argued in court to hold the terms valid. In all other instances, non-compete agreements will never be held enforceable in the state of California.
If you have questions or need additional information about trade secrets or non-compete clauses and their enforceability,please contact Berkeley-Oakland- Walnut Creek business attorney Richard Korb at (510) 524-0903 for a free consultation.
[1] RICHARD E. KORB is a seasoned attorney with 30 years of business litigation and transactional (contracts) experience. Over his legal career, Richard has successfully litigated and resolved over 300 court cases in the fields of contract law, real estate, employment, unfair competition, bankruptcy and general civil law and he has drafted and negotiated over 250 contracts and licenses for large and small companies alike. Richard leverages his experience as a former partner in a 100-person law firm and chief counsel for a public software company to assist individuals and companies, from start-ups to multi-nationals, with a broad spectrum of legal matters. In addition to his legal practice, Richard is a court-approved mediator and serves on the Alternative Dispute Resolution (ADR) panel for both the Alameda and Contra Costs County Superior Courts. ©2010.Richard Korb. All Rights Reserved.
RSS
Facebook
LinkedIn
YouTube
71 comments
facebook poker chips says:
May 10, 2011 at 10:03 am (UTC 0)
I am impressed by the quality of information on this website. There are a lot of good resources here. I am sure I will visit this place again soon.
Amanda says:
May 25, 2011 at 10:44 pm (UTC 0)
Very thorough article. Diligent research!
window replacement says:
June 1, 2011 at 10:13 am (UTC 0)
Hello mate. My partner and i really just like the particular writing and also your website all in all! Your posting is actually extremely plainly created and also effortlessly understandable. Your WordPress style is great as well! Would definitely be great to know exactly where My partner and i can acquire it. Please hold up the excellent work. We need far more this kind of webmasters such as you on the web and also much fewer spammers. Great friend!
Anitra says:
October 7, 2011 at 8:44 pm (UTC 0)
Fell out of bed feleing down. This has brightened my day!
window replacement says:
June 1, 2011 at 10:15 am (UTC 0)
I am glad to be one of several visitants on this outstanding site (:, thanks for posting .
college costs by school says:
June 1, 2011 at 10:26 am (UTC 0)
Keep it up, great job! Just what I had to have.
comfortable foot says:
June 4, 2011 at 4:05 pm (UTC 0)
I wanted to thank you for this great read!! I definitely enjoying every little bit of it I have you bookmarked to check out new stuff you post…
Interesting says:
June 12, 2011 at 10:04 pm (UTC 0)
Hi! I just want to tell you that I found this blog really useful to me. I will visit this blog regularly to read more. Thanks. srt1307916285 http://ur1.ca/4d0se
Interesting says:
June 13, 2011 at 2:54 am (UTC 0)
Hi! I just want to tell you that I found this blog really useful to me. I will visit this blog regularly to read more. Thanks. srt1307933677 http://ur1.ca/4d0se
Rosie says:
October 8, 2011 at 2:35 am (UTC 0)
What a joy to find smooene else who thinks this way.
ROBYN MILBRY says:
June 21, 2011 at 12:05 pm (UTC 0)
An interesting discussion is worth comment. I think that you should write more on this topic, it might not be a taboo subject but generally people are not enough to speak on such topics. To the next. Cheers
beauty products says:
June 29, 2011 at 3:14 am (UTC 0)
Hi, I am very pleased to find your good information via Google today. It really is helpful for everyone who looking to learn info about this topic. I am confident that everyone can apply for their own use. Thank you and looking forward to read more from you.
uttectest says:
July 1, 2011 at 4:33 pm (UTC 0)
Bravo, seems to me, is a brilliant phrase
http://ladiessuitsforwork.co.tv/ – ladiessuits for work
Middle East says:
July 1, 2011 at 9:14 pm (UTC 0)
Hiya! I simply want to give an enormous thumbs up for the great data you’ve got right here on this post. I might be coming back to your blog for more soon.
slimmingmethodsonline says:
July 6, 2011 at 6:18 pm (UTC 0)
What a great web log. I spend hours on the net reading blogs, about tons of various subjects. I have to first of all give praise to whoever created your theme and second of all to you for writing what i can only describe as an fabulous article. I honestly believe there is a skill to writing articles that only very few posses and honestly you got it. The combining of demonstrative and upper-class content is by all odds super rare with the astronomic amount of blogs on the cyberspace.
wataattinyNot says:
July 7, 2011 at 9:36 am (UTC 0)
I’m not in a position to view this website properly on opera I believe there’s a drawback
http://beachtentcamping.vacau.com/
unfippifs says:
July 8, 2011 at 7:52 pm (UTC 0)
It had been some time since I visited web site with such high quality information. Thansk loads for the helpful data
Lamp server download
This is nice says:
July 17, 2011 at 9:15 pm (UTC 0)
Hello! Just want you to know that I really found this website really helpful to me. I will come back to this blog more often to read more. Thanks. srt1310919320 http://ur1.ca/4pi9n
Trista Hochman says:
July 20, 2011 at 1:47 pm (UTC 0)
I was very pleased to find this web-site.I wanted to thanks for your time for this wonderful read!! I definitely enjoying every little bit of it and I have you bookmarked to check out new stuff you blog post.
Pham says:
July 22, 2011 at 12:35 pm (UTC 0)
Thanks for your concepts. One thing I’ve noticed is the fact banks and financial institutions have in mind the spending behaviors of consumers and as well understand that most people max outside their real credit cards around the vacations. They sensibly take advantage of this fact and then start flooding a person’s inbox along with snail-mail box by using hundreds of Zero APR credit cards offers immediately after the holiday season comes to an end. Knowing that should you be like 98% in the American community, you’ll rush at the possible opportunity to consolidate card debt and move balances for 0 interest rates credit cards.
Latoya Demuzio says:
July 24, 2011 at 5:56 am (UTC 0)
Nice post
Jaylyn says:
October 7, 2011 at 2:05 pm (UTC 0)
I went to tons of links berofe this, what was I thinking?
wwe roddy piper says:
September 2, 2011 at 7:22 am (UTC 0)
Great post, thanks! I really like it!
Mary says:
September 4, 2011 at 11:38 am (UTC 0)
Very nice, i suggest webmaster can set up a forum, so that we can talk and communicate.
seroquel says:
September 5, 2011 at 7:34 am (UTC 0)
Thanks for tris interesting information! I found it very useful =)
restore from backup after jailbreak says:
September 10, 2011 at 1:39 am (UTC 0)
Well I really liked studying it. This information procured by you is very constructive for correct planning.
Cheap sheds says:
September 12, 2011 at 9:09 am (UTC 0)
I have been focusing on you over the net the whole week . Appreciate it!
05 15 05 unlock says:
September 14, 2011 at 1:55 am (UTC 0)
When I saw this blog was like wow. Thank you for putting your effort in making this post.
Jenita says:
October 8, 2011 at 11:23 am (UTC 0)
I really wish there were more artclies like this on the web.
Low Fat Meals says:
September 14, 2011 at 6:00 pm (UTC 0)
I am so much excited after reading your blog. Your blog is very much innovative and much helpful.
happyday67 says:
September 15, 2011 at 6:05 pm (UTC 0)
Keep working, nice post! This was the stuff I needed to get.
xiaorr456 says:
September 20, 2011 at 6:27 am (UTC 0)
I have been checking out a few of your articles and its pretty nice stuff. I will definitely bookmark your blog.
Magdalena says:
September 21, 2011 at 3:14 pm (UTC 0)
Wonderful post, you’ve pointed out some wonderful details , I besides believe this s a incredibly fantastic web webpage.
renren876 says:
September 21, 2011 at 3:26 pm (UTC 0)
I always was interested in this topic and stock still am, appreciate it for posting.
Unlock iPhone 4 says:
September 22, 2011 at 6:51 am (UTC 0)
I have been examinating out a few of your articles and it’s clever stuff. I will surely bookmark your blog.
CompTIA A Certification All-in-One Exam Guide pdf says:
September 26, 2011 at 7:53 pm (UTC 0)
There is evidently a lot to know about this. I suppose you made some nice points in features also.
Customer Reviews says:
September 26, 2011 at 8:48 pm (UTC 0)
I admire your blog , it’s filled of lot of information. You just got a perennial visitor of this blog.
cyril rouhani masha clip says:
September 29, 2011 at 8:44 pm (UTC 0)
You made some great points there. I did a search on the subject matter and found most people agree with your blog.
is free brand giveaways real? says:
September 29, 2011 at 9:37 pm (UTC 0)
As a Newbie, I am always searching online for articles that can help me. Thank you
Golf Hotels in Algarve says:
October 1, 2011 at 4:41 pm (UTC 0)
I admire your web page , it has of lot of information. You just got a perennial visitor of this blog!
3M Pocket Projector Review says:
October 1, 2011 at 8:56 pm (UTC 0)
Definitely, what a great site and informative posts, I will bookmark your site.All the Best!
Garden Bird Feeders says:
October 1, 2011 at 10:16 pm (UTC 0)
You are a very capable person!
The Best Fitness Workout DVDs says:
October 4, 2011 at 12:14 am (UTC 0)
I have been examinating out some of your posts and i can claim pretty clever stuff. I will make sure to bookmark your website.
beats dr dre says:
October 6, 2011 at 12:58 pm (UTC 0)
Nice post there. Will check additional soon! You may have have a good day!
Replicaonline says:
October 6, 2011 at 1:51 pm (UTC 0)
YouЎЇre soooo gifted in writing. God is really using you in tremendous methods. YouЎЇre doing a excellent job! This was an incredible blog!
fashionreplica says:
October 7, 2011 at 7:44 am (UTC 0)
This is the most influential thing I read all day.
Infinity says:
October 7, 2011 at 10:28 am (UTC 0)
I am forveer indebted to you for this information.
Sac Hermes Birkin says:
October 9, 2011 at 7:43 pm (UTC 0)
I’ve got not too long ago began an internet site, the info people provide on this site helps us seriously. Appreciate all of your point in time & operate.
Besplatne Igre says:
October 13, 2011 at 3:39 pm (UTC 0)
Please, keep up the greet work and continue to post topics like this. I am old fan of your blog.
Igrice Besplatne says:
October 14, 2011 at 12:15 pm (UTC 0)
Awsome post and right to the point. I don’t know if this is truly the best place to ask but do you folks have any thoughts on where to hire some professional writers? Thanks
unlock iphone 4g says:
October 16, 2011 at 12:53 am (UTC 0)
Thanks for one more awesome post. Keep up the good work.
Igrice Besplatne says:
October 16, 2011 at 6:07 pm (UTC 0)
Thank you for sharing your thoughts. Awesome!
replica rolex watches says:
October 17, 2011 at 3:28 am (UTC 0)
I like reading blog posts, and when I stumbled upon to this weblog, it just blew me away! Hey there I mean it! Your contents are rich and I discover them very useful!
Tadalafil says:
October 17, 2011 at 7:40 pm (UTC 0)
alloha
diablo 3 says:
October 20, 2011 at 8:12 am (UTC 0)
Fairly! This was a very fantastic submit. Thanks to your supplied details.
Iphone 5 says:
October 20, 2011 at 11:56 am (UTC 0)
Thanx for your work, sustain the nice perform Wonderful function, I’m planning to begin a tiny Web site Engine training course function utilizing your website I am hoping you take pleasure in running a blog using the well-liked BlogEngine.web.Thethoughts you express are genuinely brilliant. Desire you’ll correct some much more posts.
critycoethy says:
October 20, 2011 at 12:53 pm (UTC 0)
The talk within the finest used cellular phone for selling is built to be even nowadays fiercely asserted amidst consumers. There are lots of brands from which to decide with a masses of models. Then you necessary capabilities to take into account, and also battery. In the motive you must distinguish the one that’s produce for you, and also spasm’s your own private taste of style. The going round overcome three hottest employed cellular phones elbow would be the BlackBerry Bead, Your Apple IPhone, as comfortably as the Motorola talkabout Blade. All three or more of such are imaginary candidates and each has their very own durability as highly as fragile spots. We wishes look at each people of these individually so that you can elect for yourself which of such you believe will be best.
Used cellphones for sale
hermes wallets bags says:
October 20, 2011 at 1:40 pm (UTC 0)
Thanks for the guidelines shared in your blog. Yet another thing I would like to convey is that fat reduction is not supposed to be about going on a dietary fads and trying to lose as much weight as possible in a couple of weeks. The most effective way to lose weight naturally is by getting it little by little and following some basic ideas which can enable you to make the most from your attempt to shed weight. You may be aware and already be following many of these tips, nonetheless reinforcing understanding never damages.
Generic Viagra says:
October 20, 2011 at 9:08 pm (UTC 0)
Exactly supplied this blog to be able to my favorites. I like to checking out a blogging sites and also we do hope you place them entering!
Bodybuilding.com Coupon Code says:
October 27, 2011 at 11:10 am (UTC 0)
I love the design of your design. Obviously you have a very valid point, however I can’t get over how great the site design is.
Tucson Realtor says:
October 27, 2011 at 12:17 pm (UTC 0)
Finding a good supplement is one of the vital factors to living a good life. For me, this vitamin has always proven to be the greatest. It just gives your soul what it needs and it doesn’t have all of those nasty side effects as all of the bad ones. It’s also one of the cheapest ones out there.
Bodybuilding.com Coupon Code says:
October 28, 2011 at 11:00 pm (UTC 0)
Who did you pay to do your post? Its really nicely designed I bet that is why you get so much traffic!
Generic Viagra says:
October 29, 2011 at 10:46 am (UTC 0)
Hello there, appealing submit. I have already been thinking about this method idea,which means great ad. I’ll undeniably become registering to your blog post. Support the good writes
Generic Viagra says:
October 30, 2011 at 1:26 pm (UTC 0)
Thnx such an abundance of for this particular! We haven’t happen to be that delighted by way of document for a long time! You’ve gotten that, whichever meaning located in blogging for cash. Adequately, You’re going to be absolutely moat people that have anything at all to express persons ought to take note of. Carry on typically the wonderful job. Maintain motivational those!
Hendricks says:
October 31, 2011 at 8:31 am (UTC 0)
We’re a gaggle of volunteers and starting a brand new scheme in our community. Your website offered us with helpful info to work on. You have done an impressive process and our entire community will likely be thankful to you.
Lenora Grastorf says:
October 31, 2011 at 11:34 am (UTC 0)
Outstanding post, I believe people should acquire a lot from this website its very user friendly .
porn sex says:
October 31, 2011 at 11:37 am (UTC 0)
I like Your Article about Non-Compete Clauses And Their Enforceability In California Perfect just what I was looking for! .
Diet To Go Coupon says:
October 31, 2011 at 1:25 pm (UTC 0)
Who did you pay to do your comment? Its really nicely designed I bet that is why you get so much traffic!
texas viagra caverta generic says:
November 1, 2011 at 4:01 am (UTC 0)
extremely fantastic write-up. Great writing
Cheap Louis Vuitton says:
November 1, 2011 at 12:09 pm (UTC 0)
The moment I saw your blog was like wow. Thanks for putting your effort in making this publish. Conversion Prophet Review
Leonida Rosiles says:
November 3, 2011 at 11:48 am (UTC 0)
Wow that was unusual. I just wrote an incredibly long comment but after I clicked submit my comment didn’t show up. Grrrr… well I’m not writing all that over again. Anyways, just wanted to say fantastic blog!