Employers considering implementing noncompetition and nonsolicitation agreements for their California workforce must understand the differences in these agreements, and California’s public policy against restraints against an employee’s ability to work in their profession or trade. This Friday’s Five covers the top five issues employers must know about noncompetition and nonsolicitation agreements in California.
1. Noncompetition and nonsolicitation agreements cannot violate Business & Professions Code section 16600
In California, noncompetition agreements are governed by Business & Professions Code section 16600, which states: “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 statute permits non-competition agreements in the context of sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5). But other than these narrow exceptions connected with the sale or dissolution of a company, California has a strong public policy against non-competition agreements.
Under the common law, as still recognized by many states today, contractual restraints on the practice of a profession, business, or trade, were considered valid, as long as they were reasonably imposed.
2. California Supreme Court ruling in Edwards v. Arthur Andersen regarding non-competition agreements
In 2008, the...
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