California Non-Compete Agreements
California law strictly limits the enforceability of non-compete agreements to the point that most non-compete agreements will be unenforceable. However, there are several exceptions to this rule.
Orange County Non-Compete Enforcement and Defense Services
What Are Non-Compete Agreements?
Non-compete agreements go by many names, including covenants not to compete, and non-compete clauses. Essentially these agreements require one party to refrain from competing with the business of another. The non-compete agreement will define a scope, practice area, and time that the agreement will run until. However, the broader the scope of the agreement and the more unnecessary the terms of the agreement are, the more likely it will be found to be invalid.
Who Uses Non-Compete Agreements?
Non-compete agreements are usually executed in agent and principal relationships including employer employee, employer and contractor, or between business partners. These are commonly required for employment where an employee provides highly skilled labor.
When Are Non-Competes Enforceable?
The policy behind the non-compete is to prevent an employee or former agent from acquiring an advantage through their employer or partner, then resigning and exploiting the advantages that they received from their former employer or partner. However California law states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Cal. Bus. & Prof. Code § 16600. This means that agreements that preclude employment in certain lines of work are invalid.
Further, if a non-compete agreement is invalid for any reason a court is prohibited from reforming or revising the agreement to make it valid. Nevertheless, some non-compete agreements are permitted under California law under the business owner, partnership, and trade-secret exceptions.
Business Owner Exception
Non-compete agreements between company owners may be valid. Cal. Bus. & Prof. Code § 16601. Valid non-competes between business owners prevent a shareholder from selling their stock. For example, if Corporation A is purchased by Corporation B, Corporation B can require the officers of Corporation A to sign a non-compete agreement. Corporation A may also require its officers to sign a non-compete clause that would restrict the sale of the officer’s shares in Corporation A.
Partnership agreements may also be valid in some circumstances. Cal. Bus. & Prof. Code § 16602. For example, if a partnership requires the partners to refrain from practicing in a limited geographic area. These types of agreements have been upheld against a wide variety of professionals including accountants and physicians.
Trade Secret Exception
A court may restrict conduct that violates the uniform trade secret act or unfair competition law. Dowell v. Biosense Webster, Inc. (2009). Although referred to by some courts as an exception to Cal. Bus. & Prof. Code § 16600, this exception does not directly relate to the enforceability of the non-compete agreement, but rather refers to independently wrong conduct.
Remedies for Violation of Non-compete Agreements
Because non-compete agreements are usually drafted to prevent the loss of goodwill or other difficult to calculate losses an injunction is often available to the aggrieved party. However, damages are available in the alternative. The main question is whether damages can adequately compensate for the loss incurred by the aggrieved party.
Orange County Non-Compete Agreement Lawyer
The Law Offices of Tony T. Liu provides skilled representation in non-compete disputes. Schedule a consultation today by calling (714) 415-2007.