California’s stringent laws against the enforcement of non-compete agreements and non-solicitation agreements between employers and employees are well-known. Put simply, non-compete agreements and non-solicitation agreements regarding the solicitation of customers are not enforceable, but non-solicitation agreements regarding the solicitation of other employees may be enforced within limited circumstances.
In California, there is no grey area when it comes to non-competes. Indeed, under California Business & Professions Code section 16600, a non-compete provision between an employer and an employee is not enforceable. And out-of-state employers doing business in California cannot successfully work their way around this — California Labor Code section 925 provides that forum-selection and choice-of-law clauses that select non-California forums and/or laws would not be enforced if the employee performs work in California. In other words, an employer with California employees must eschew non-compete agreements entirely to ensure their employment agreements comply with California law.
Do not despair: A recent decision from the Delaware Chancery Court suggests the possibility of a loophole for non-California employers. The Delaware court noted that the statute includes a subsection stating that the rule prohibiting non-California choice-of-law provisions will not apply if the employee is represented by legal counsel when negotiating the terms of the agreement. It is important to note that this case was also filed in Delaware, not California.
California Business & Professions Code section 16600 also makes it clear that an agreement between an employer and an employee banning the solicitation of customers is not enforceable (unless directly tied to the use of company trade secrets). The exception being that an agreement disallowing the solicitation of other employees may be enforceable so long as it includes reasonable time and geographic limitations. Discuss what may be considered reasonable with your legal counsel.
For more information on how to move forward in the challenging California employment law landscape, contact experienced attorney Drew E. Pomerance today.