Can your employer stop you from going to work for a competitor? In California, the answer is probably no.
What Are Non-Compete Agreements?
When an employee starts a new job, he is usually presented with a flurry of paperwork to fill out and sign. Usually, the employee has little time to read everything–and doesn’t. One of the things that is often buried among the other documents is an agreement that the employee won’t later compete with the employer. Such a document, often called a “non-compete agreement” or “covenant not to compete,” seeks a promise from the employee that he won’t later go work for a competitor or start his own business in the same area. Employees often sign these agreements without realizing the devastating impact that they can have on their future.
If you are bound by a non-compete agreement and hope to leave your job working for one tech company to work for another, you may be barred from doing so. If you’re a chef and want to start your own restaurant or work for a different one, you can’t. Imagine that you have invested the last decade (or more) training and working in a particular field, only to be told that you can’t work in that area for some extended period of time. What would you do? How would you earn a living? As the New York Times highlighted recently in its article Noncompete Clauses Increasingly Pop Up in Array of Jobs, people can find themselves struggling to make ends meet when their work options are limited. Here is an example:
Daniel McKinnon, who had been a hairstylist in Norwell, Mass., lost a court battle with his former employer who claimed that Mr. McKinnon had violated the terms of his agreement when he went to work at a nearby salon. Mr. McKinnon said that he did not think the original restriction — to wait at least 12 months before working at any salon in nearby towns — still applied because he had been fired after years of friction with the manager there. Shortly after being fired, he went to work at a nearby salon.
But a judge issued an injunction ordering him to stop working at his new employer.
“It was pretty lousy that you would take away someone’s livelihood like that,” said Mr. McKinnon, who for the following year lived off jobless benefits of $300 a week. “I almost lost my truck. I almost lost my apartment. Almost everything came sweeping out from under me.”
He resisted the idea of traveling miles from his apartment to a new salon, saying that would have meant an unpleasant and costly commute.
“The salon where I worked was doing just fine — I don’t see why they needed to do this,” he said. “I basically had to give up a year of working.”
Non-Compete Agreements are Generally Void in California
Thankfully, non-compete agreements are generally not enforceable in California. California Business and Professions Code § 16600 states that, except for limited exceptions, “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 law reflects California’s public policy that citizens have the right to engage in the lawful work of their choosing. Even narrow restrictions (short periods of time, small geographic regions) remain unenforceable.
The law carves out exceptions that permit non-compete agreements in situations where owners, partners, or shareholders of a company sold their stake in that company and agreed not to compete with it. Such exceptions rarely apply to your typical employee.
This means that as a California employee, you have the right to leave your job to work for or form a competing business!
That said, an employer is within its rights in seeking to prevent an employee from taking legitimate trade secrets and using them elsewhere. An agreement not to compete will be enforced in the rare situation where it is “necessary to protect the employer’s trade secrets.” For example, if you’re one of the select few who knows the secret formula for Coca Cola, you cannot jump ship to Pepsi and use that information to help tweak Pepsi’s recipe. That is true, even within California, but is rare.
In addition, an employer can require that you agree not to solicit former co-workers or customers to follow you to a new business. (There are limitations to these restrictions as well.)
There is, however, a wrinkle–a big one: some companies are located in states that permit non-compete agreements. Even though they are well aware that their agreements are not enforceable in California, they will get employees to sign them, then sue the employees in these other states to enforce the agreements if the employee later work for competitors. In such situations, California employees may file their own competing actions asking a California court to declare the agreement unenforceable. Unfortunately, the outcome may well depend on which court reaches a judgment first. If you are in this situation and intend to work for a competitor, you should seek the help of counsel immediately to determine what your options are.
If you are a California employee, the odds are that your employer will not be able to enforce a non-compete agreement against you. Ideally, you won’t be asked to sign one at all. But if you are and you feel that you have bargaining power, you should try to push back. If you have already signed one and are seeking to work for a competitor, you may wish to get help from an employment lawyer.