When you put in the time, effort and money to train an employee – and introduce them to trade secrets – you really don’t want that employee to use those skills or inside knowledge to compete with your company. However, California courts routinely invalidate non-compete agreements for things such as overbreadth or unconscionability. How can you increase the chances that the non-compete agreement you draft will be upheld by a California court in case of litigation?
California’s ban on post-employment non-compete agreements
Unlike most other states, in California, any agreement that tries to restrict your ex-employee’s employment opportunities after you let them go will be found void.
Even if you try to get around this ban with choice of law provisions that would allow you to apply a different state’s law, California courts typically won’t uphold a post-employment restrictive covenant. This is true even if your ex-employee takes your trade secrets and uses them to benefit their new employer, or takes some of your clients with them.
Non-competes while currently employed
There is some good news for California employers. An appeals court recently held that the California Business & Professions Code Section 16600 – which is the statute that prohibits post-employment non-compete agreements – does not apply to agreements between an employer and their current employees.
What this means is that you can restrict your current employee’s ability to moonlight in a way that directly competes with your business. You can also prevent them from exploiting your trade secrets while employed by you.
Protecting your trade secrets and clients’ interests is an important part of running any business. It’s a good idea to make your employees sign a non-compete agreement upon hiring them. Just make sure that the agreement doesn’t extend past their employment with you if you want a California court to enforce it.