When you want to protect your company’s confidential or proprietary information and retain your top performing employees, you might ask them to sign a non-compete agreement. Non-compete agreements bind an employee from working for competitors or competing directly with their former employer. But are non-competes enforceable in California?
California is an outlier compared to most states; non-compete agreements are unenforceable. While employers can seek out other ways to protect confidential company information, a non-compete agreement will not accomplish those goals.
Here’s what you need to know about California non-compete enforceability.
What is the California non-compete law?
California Business and Professions Code Section 16000 states that “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.”
California Attorney General Rob Bonta issued a reminder to employers in 2022, which further clarified the law. “Despite being prohibited in California, non-compete provisions are routinely included in employee contracts, including contracts for lower-wage workers. This can have a tremendous effect of deterring workers from pursuing new, and oftentimes better job opportunities.”
The law prohibits all employers—including those who operate out of state and employ California residents—from enforcing non-compete agreements. As a matter of public policy, non-competes are banned because they discourage workers from seeking other work opportunities and harm “wages, entrepreneurship, market concentration in the labor force, and equality amongst the workforce.”
California is one of the few states which bans non-compete agreements, but the entire country may soon follow suit. The Federal Trade Commission proposed a non-compete ban in January 2023. If the rule is approved, employers across the country will be prohibited from executing non-competes with their employees. More importantly, all existing non-compete agreements would be rendered unenforceable, and companies will be required to actively inform employees and ex-employees of that fact.
Can you have a non-compete agreement in California?
Do non-compete agreements hold up in court in California? In short, no.
However, some California employers still include non-compete provisions in their employment agreements or ask employees to sign standalone non-competes. The employee may sign the agreement simply because they don’t know any better, and believe that the provisions are binding. In turn, they can be discouraged from pursuing other work opportunities, unless they seek their own legal counsel or research the issue themselves. This is especially harmful to low-wage workers who believe they’re prohibited from seeking better employment.
Ultimately, if you want to protect your company’s confidential or proprietary information, you should draft a non-disclosure agreement or other protective contract instead. Non-disclosure agreements prohibit employees from disclosing confidential information to third parties during their employment and, depending on how the agreement is drafted, for a limited period after employment ends.
Can I work for a competitor if I signed a non-compete in California?
If you work in California and have signed a non-compete agreement, you’re not bound by the agreement. If a company tries to enforce the agreement, California courts will generally refuse to enforce the provisions. Employees are entitled to work for competitors—or directly compete with an employer—after their original employment ends.
If an employee is bound by a non-disclosure agreement, however, they won’t be able to disclose the specified confidential information to their competitors.
Discover SixFifty’s state-specific employment documents platform
As you can see, non-competes are not enforceable in California, although other states currently allow them. Instead, you can opt for a non-disclosure agreement, or hire employees who live and work in other states. Whichever option you choose, it’s important to ensure that your employment documents are compliant with all local, state, and federal laws—and that can be an expensive, time-consuming proposition.
Instead of relying on your own research or one-size-fits-all templates, SixFifty can help. Our Employment Docs platform has been created to help employers create the documents they need for all stages of employment, from non-compete and non-disclosure agreements to employee handbooks and more. Don’t leave your company open to risk. Instead, generate your own customized, state-specific documents. We keep a close eye on changes to employment legislation across the country, so your documents will be current and compliant whenever you create them.
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