On July 8, 2021, President Biden signed an executive order directing the Federal Trade Commission to adopt rules that curtail non-compete agreements in the workplace. While President Biden’s “non-compete” executive order may not have an immediate effect on employers who have required their employees to sign non-compete agreements, if you do business in California or employ California residents, you should know that non-compete agreements are void, illegal and unenforceable in California.
Applicable law, California Business and Professions Code §16600, provides: “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 law provides that non-compete agreements which restrict any employee or former employee from engaging in lawful work are against public policy and void.
In California, employers cannot prevent a former employee from working for the competition, may not prohibit their former employees from soliciting customers, and may not prohibit an employee from leaving to go work for a former employee.
Any California business that has required its employees to sign a non-compete agreement or has a non-compete clause in an employee confidentiality agreement should know that they are void and unenforceable. And even without President Biden’s Executive Order yet being effective, you should know that most states find overreaching, anti-competitive, employee non-compete agreements to be generally unenforceable and disfavored.
Surprisingly, in recent years, I’ve seen has seen more and more California employers requiring non-compete agreements for both new hires and existing employees, ostensibly in the name of protecting trade secrets. While a business may protect its trade secrets, the recent push for non-compete agreements in the California workplace has been, to put it politely, a rather “ham-fisted” approach. Many businesses have required non-compete agreements in an overbroad, sweeping manner from all employees: from the receptionist to the CFO.
I’ve even seen prominent California employment laws firms include non-compete agreement language in their client’s employee policy/hire packets. I regret to inform any business which hired that $800/hour employment attorney and was advised to use non-compete with their California employees: the agreements are unenforceable in California.
Many companies (sometimes on the advice of employment counsel) have required their employees to sign both a non-compete agreement and a confidentiality agreement. Recently, there has been an uptick in the practice of adding non-compete provisions to confidentiality agreements.
If your employee confidentiality agreements, or any confidentiality agreement you use, contain a non-compete clause, at best, the clause is void and unenforceable, at worst, the entire agreement is void or unenforceable.
If your business requires California employees to sign non-compete agreements or confidentiality agreements with non-compete clauses you are exposed to liability.
- Under California law, damages and penalties are available to any employee required to sign a non-compete agreement.
- Employers can be held liable for firing or refusing to hire an employee for not agreeing to sign a non-compete agreement.
- If you try to enforce a non-compete agreement against a former employee- including a terminated employee- you may be liable to them for interfering with their new employment opportunity. Former employees may bring a tortious interference claim and win damages.
If your employee confidentiality agreements include non-compete language, you should cease using them in California and replace your document right away. Furton Legal can review and modify your employee confidentiality agreements, or provide an entirely new agreement form. Contact us for help.
If any of your confidentiality agreements include non-compete language, you should cease using them in California, and replace your document right away. Furton Legal can review and modify your confidentiality agreements, or you can purchase a standardized California confidentiality agreement from The Document Lawyer.
If you would like a review of your existing confidentiality agreements, or wish to explore ways to protect your business’ trade secrets, contact us. Furton Legal can help.