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Ask a Lawyer -- Contract Law
Contract Law Question 9
Question: Are noncompete agreements valid in California?
Response: California Business and Professions Code Section 16600 provides: "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." Link. The enumerated, narrow exceptions are: (a) sale of a business, (b) partnership dissolution, and (c) disassociation of a partner. Link.
A typical noncompete agreement for employees usually has several elements: (a) nondisclosure of confidential information of employer, (b) non-solicitation of customers of employer, and (c) non-competition with employer in employer's business segment within a defined geographic region. A contractual confidentiality / nondisclosure agreement, in my opinion, does not run afoul of California Business and Professions Code Section 16600 as, such an agreement, does not "restrain from engaging in a lawful professional, trade or business." Thus, protection of an employer's customer lists and other business trade secrets through a confidentiality agreement appears acceptable. See California's Uniform Trade Secret's Act (California Civil Code Section 3426). An employer has limited rights in California to enforce an agreement that a former employees will not use the employer's confidential
information. Metro Traffic Control, Inc. v. Shadow Traffic Network, 22 Cal.App.4th 853, 861 (1994). In Electro Optical Indus., Inc. v. White, , 76 Cal. App. 4th 653 (1999), the court held that a employer must "demonstrate actual use or disclosure [of its confidential information], or actual threat thereof" by the employee to prevail in its quest for a preliminary injunction against the employee. Does defining an employer's customer lists as confidential information in a confidentiality agreement give the employer the power to prevent an employee from soliciting its customers? I think that is still an open question in California. The interplay between California Commercial Code Section 16600 and the California Trade Secrets Act is still a developing area of the law. See article and article 2.
Bottom line: Although noncompete agreements (absent involvement of one of the enumerated exceptions) are void in California, a confidentiality / non-solicitation agreement, if drafted narrowly, is probably lawful and shall accomplish many of the same goals as a noncompete agreement.
Submitted: 4-20-2006; Harold, CA
Response: 4-20-2006; JJR
User Comments
From: Joe
State:Missouri
Posted: 04/02/2008
Subject: Related post
Comment:
Please see a related post on this topic.
From: Joe
State:Missouri
Posted: 05/21/2008
Subject: related post
Comment:
Please see a related post on California Business Code Section 16600: employee separation agreement, indirect restraint.
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