California and non-compete agreements in Hiring Process

Bad news for businesses hiring: the non-compete agreements you sign with your new employees are void in California, regardless of whether they are reasonable.

As an employer in California, you can be held liable for firing or refusing to hire an employee who does not agree to sign a non-compete agreement.

Also, if you try to enforce a non-compete against a former employee, it is considered interfering with the employee’s contractual relations with a new employer.  In other words, you cannot lawfully prevent your employees from taking a job with your competitors after they leave your employment.  A non-compete cannot be enforced even if you have all the reasons to believe that the employee will use confidential data from your company to perform the new job. You must wait and, if there is a violation, then you have to prove it and act against it.

It might seem incredibly unfair, especially after you train your employees in the industry and share the company data with them.

But why do we have this law in California?

California courts affirm that this law protects Californians to “engage in businesses and occupations of their choosing” and favors “open competition and employee mobility”.  Some scholars even say that this law fostered Silicon Valley’s vibrant innovation and start-up culture.  However, the reality is that the policy keeps Californian residents employed and off the welfare and social services rolls.

As a business owner it is hard to compete with these reasons, but…there are some provisions of the law that you can use in your favor:

You can stop your current employees from taking a second job with your competitors. The court recognizes that a business needs to monopolize the current employees’ commitment to the success of the company and minimize the risk of sharing trade secrets with competitors.  You may lawfully prohibit your former employees to use the company’s trade secrets, such as proprietary customer lists.  Also, a former employee cannot use confidential information of your business to lure your current employees away to join his or her new business.  Finally, you can enforce a non-compete agreement against a former business partner, a former member of your LLC or the seller of the business.

California’s business laws are more complex than you could imagine, and any misunderstanding could compromise your business. Before you make any decisions on employment, contact our attorneys!

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