Covenants Not to CompeteYou may have heard that California has a ban on covenants not to compete, also referred to as non-compete clauses. This isn’t entirely the case, however. There are certain circumstances in which covenants not to compete are still legal and valid in the state of California. An experienced California contract lawyer can help you determine which laws and loopholes apply to your case.
What Is a Covenant Not to Compete?A covenant not to compete is a clause in an employment contract which prohibits an employee or former employee from working with a competing business or disclosing private company information to competitors. These clauses are designed to protect companies from losses in revenue due to an indiscretion or malicious behavior on the part of an employee. Covenants not to compete can pertain to current employees, former employees, or employees who are terminated due to the sale of a business.
When Are Covenants Not to Compete Legal in California?Generally speaking, covenants not to compete are not valid in the state of California because legislators believe they inhibit healthy competition among businesses as well as an employee’s right to work within a given industry. Still, there are exceptions to this rule. In some cases, including cases involving the sale of a business or a company brand, covenants not to compete may be valid and legally binding.
Covenants not to compete may also be valid in California during the term of employment, but not after an employee quits or has been terminated. Moreover, in business ownership situations involving the dissolution of partnerships, non-compete clauses may be legitimate.