Non-compete agreements were largely designed to protect businesses with employees who have unique technical or creative skills and knowledge of the business from taking their knowledge and skills to a direct competitor as soon as they leave. However, often hourly workers in lower-paying industries have been required to sign them. California has banned noncompete agreements except in very limited circumstances. President Joe Biden issued an executive order last year encouraging federal limitations be placed on such agreements as well.
Non-compete agreements are prohibited and unenforceable in California
California has largely prohibited non-compete agreements. Nevertheless, employers sometimes use onboarding paperwork that includes over-broad non-compete provisions. Under California’s Business and Professions Code, non-compete provisions may be enforceable only if they fall within the scope of the narrow statutory exceptions concerning 1) the sale of a business’s goodwill, ownership interest, or assets, 2) the dissolution of a partnership, or 3) the dissolution of a limited liability company.
Review company policies
It’s wise for all businesses to review their employment policies and agreements to ensure that they don’t contain prohibited non-compete language. It can also be helpful to make sure your supervisors are knowledgable about the company’s policies so employees are not given inaccurate information that leads them to believe they’re being illegally restricted from working for a competing business if they leave.
Having legal guidance as you draft, review and update your employment policies can help you avoid costly legal actions.