Are Non Compete Agreements Enforceable in California?

Non-Compete-1-300x200In the innovative and competitive culture of the California job market, intellectual property rights are valuable and fiercely guarded. Many employers favor agreements which prohibit their employees from disclosing trade secrets or working for their competitors. Unfortunately, many of these agreements are wholly unenforceable by a California court of law. With the legal advice of an experienced California intellectual property attorney, business owners can access the appropriate tools to protect their legal interests.

The Trouble With Non-Compete Agreements

As a general rule, California law does not allow for enforcement of non compete agreements (NCAs) against an employee after he or she leaves the company. This position espouses a larger public policy which favors an employee’s right to choose to change employers. Many employers believe they can get around the rule prohibiting NCAs with careful wording or crafty legal argument. California courts have almost always seen through these creative tactics, and uniformly refused to enforce them against employees. The Huffington Post reports on just some of the many arguments which have not persuaded California courts:

  • The company is headquartered in a state which does recognize non-compete agreements, not California.
  • The non-compete agreement had a “choice of law” provision to interpret the agreement under the law of a state which does recognize NCAs.
  • The NCA was a separate contract entered into after employment, and the employee was given separate compensation in exchange for the promise not to compete.
  • The employee was required to give advanced notice of leave (typically ninety to one hundred eighty days) and received full pay and benefits during this time.

There are, however, a few important exceptions to the rule prohibiting NCAs. Changes in ownership can result in impaired goodwill of a business. To protect against this contingency, California law allows the enforcement of non-compete agreements against the person who sells a business, or owners who sell their interests and leave business operations intact. The rule also applies any time a partner leaves a business. Yet California courts are, again, aware of the potential for abuse of this rule, and refuse to enforce NCAs against employees who were merely granted nominal shares to create an ownership interest in the business.

Other Methods of Protecting Intellectual Property

Despite the fact that NCAs are generally unenforceable, employers have a broad range of other tools to protect their legal interests in intellectual property. Non-disclosure agreements (which prohibit an employee from disclosing trade secrets and other intellectual property developed for a prior employer) are far more enforceable than NCAs. Employers can also avoid employee agreements altogether by protecting the intellectual property itself. Copyrights, patents, and trademarks can all be registered with the United States Patent and Trademark Office. These tools have the benefit of giving legal protection to the asset itself, rather than tangling employers in costly litigation over employees’ rights.

Effective Legal Advice for All Contractual Disputes

If you have questions about any contractual rights or responsibilities, the experienced California intellectual property attorney at Structure Law Group are here to help. Call (408) 441-7500, email or use our online contact form to schedule your consultation today. We will help your business access the appropriate tools for protecting your trade secrets and intellectual property.