Non-Competition Agreements

California’s strong public policy against non-competition agreements is one of the reasons why Silicon Valley exists.

In most states, at the time of hiring or during employment, employers can require employees to sign an agreement not to compete with the employer’s business after termination of employment, so long as the agreement is *reasonable.* Each state has a different interpretation of what is *reasonable* but in general, in those states, the agreement must be limited in three ways:

1. The scope of the business that is considered competing,
2. The territory where the employee is not allowed to compete, and
3. The length of time during which the employee may not compete.

In California, however, Business and Professions Code 16600 expressly prohibits employers from requiring employees not to compete with them after their employment has ended, in any way (regardless of how employment may have ended):

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.

This policy in support of “freedom of movement” of employees is very strong in California. In 1872, just seven years after the abolition of slavery and indentured servitude via the 13th Amendment, the legislature parted with the English common law “rule of reasonableness” standard for non-competition agreements and enacted Civil Codes 1673-75, the precursors to today’s Business and Professions Code 16600-16602.

The courts have applied these statutes and the public policy over the years to show that unless you fall into one of the narrow statutory exceptions (set forth in 16601-16602.5) where a non-competition agreement is acceptable, the contract is void, and, in fact, may be the basis of tort claims against the employer who required you to sign it.

This means that in California, an employee could leave Google and immediately start a software start-up in Mountain View, whereas in Boston, that same Google employee may be subject to a contract that would mean she couldn’t start a software company in the same location for a year, or possibly even longer.

This provision does not give employees permission to utilize their former employer’s trade secrets in their new businesses, of course, but it does give them the freedom to apply their generally applicable skills in a new venture that may be competitive with their former employer.

We can thank the California legislators of 1872 and the judges who have applied this law and the policy in support of each individual’s right to work in his or her chosen profession for helping to create an environment where so many new technology companies can be started and thrive.

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