Restrictive Covenants
Restrictive covenants are clauses in employment contracts that aim to limit what a worker can do during or after employment.
In California, however, most restrictive covenants—especially non-compete agreements—are unenforceable. The state has strong public policies that favor employee mobility and free competition.
Types of Restrictive Covenants
The most common restrictive covenants in employment agreements include:
- Non-compete clauses: Prohibit employees from working for competitors or starting a competing business after leaving a job.
- Non-solicitation clauses: Prevent employees from soliciting the employer’s customers or other employees for a set period.
- Confidentiality clauses: Restrict the use or disclosure of proprietary or sensitive company information.
While confidentiality agreements are generally valid, non-compete and non-solicitation provisions are heavily restricted.
Case Results
California’s Legal Stance
Under Business and Professions Code § 16600, California law states:
“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 means:
Courts have repeatedly rejected attempts to enforce restrictive covenants that go beyond protecting trade secrets or confidential information.
Limited Exceptions
Some exceptions to the ban on restrictive covenants include:
- Sale of a business: A seller may agree not to compete with the buyer in a specific geographic area.
- Partnership or LLC dissolution: Agreements between business partners or members of an LLC may include non-compete terms in connection with dissolution.
- Trade secret protection: Employers can use confidentiality agreements and take legal action if an employee misappropriates trade secrets under the California Uniform Trade Secrets Act (CUTSA).
New Enforcement Requirements
As of January 1, 2024, under SB 699 and AB 1076, employers must:
- Notify current and former employees (employed since 2022) by February 14, 2024, that any non-compete clauses in their agreements are void.
- Refrain from attempting to enforce illegal non-compete clauses, or face civil penalties under California Labor Code § 432.5 and Business and Professions Code § 17200.
Legal Remedies
Employees forced to comply with an invalid restrictive covenant may seek: