Posted by Dave_CA on 9/25/08 10:19am
Msg #265319

Non -compete agreements in CA

Quick Summary
Non-compete agreements are illegal in California. Many companies are unaware of
this fact, especially since non-compete agreements are legal in virtually all other
states. However, there are two exceptions in California. Non-compete agreements
are enforceable for partnerships and when someone is selling their ownership
interest in a company. A related topic is the protection of trade secrets. A company
can prevent the use of its trade secrets, but it cannot prevent fair competition.
Law Review
Non-Compete Agreements are Generally Illegal
Many companies seek to protect their business by requiring that
employees sign agreements to not compete with the company should
they leave employment. However, unlike in many other states, noncompete
employment agreements are illegal in California. Business
and Professions Code § 16600 provides that "every contract by which
anyone is restrained from engaging in a lawful profession, trade,
or business of any kind is to that extent void." Section 16600
invalidates agreements to preclude employment in a certain line of
work. The section has also been construed by California courts as
invalidating agreements that seek to prevent former employees from
accepting work from any of the former employer's clients. (Morris v.
Harris (1954) 127 Cal.App.2d 476.) A former employee may also
solicit employees from his or her former employer if unlawful means
or acts of unfair competition are not used. (Diodes, Inc. v. Franzen
(1968) 260 Cal.App.2d 244.)
Sample agreement held to be invalid: (Kolani v. Gluska (1998) 64
Cal.App.4th 402, 405)
"[T]hat for one year after employment not compete with a
radius of 40 miles for own account or on account of
another."
Trade Secrets can be Protected
A company is however, permitted to protect their trade secrets. One
type of trade secret is a customer list. Generally speaking, if a
company could prevent a former employee from using a customer list
Non-Compete Agreements Page 1 of 11
http://www.lawzilla.com/ca-emp-001.shtml 11/21/2002
or trade secret to prevent unfair competition, the company can enforce
an agreement that former employees will not use the confidential
information. (Metro Traffic Control, Inc. v. Shadow Traffic Network
(1994) 22 Cal.App.4th 853, 861.) For example, an employee could
validly be required not to use a confidential list of preferred customers
for one year after leaving employment. (Gordon v. Landau (1958) 49
Cal.2d 690.) By comparison, though, even if a former employee cannot
solicit his or her former employer's clients, merely informing
customers of one's former employer of a change of employment,
without more, is not solicitation. Neither is discussing business after
being first invited by the former employer's customer. (Hilb, Rogal &
Hamilton Ins. Services v. Robb (1995) 33 Cal.App.4th 1812, 1821-
1822.)
As indicated by the following language from one court, protection of
trade secret provisions are treated differently from non-compete
provisions and are valid and proper. "It clearly appears from the terms
of the contract that it did not prevent defendant from carrying on a
weekly credit business or any other business. He merely agreed not to
use plaintiff's confidential lists to solicit customers for himself for a
period of one year following termination of his employment. Such an
agreement is valid and enforceable." (Kolani v. Gluska (1998) 64
Cal.App.4th 402, 406.)

This is just FYI as I'm not a lawyer, but I do watch Boston Legal & Raising the Bar...