Recent cases have called into question whether non-competition provisions in employment agreements are enforceable in California. California Courts have found non-competition provisions invalid and unenforceable as violations of Section 16600 of the Business and Professions Code, even if narrowly drawn, unless they fall within the applicable statutory exceptions of sections 16601, 16602, or 16602.5, when these provisions were sought to be enforced post-employment.
In the California Second Appellate District case of Techno Lite, Inc. v. EMCOD, LLC, decided this January, two former employees of Techno Life, Inc. tried to get the Court to extend the prohibition against non-competition agreements to their competition with their employer during employment. The employees based their argument on the text of Section 16600:
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.
There are statutory exceptions in sections 16601, 16602 and 16602.5 for noncompete provisions relating to sales of businesses, dissolutions of partnerships or dissociations of a partner from a partnership, and a dissolution of a limited liability company or a termination of a member’s interest in a limited liability company.
The appellate court rejected the employees’ argument. It found that Section 16600 has been interpreted by courts to strike down noncompete provisions in employment contracts that apply post-employment, not during employment, and that no public policy would be served by permitting an employee, while employed by the employer, to violate the duty of undivided loyalty by competing against the employer. The court concluded that section 16600 “is not an invitation to employees to bite the
hand that feeds them.”
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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