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California Further Restricts Employers Trying to Enforce Non-Competes

Companies that have headquarters outside of the Golden State typically have employment contracts that purportedly are governed by the substantive law of the state in which the enterprise is headquartered. Even when the company hires workers who live and work in California, the choice of law provision in an employment agreement generally reigned. While this may have been true before, California’s 2017 labor laws changed this and companies need to make themselves aware of the current law if they have connections to the state.

California Labor Code

Under section 925 of the California Labor Code, a company’s ability to apply the substantive law of a different state to California employees is limited. This law, which went into effect earlier this year, only applies to employment contracts that were “entered into, modified, or extended on or after January 1, 2017.” In other words, these changes are not retroactively applied.

Specifically, section 925 forbids an employer from mandating an employee who primarily resides and works in California to agree to a provision in an employment contract that would require the employee to litigate or arbitrate outside of California in a claim arising in the state, or deprive an employee of the substantive protection of California law regarding a case arising in the state. The law applies to any agreement, including employment contracts, non-disclosure agreements and intellectual property agreements. A contract with an employee who is individually represented by an attorney who negotiated the terms of the contract to designate the forum, venue or choice of law, however, is exempt from this law. Moreover, any section of a contract that violates the law is voidable upon the employee’s request. A dispute over a voided provision would have to be litigated or arbitrated in California and apply the state’s law.

Non-Compete Agreements

Generally, non-compete clauses are not enforceable in the state of California. Some employers, however, were requiring California workers to sign employment contracts that contain non-compete clauses with terms that provide the agreement is governed by another state’s law or mandates the disputes be adjudicated outside of California, where the stated choice of law will likely be honored. Section 925, in short, would prohibit employers, even if headquartered outside of California, from circumventing California’s public policy that strongly favors employees. Finally, while non-compliant clauses are voidable under Section 925 the law also forbids an employer to require an employee to agree to these terms in the first place. When an employer violates California Labor Code, it will be subject to liability whether or not the provision is enforced by the employer or challenged by the worker.

Pleasanton Business Attorneys

The knowledgeable business attorneys at Garcia & Gurney, ALC, can assist business owners and shareholders in the Contra Costa, Alameda and Pleasanton areas understand the changing laws and how they affect California enterprises. Available to handle business law issues for all types of industries, these business law attorneys can guide you every step of the way. Services include entity formation, business transactions, and commercial litigation for enterprises in the Bay Area and beyond. To speak with a Pleasanton lawyer today, contact us by phone at 925-468-0400 or online.

The information contained in this article is provided by Garcia & Gurney, ALC (“G&G”) and is provided for educational and informational purposes only and should not be construed as legal advice or an offer to perform services on any subject matter. Recipients of this article should not act or refrain from acting on the basis of any information included in this article without seeking appropriate legal advice on the particular facts and circumstances at issue from an attorney licensed in the recipient’s state. G&G expressly disclaims all liability with respect to actions taken or not taken by the recipient based on any or all of the information or other contents in this article. This article not intended to constitute an advertisement for professional services or any other services. Nothing herein is intended to create an attorney-client relationship and shall not be construed as legal advice.

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