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Can I force my employee to sign a non-compete agreement? Will it later be enforceable?

I am always surprised to hear about California employers forcing their employees to sign non-compete agreements as a condition of employment. This is likely because most employers are unaware that a non-compete agreement is unlawful in California unless the agreement falls within one of the narrow statutory exceptions specified in the California Business & Professions Code. Either an employer has used forms from the internet applying the law of another state, or an employer mistakenly relies on their out of state experience.

Under the statutory exceptions, non-compete agreements are lawful where 1) a person sells her business entity, 2) the seller promises the buyer not to conduct a similar competing business within a specific geographic area in which the original entity conducted business, and 3) the buyer carries on a like business in that area. A business entity includes any partnership, a limited liability company, or a corporation.

In addition, non-compete agreements are lawful when either 1) a person sells the goodwill of a business, 2) an owner of a business entity sells all of her ownership interest in the business entity, or all/substantially all of the operating assets of the business entity’s division/subsidiary, together with the goodwill of that division/subsidiary, or all of the ownership interest of any subsidiary, 3) a partner agrees to a non-compete agreement in the context of a dissolution of the partnership or from a partnership, or 4) a member of a limited liability company terminates her interest in the company, or the company dissolves.

The foregoing demonstrates that non-compete agreements in California will not be enforced, except in a few, very limited circumstances. If you as a California employer have forced your employee to sign such an agreement as a condition of employment, I recommend you discuss it with knowledgeable employment counsel to determine whether one of the statutory exceptions are applicable and to further find out what actions/step you should take if you are concerned about protecting intellectual property, trade secrets, proprietary and confidential information, and processes. It is important to make sure you get guidance on such matters before things get messy and your business is jeopardized.

If you have any questions or concerns regarding non-compete agreements or any other employment related matters, please contact Garcia & Gurney, ALC.

 

Garcia & Gurney, ALC legal articles should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents of these articles are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.

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