Unlike almost all other states, employee non-compete agreements are unlawful and unenforceable in California. This protects the ability of California residents to find work where they are most skillful. It also allows California employers to hire the best and most productive work force.

The prohibition against restraints on trade, found in Business and Professions Code Section 16600, applies to anyone in California.

It has also been held to apply to employees who may be subject to a non-compete in another state, when they are seeking employment in California. This means a non-compete agreement that may be enforceable against someone in Missouri is not enforceable against them if they move to California and seek to work in the Golden State.

Although California employers are subject to this law, this only applies to their California workforce. Continuing the example, if a California based company has an office in Missouri, then the employees in Missouri are subject to Missouri law. Not California law. This makes sense when one consider other laws such as overtime and minimum wage. It is the laws of the state where one works that regulate their employment in that state. Not where the employer may be based or have other offices.

Another limitation of California non-compete agreements is that the ability to compete is not an open door to unfairly compete. This typically means not being able to take and use confidential, private, and trade secret information from a prior employer.

Ultimately then, a former employee in California is in the same position as any other competitor. They are not in a worse position by not being able to compete just as other competitors are not prohibited from competing. On the other hand they are not in a better position by being able to use confidential information from a prior employer just as other competitors are not privy to that information.

Attorney Brian Kindsvater is perhaps ‘the’ expert on California non-compete law. Brian Kindsvater offers on his legal website the opportunity to obtain a special California Non Compete Guide with over 20 pages of advice, tips, and recommendations for California non-compete employee situations.

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There are several reasons a business might decide to employ a non-disclosure or a non-compete agreement (collectively known as “restrictive covenants”):

* The business is engaged in work that grants its employees access to sensitive information which, if publicized, would get said business sued by its clients. Such work can range from managing e-mail exchange servers to working at a PR agency where the job is to know and hide the clients’ skeletons.

* The business relies on certain proprietary information, such as client lists, to deliver its product and publication of such information would give its competitors an unfair edge.

In either case, it is in the business’ best interests to make sure that its sensitive information does not make its way into the wrong hands.

The Agreement

A non-disclosure or non-compete agreement is basically a contract between the employer and its employee where, for some valuable consideration (like a job and salary), the employee promises not to divulge any sensitive information learned during the course of employment or the employee promises not to go work for competitors for some period of time after the employment terminates.

As with all contracts, restrictive covenants require an exchange of consideration to be enforceable. The law defines consideration as a “bargained-for exchange between the parties,” in other words, something each side wants and promises to give to the other side. This is why restrictive covenants should be signed at the beginning of the employment relationship: There is no consideration when the employer promises the employee something he is already giving him (a job and salary). So NDAs signed mid-employment should be bought for something extra, like a bonus or a promotion, to be enforceable.

Enforcement of Non-Disclosure / Non-Compete Agreements

As with all breach of contract situations, the first step to enforcing a breached restrictive covenant is to send the breaching party a “Demand Letter.” The letter should contain the following:

* Reminder of an existing non-disclosure / non-compete agreement along with a summary of its terms.

* Explanation of how the employee / ex-employee breached such terms.

* Demand that the employee comply with the terms of the agreement within a certain number of days (10 is the standard number).

* Warning that failure to comply will be met with pursuit of all available legal remedies.

While the Demand Letters are usually ignored by the breaching party, they are necessary because most lawsuits based on breach of contract require a showing that the breaching party was warned of the breach and given an opportunity to comply. Which takes us to…

Court Relief

It is too late to stop a person from disclosing information once he has already disclosed it, so non-disclosure agreements are generally enforced by means of monetary relief. The Court will force the breaching party to pay the plaintiff a sum of money which plaintiff has proved to represent the total damages it suffered due to the breaching party’s conduct. Thus, the practical function of a non-disclosure agreement is to give employees notice that, should they breach the agreement, they will get sued and they will lose money — it is a deterrence mechanism.

Non-compete agreements are trickier because plaintiff, here, wants to force the breaching party to stop doing something it is already doing (competing). In this case, legal enforcement takes the form of an injunction ruling by the Court which commands the breaching party to stop what it is doing or face contempt. Civil contempt generally takes the form of steep fines and fees.

NY Does Not Like Non-Compete Agreements

New York courts take a very strict view of non-compete agreements because New York has a strong policy against preventing people from plying their trade and earning a living. New York courts generally require the following before they will enforce a non-compete agreement:

* The restraint must be reasonable such that it “is no greater than is required for the protection of the legitimate interest” of the party seeking enforcement.

* Legitimate interests are limited to “the protection against misappropriation of the employer’s trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary”.

* A restrictive covenant against competition must also be reasonably limited temporally and geographically.

What this basically means is that the geographical scope and time of the non-compete should be reasonably limited, and that the purpose of the non-compete is to protect the employers “legitimate interests.” What constitutes “legitimate interests” often becomes the subject of heavy litigation.

Notice: This material is for information purposes and does not constitute legal advice that is tailored to your own personal circumstances and should not replace legal advice of an attorney. Although we try our best to keep the information updated, the material is not guaranteed to be up to date or complete.

More articles at www.bukherlaw.com

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