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Are noncompete agreements valid in California?

On Behalf of | Sep 29, 2022 | Business Law & Litigation

When employers in northern California hire employees, they have certain job requirements for them and expectations that they will fulfill those requirements. In order for employees to complete their job tasks, they need certain information from and about the company. Some of this information gives the company an edge over their competitors and have an interest to keep that information from them.

Employers don’t want their employees to take their knowledge of the internal workings of their company to competitors, which can potentially harm their business. Many try to have their employees sign noncompete agreements. These agreements generally restrict the employee from working for competitors and clients of the business for a period of time. However, these types of agreements are not valid in California. Employers are prohibited from having their clients sign them and could face penalties if they do.

Exceptions to prohibiting noncompete agreements

There are a couple of exceptions to this rule. One is if the owner of a business sells their ownership interest in the company to a buyer. They can agree to a noncompete agreement to restrict them from operating a similar business within a certain geographic area around the current business.

Partners who leave a partnership may also agree on a noncompete agreement as long as the other partners continue to operate the business within the same geographic area as the current partnership. This also applies to the dissolution of a partnership. This is true for members leaving a limited liability company (LLC) as well.

This means that noncompete agreements are not legal for most employees living in northern California. This may not stop employers from trying to have their employees sign them. They may be deemed void, but they can still make employees worried about their validity. Having them sign the agreements can still have the same chilling effect on the employees willingness to compete against the company. The employer could be required to pay penalties if they force their employees to sign them and the employees may be entitled to compensation. If people sign these noncompete agreements, consulting with experienced attorneys could be beneficial.