Thou Shalt Not: What You Need to Know About Non-Compete and Non-Solicitation Clauses
Whether you negotiated your employment contract or you simply signed an agreement when you were hired, your contract can come back to haunt you when you try to move on to your next opportunity. Non-compete and non-solicitation clauses are two of the most common unpleasant surprises that employees encounter. And while they are often highly problematic from a legal perspective, employers continue to insert them into contracts at almost every opportunity. If you have a non-compete or a non-solicitation clause in your contract, an employment contract lawyer can help you understand what impact these clauses may have on your next job.
What is a Non-Compete Clause?
A non-compete clause is a provision in an employment contract that limits or outright prohibits an employee from competing with the employer in the event that they quit or are terminated. This can include prohibiting an employee from going to work for a competing employer or starting their own business that would be considered as being in competition. These restrictions often work in one of two ways:
- A time-based restriction, such as prohibiting an employee from working for a competing employer for one year
- A location-based restriction, such as prohibiting an employee from working for a competing employer within a 30-mile radius
The purpose of non-compete clauses is to protect an employer’s investment of time and money into training their employees, only to have the employee use their training and experience to the benefit of a competitor employer. While this seems reasonable when considered abstractly, employers began insisting upon overly broad and onerously restrictive non-compete clauses that would essentially make it impossible for employees to leave.
Note that a non-compete clause would not prohibit an employee from going to work in a different industry or for an employer that does not compete in arguably the same market. That said, employers have traditionally been very aggressive in enforcing these clauses. This forces employees into paying legal fees to defend themselves in the event that they get sued.
Non-Compete Agreements Are Unenforceable in California
Non-compete agreements are void under California law. In September, Governor Newsom signed legislation that prohibits employers from entering into or attempting to enforce non-compete clauses in contracts. More importantly, any such provisions are void and unenforceable regardless of when the contract was signed. This means that non-compete clauses that were previously enforceable are now void.
Despite this fact, employees should be sensitive to the fact that employers will continue to insert these provisions into their contracts. This may be the case if the employer is headquartered in another jurisdiction or simply relies upon form employment contracts. Keep in mind that this doesn’t mean your entire employment contract is void, just that your employer cannot enforce that particular provision.
One thing to watch out for, however, is whether your contract includes a choice of law provision that stipulates that the law of some other jurisdiction will apply. This may be one way that employers attempt to make an end-run around the law in order to enforce a non-compete clause.
There may also be other exceptions that apply. The bottom line is that you should contact an employment contract lawyer for advice if your employer is attempting to enforce a non-compete clause in your employment contract.
A non-solicitation clause is one where an employee agrees not to hire or offer a job to other employees in the event that they leave their employer. These clauses apply in situations where the employee starts their own business or goes to work for another employer. Here is an example of how a non-solicitation clause would apply:
- Mary works for a software company that develops software for the healthcare industry. Over the last few years, she has hand-selected a team of software engineers and programmers that she really enjoys working with. She later decides to start a business focused on developing a travel app and leaves her current company. She decides to ask some of her former team members to join her at her new venture. Under her non-solicitation clause, this would be prohibited and her employer could file a lawsuit against her.
The intent behind these clauses is to protect employers from seeing a major exodus of labor and talent when a popular or influential employee goes to work elsewhere. Again, what started out as a reasonable concern, led to overly restrictive and unfair restrictions on employees.
Are Non-Solicitation Clauses Enforceable?
Like non-compete clauses, non-solicitation clauses are largely unenforceable in California. In general, California does not look favorably upon restrictive employment contracts that limit where employees can work and where they can be hired. However, there are several recognized exceptions:
- No negative impact: courts may find a non-solicitation clause enforceable if they determine that the provision has no overall negative impact on business or trade.
- Trade secrets: courts will allow the enforcement of a non-solicitation clause if they are necessary to protect confidential information such as trade secrets and prevent unfair competition from prior employees.
- Sale of the business: non-solicitation clauses have been deemed valid when they are part of an owner selling their entire business.
- Partnership dissolution: non-solicitation clauses can be enforced when partners agree not to solicit each other’s clients or customers in the event that the partnership is dissolved.
If you have a non-solicitation clause in your contract, an employment contract lawyer can review and discuss how it could impact your next move.
Speak with an Employment Contract at Attorneys for Employees Today
Whether it’s a non-compete clause or a non-solicitation clause, getting legal counsel before you make your big leap is an investment in your future success. We also work with employees whose employers are attempting to enforce these types of restrictions, helping them get the issue resolved through an aggressive defense. To discuss your contract and strategies for moving forward, get in touch with us to schedule a consultation.