Understanding Non-Compete and Non-Solicitation Agreements

Posted on April 17, 2018

In California, non-compete agreements are illegal and void for employees and independent contractors.

The three main types of restrictions are (1) a true noncompete where an employee cannot work for a competitor, (2) a non-solicitation of customers restriction, and (3) and non-solicitation of employee’s restriction.

The only exception in California is for the owners of a business, corporation, LLC, or partnership. If you sell your ownership in a business, you can be prevented from turning around and soliciting your former customers and taking them from the business you sold.

If an employer terminates an employee who refuses to sign such an agreement they may be liable for wrongful termination in violation of public policy.

An employee can be prohibited from using trade secret and confidential information.

For example, they can be prohibited from using a confidential customer list to solicit customers. However, the claimed protection of trade secrets cannot be used to impose a noncompete. A contract term saying an employee cannot use confidential company information to solicit customers post-employment is a valid protection of company information. This allows a former employee to compete, so long as they are not using confidential information.

What about Non-Solicitation restrictions?

Most states allow employers to ask employees to sign non-solicitation agreements, in which they agree that they will not solicit their coworkers for a given period after leaving the company. Some states will even allow a “no hire” agreement, in which the employee agrees not to hire former coworkers, even if the employee has taken no steps to actively seek out or encourage the coworkers to leave the company.

In California, the courts have generally held that “no hire” agreements are illegal. In other words, your employer cannot stop you from hiring co-workers who decide to leave of their own accord.

On the other hand, a non-solicitation agreement that merely prohibits you from actively reaching out to former coworkers about job opportunities is more likely to be enforced. However, even then, the agreement should be limited in time (for example, one or two years) and scope (for example, limited to coworkers with whom you worked).

What about a Non-Poaching agreement?

Careful, the federal government is starting to go after companies who have agreements with other companies not to “poach” or solicit their employees. The Department of Justice views this as violating Anti-trust laws is starting to file criminal charges against employers in these arrangements. 

The bottom line about non-compete and non-solicitation agreements is that in most cases they are illegal and are not enforceable in California. Even if you are an out of state employer who employs workers in California, they can still not be enforced. Many employers still have employees sign these agreements and think they are enforceable, which is surprising considering the stance that California has taken on the matter. 

Lauren Sims is the article’s author and the Director of Human Resources.

Whenever you require professional Human Resources or Payroll guidance to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, contact us for a no-obligation consultation.

eqHR Solutions offers professional, tactical and strategic human resources support; ADP payroll product implementation/training and payroll processing services for businesses throughout Southern California.