California Business Litigation: Non-Compete Enforcement

Questions about a non-compete or threatened enforcement? Contact our California business litigation team.

Overview: California’s Public Policy Against Non-Competes

California has one of the strongest public policies in the nation against contractual restraints on employment mobility. Bus. & Prof. Code § 16600 voids contracts that restrain anyone from engaging in a lawful profession, trade, or business, subject to narrow statutory exceptions. Courts routinely refuse to enforce employee non-compete clauses, and recent legislation has expanded worker protections and employer exposure for using unlawful restrictions.

Core Statutes Governing Non-Competes

• Bus. & Prof. Code § 16600: Declares void any contract restraining a person from engaging in a lawful profession, trade, or business of any kind, subject to statutory exceptions. Source
• Bus. & Prof. Code §§ 16601–16602.5: Provide narrow exceptions allowing reasonable restraints in the sale or dissolution of a business, partnership, or LLC where goodwill and/or a defined territory is implicated. Source
• Bus. & Prof. Code § 16600.1: Makes it unlawful to include a non-compete clause in an employment contract or to require an employee to enter a non-compete; requires employers to notify certain current and former employees that any non-compete in their agreements is void; and designates violations as unfair competition. Source
• Bus. & Prof. Code § 16600.5: Confirms that non-competes are void in California regardless of where the agreement was signed and prohibits employers from entering into or attempting to enforce such non-competes. Creates a private right of action for injunctive relief, damages, and attorney’s fees for affected employees. Source

Non-Solicitation and No-Recruit Clauses

Clauses restricting solicitation of customers or recruitment of employees are closely scrutinized under § 16600. Broad customer or employee non-solicitation provisions that operate as de facto non-competes are often invalid.

• The California Supreme Court rejected narrow-restraint exceptions to § 16600 in Edwards v. Arthur Andersen LLP. Edwards (2008)
• Employee no-recruit provisions have been invalidated where they restrain worker mobility. See AMN Healthcare, Inc. v. Aya Healthcare. AMN (2018)
• Courts may enjoin solicitation that is based on trade secret misuse, but not lawful competition. See The Retirement Group v. Galante. Galante (2009)
• Exceptionally tailored restrictions tied to the sale of a business may be treated differently under §§ 16601–16602.5.

Trade Secrets vs. Non-Competes

California protects trade secrets through the Uniform Trade Secrets Act (CUTSA), but employers cannot use trade secret law to impose a backdoor non-compete. Courts require proof of actual or threatened misappropriation; mere knowledge, experience, or general skills is insufficient to restrain lawful employment mobility.

Choice-of-Law and Forum Selection

Employers sometimes select another state’s law or forum to enforce non-competes. California statutes and public policy can override such provisions for employees who reside and work in California.

• Lab. Code § 925: Generally voids provisions that require a California employee to litigate outside California or under non-California law in agreements entered on or after January 1, 2017, with limited exceptions for individually negotiated agreements. Source
• Bus. & Prof. Code § 16600.5: Confirms California’s non-compete prohibition applies regardless of where a non-compete was executed. Source

Enforcement Landscape and Remedies

• Employees and prospective employees may seek declaratory and injunctive relief to prevent enforcement of unlawful restraints.
• Attempting to enforce a void non-compete can expose employers to a private civil action for injunctive relief, damages, and attorney’s fees under § 16600.5. Source
• Including non-competes in employment agreements or failing to provide required notice may constitute an act of unfair competition under Bus. & Prof. Code § 17200, subject to enforcement and remedies provided by that statute.
• In sale-of-business scenarios, courts assess whether a restraint is reasonable in scope and necessary to protect goodwill transferred with the business.

Practical Guidance for Employers

• Avoid employee non-compete provisions for California workers. Focus on well-drafted, reasonable confidentiality, invention assignment, and conflict-of-interest policies that comply with California law.
• When hiring from competitors, assess any restrictive covenants and California’s applicability before onboarding. Do not solicit or use a competitor’s confidential information.
• In a business sale, structure any restraint narrowly—tie it to transferred goodwill, define reasonable geography linked to actual markets, and limit duration to what is necessary to protect the acquired value.
• Update templates and provide any required notices to current and former employees that non-compete provisions are void (note: AB 1076 required notice by February 14, 2024 for certain workers).

Practical Guidance for Employees

• If presented with a non-compete or broad non-solicitation clause, know that such provisions are generally void under California law, with narrow sale-of-business exceptions.
• Before changing jobs, review confidentiality and trade secret clauses. Do not retain employer property or confidential information.
• If threatened with enforcement, seek prompt legal advice about obtaining a declaration of rights or injunctive relief.

Tip: Drafting Alternatives to Non-Competes

Checklist: Responding to a Threatened Non-Compete

When Litigation Arises

Non-compete disputes often involve requests for temporary restraining orders or preliminary injunctions. Courts evaluate likelihood of success, potential irreparable harm, and the balance of equities. California’s strong policy against non-competes substantially shapes this analysis, though claims alleging trade secret misappropriation or unfair competition can proceed where supported by evidence.

Key Exceptions: Sale of Business and Ownership Interests

California permits reasonable restraints in limited sale-of-business contexts. Where an owner sells the goodwill of a business or a substantial ownership interest, a non-compete tailored to the business’s market and geography may be enforceable. Similarly, upon dissolution of a partnership or LLC, members can agree to reasonable territorial restraints. Outside these statutory contexts, restraints on employment are generally void.

Recent Legislative and Enforcement Trends

Effective 2024, California strengthened its framework by clarifying that employment non-compete clauses are void and unlawful to include, requiring employer notice that such clauses are unenforceable, and confirming that California’s ban applies regardless of where a non-compete was signed. State enforcement authorities and private litigants continue to scrutinize unlawful restraints and related no-poach agreements.

FAQs

Are employee non-competes ever enforceable in California?

Generally no, except in narrow sale-of-business scenarios under §§ 16601–16602.5.

Can an employer enforce an out-of-state non-compete against a California worker?

California law typically prevents this, and Lab. Code § 925 and § 16600.5 limit such workarounds.

Are customer non-solicitation clauses valid?

Often not in employment agreements; trade secret misuse can be restrained, but not lawful competition.

What remedies can employees seek if a non-compete is asserted?

Declaratory and injunctive relief, damages, and attorney’s fees under § 16600.5 where applicable.

Takeaways

• Employee non-competes are generally void in California.
• Narrow statutory exceptions exist for the sale or dissolution of a business.
• Overbroad non-solicitation and no-recruit provisions face significant risk.
• Trade secret protections remain available but cannot substitute for a non-compete.
• Update agreements, provide any required notices, and avoid attempting to enforce void restrictions against California workers.

Need guidance on a California non-compete dispute? Speak with our team.