A non-compete agreement is a contract between an employee and employer. A non-compete prohibits an employee from engaging in a business that competes with his/her current employer’s business. While an employer cannot require you to sign a non-compete, they may terminate, or choose not to hire you if you refuse to sign. Courts generally do not approve of non-compete agreements. In disputes over non-compete agreements, courts consider certain factors to decide if the agreement is reasonable. However, non-compete agreements are generally void and unenforceable in California due to California Business and Professions Code Section 166000, which states, “Except as provided in this Chapter, every contract by which anyone is restrained from engaging in lawful profession, trade, or business of any kind is to that extent void.”
Thus, no matter how reasonable and justified a non-compete agreement may be, that promise will still be considered illegal under California state law. As a result, you will have a cause of action under California state law if you are discriminated, harassed or retaliated against because of your unwillingness to sign and/or enter into a non-compete agreement at the urging of your employer. This is because it is illegal for an employer to require an employee to enter into a non-compete agreement as a condition of the receipt of employment or an employment benefit. An employer cannot fire, deny employment, demote an employee for refusing to sign a non-compete agreement, and cannot make the provision of employment benefits, vacation time and work leave based on an employee’s agreement to sign a non-compete agreement, in California.
Trade Secret Clauses
Many non-compete agreements contain trade secret clauses. California labor laws define a trade secret as any guarded method, design, formula or other business tactic that is unknown to those outside of a company, responsible for a large portion of a business’s success and is challenging to duplicate. Trade secrets are typically special formulas, programs, marketing techniques or developmental processes.
For something to be considered a trade secret in California, it must meet two criteria:
- The “trade secret” must be of great economic value to the company and must pose a risk to the financial well-being of the business in the event that the information is exposed to competitors or the public.
- There must be sufficient effort from the trade secret owner to protect the information from reaching anybody other than the employees who must utilize it for their job.
Oftentimes, courts find that what employers argue to be “trade secrets” are actually pieces of information that were widely available and known by third-party sources. If an employer features certain clients on their website or in promotional materials, then it would follow that their dealings with the client were not a “trade secret.”
Job Offers and Written Contracts Review
Before entering into any contract that creates an employment relationship, employees should have their employment contracts reviewed by an attorney. Not doing so could result in an illegal non-compete clause being slipped into an employment contract. For an employee, employment contracts must be reviewed in order to understand what the employee can and cannot do during the employment relationship and after it ends. Don’t think twice before contacting Victory Law Group, LLP for legal advice about your situation. We are here to help!