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California’s Ban on Non-Competes

In terms of geographic size and economic sway, California is the sixth largest economy in the world, surpassing France in 2016. As a result, California’s employment laws are strict, and lawmakers allow for little exceptions. One example of such a law is the state’s stance against non-compete agreements. Whether you are an employer or employee in California, it is important that you understand the state’s ban on non-competes and how it pertains to you.

According to HuffPost, California business owners attempt to skirt non-compete laws all the time. They attempt to do this in several ways. One such way is by claiming California laws should not apply to them because the business has headquarters in a state that allows non-competes. The courts routinely object this analysis. The courts also object the “choice of law” provision, which allows companies with multiple locations to choose which laws apply to them.

Some employers may also adopt a “Garden Leave” policy. These policies often require seasoned and executive workers to give notice far in advance of their resignation. “Far in advance” means 90 to 180 days. During this 90- to 180-day period, employees may not return to work. However, employers will pay them at 100 percent of their salary, including benefits, until the end of the notice period. California courts have determined that such provisions are unenforceable.

Another tactic California courts have rejected is the “inevitable disclosure doctrine.” This means that an employer cannot enforce non-competes on the grounds that an employee plans to take a job with a competitor in which prior confidences are necessary to the employee’s performance in the new role.

That said, non-competes are enforceable before the termination of the employer-employee relationship. A company may legally prevent employees from taking on a second job during the term of their employment, especially when the second job involves working for a competitor.

Another exception is that the seller of a business may not turn around and start a new business that competes with the business he or she just sold. This would reduce the value of the old business and therefore deprive the buyer of the benefits of the deal. For the same reasons, members of an LLC may not leave a business to go start a new, similar business. For more information regarding your rights as a California employer or employee, contact Wang Intellectual Property.

The information in this post is meant to educate. It should not be used as legal advice.

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