Posts Tagged: "Take 5"

Employers should think twice before including the unenforceable provisions in employment contracts merely for their deterrent effect. Such a practice is risky. If an employer terminates an employee who refuses to sign an agreement that contains an unenforceable non-compete provision, such action would constitute a wrongful termination in violation of public policy and would entitle the employee to recover tort damages, including punitive damages, as well as economic damages… Given the strong protections against non-competes in California, it is too risky to require employees to sign employment agreements that contain these provisions. All employment agreements entered into with employees who live or work in California should be carefully reviewed to ensure compliance.

There are not many things an employer can do to prevent unfettered competition by a former employee. B&P Section 16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute provides three exceptions, none of which apply to the typical employer/employee relationship: (1) a person who sells the goodwill of a business or sells substantially all of its operating assets may lawfully agree to refrain from carrying on a similar business; (2) a partner may, upon the anticipation of the partnership dissolution or disassociation from the partnership, lawfully agree not to carry on a similar business; and (3) any member of a limited liability company may lawfully agree not to carry on a similar business.

As discussed elsewhere in this Take 5, although California employers generally cannot restrict an employee’s ability to work elsewhere, California employers can protect their trade secrets and confidential information. One pillar of a successful plan to do so is having an employee departure protocol.