California is home to some of the biggest and most famous companies in the United States. It also has a massive, thriving economy that benefits businesses and employees alike.
California state law strikes a delicate balance between legal incentives to keep businesses wanting to operate in the state and protections for workers to attract the best talent. There are certain ways in which California state law deviates from rules and laws in other states.
Employment contracts are an example. There are different rules in California about contracts and the kinds of terms an employer can include in them. Can an employer include a non-compete agreement in a worker’s contract, or is doing so an illegal act that violates a worker’s rights?
Businesses can include non-compete terms, but courts may not uphold them
As a general rule, non-compete agreements benefit a business, not individual workers. The broader the terms of a non-compete agreement and the longer it stays in effect, the greater the detrimental impact the agreement has on the employee. That is why the California courts do not uphold non-compete agreements, as they could impact a worker’s ability to support themselves. Many people also believe that non-compete agreements stifle innovation.
Some businesses will include non-compete terms in their contract to deter workers from competing, or because the employer has employees in multiple states and simply uses the same contract in every state. However, employers will not be able to have the courts enforce a non-compete agreement if you leave the company and either start your own business or seek a new position elsewhere.
Including a non-compete agreement in a contract isn’t inherently illegal, but in most cases the company will not be able to enforce it.
When might a non-compete contract hold up in court?
Employers hiring people in California do not have the right to dictate what workers do after they leave that company. However, an employer may have the right to demand certain concessions while workers are still on the payroll.
While courts will not assist in a post-termination enforcement of a non-compete agreement, a court may allow a business to take action against someone who works for a competitor or starts a business in the same industry while still directly employed by the company. In most other cases, a non-compete agreement won’t hold up in court or affect an employee’s future options in California.