Is noncompete provision legal?

Dear Alex:

I recently left my job at an engineering firm to start my own independent engineering company.

I had been an employee of the old firm, and in my employment agreement there was a non-compete provision in which I was prohibited from performing engineering services in Napa County for a period of two years after my employment terminated for any reason.

Is this enforceable?

In the state of California, any contract that attempts to restrain any person from engaging in any lawful profession, trade, or business, is an unlawful contract.

This protection of employees is created by Section 16600 of the Business and Professions Code. This means that any employment agreement provision that restricts the employee’s ability to work in competition with the employer, is void.

California is unusual among the states, because most other states permit a reasonable non-competition agreement between employer and employee, whereas California prohibits non-compete clauses between employer and employee even when the provision would otherwise be considered reasonable.

Even if the non-competition agreement is only for a limited time or applies only to a limited scope of your skills set, it is void.

Despite the prohibition against non-competition agreements, employers do still have means by which they may protect their interests, to which you as a former employee may be subject.

Most notably is that employers may protect their trade secrets, and use of the employer’s trade secrets without their permission may be prohibited if you signed an agreement that restricted your use of such trade secrets.

The contract will need to clearly define what specifically constitutes “trade secrets,” but that may include the names and contact information of clients, referral sources, and vendors, business practices and procedures.

Therefore, if you as an employee developed a strong relationship with one of your former firm’s clients, and are considering soliciting that client to join you at your new business, it is possible that you may be prohibited from contacting and soliciting that client for your own business purposes.

However, if the information that the contract defines as trade secrets can be obtained elsewhere, or if former clients are persons or businesses with whom you had independent personal relationships outside of your business relationship, to the extent that the information was independently gained, known, or readily knowable to you without use of the former employer’s information, such data would not be subject to the trade secrets protection.

These protections extend only to former employees.

Former business partners, LLC members, or sellers of a business, can be restricted by a noncompete agreement to a limited extent.

However, for former employees, the State of California protects the ability to freely work wherever you choose, even if it is in direct competition with your former employer.

Alex Myers is a business attorney with Myers & Associates in Napa. Reach him at alex@myers-associates.com or 707-257-1185. The information provided in this column is not intended as legal advice, nor does it create an attorney-client relationship. The information is not a comprehensive analysis of the law — if you need legal advice, contact an attorney.

This column originally ran in the Napa Valley Register on April 25th, 2017. You can read it on the Register's website here: "Is noncompete provision legal?"