What are Federal and California Non Competition Clauses?
Explained by Our Los Angeles Employment Lawyers
A non-compete agreement is a separate document or a clause included within another employment agreement, such as a separation or non-disclosure agreement. (Non-compete agreements often go hand-in-hand with non-disclosure agreements.) Some call it a noncompete agreement or non-competition agreement, or non-comp for short. In legal jargon, it is a covenant not to compete. Your employer might ask you to sign such when you hire in, during your employment, when you leave your job, or all of the above.
Regardless of the where, what and when, it is a contract. If you sign it, typically you are agreeing that you will not compete with your employer by engaging in any business of a similar nature, as an employee, independent contractor, owner, part owner, significant investor, and whatever else your employer chooses to cover all bases. It might even broadly limit you from working in the same field, even if you do not work for a direct competitor. It might also restrict you in both time and geography.
If you do not sign a non-compete agreement, you are likely out of a job, benefit or perk, such as a severance package. You might even be subject to a lawsuit, depending on when you chose not to sign. For example, if you quit and refused to sign, your former employer might go after you in court. In one such case, the court granted a Web advertising company an injunction against two former executives who never signed a non-compete agreement, which kept them from working in the same industry or starting up a competing business for six months. The court’s decision was based on the broad assumption that employees cannot help but use the knowledge they gain from employment.
Whether or not your non-compete agreement is a legal and binding contract depends on state or local laws, the scope of the restrictions your employer included, precedents set in court decisions, and a variety of other factors. If you are unsure about whether your non compete agreement is binding, contact a Los Angeles labor attorney.
Is a Non-Compete Agreement Legal?
In a few states, they are generally not legal. For example, in California, a non-compete agreement is enforceable only if someone sells a business and agrees not to compete with the new owner. That aside, California employers cannot restrict the livelihood of their current or former employees.
But in many other states, they are legal. Still, these states typically do not want to deprive employees of earning a living in their chosen fields, but they also want to protect companies. It is a balancing act and scope is a big consideration. So, a non-compete agreement might be enforceable in your state, but only if it is reasonable in scope and necessary to protect the company’s interests. For example, it might be enforceable if it restricts you from working for a competitor for six months within a 25-mile radius, but not beyond that scope or if you can prove it will seriously impact your right to make a living.
It might also depend on why you left the company. For example, if your employer fires you for “good cause” or you quit to take a new job, it might be enforceable. But if your company terminates you or you quit for reasons beyond your control, such as a layoff, wrongful termination or permanent disability, it might not. The courts are typically hesitant to enforce a non-comp when job loss is not the employee’s fault.
Yet another consideration might be whether or not you were fairly compensated for signing such an agreement that gives up some of your rights. If you are a new-hire at the time your employer asks you to sign, then employment alone might be compensation enough, at least for a court. But if you’ve already worked there for awhile and your employer doesn’t offer you an incentive to sign it, other than termination if you don’t, then a court might be on your side if you refused to sign and your employer retaliated.
Regardless, some employers know, but do not care, that their non-compete agreements are not enforceable, in whole or part. They might try to get you to sign on the dotted line anyway. It is an intimidation tactic to protect that for which they have no right to protect. They count on employees not knowing or checking its legality. If you do not sign it, they might terminate or refuse to hire you, or deprive you of some benefit or perk. Nevertheless, the courts frown on employers behaving in this way, and you could have legal recourse if this happens to you. If this is the case, you may need a Los Angeles employment lawyer to assist you in your claim.
If any part of a non-compete agreement is unreasonable, some courts will declare the entire document null and void. Other courts will simply “blue pencil” the document, meaning that they will strike only what is unreasonable while enforcing the rest.
As you’ve probably figured out by now, there is no clear-cut answer that covers each and every state. In many cases, it is up to the interpretation of the courts or arbitrators. But generally, the less restrictive a non-compete agreement is, the more likely it is to be legal, where it’s legal at all. Still, employers cannot force you to sign “just because.” They must have legit business reasons for insisting on non-competition.
To discover if non-compete agreements are generally enforceable in your state, start by contacting the nearest labor office. If they do not have an answer, they can probably steer you to a government agency that does. If you prefer to strike out on your own, try researching the State Labor and Employment Law resources here at Job Searching: Technical.
If you have doubts about signing a non-compete agreement or any employment-related contact, see an attorney first. It might save you heartache down the road. Your employer must give you a fair amount of time to think it over for that very reason.
Can I Break My Non-Compete Agreement?
If non-compete agreements or clauses are generally enforceable in your state, and yours is reasonable in scope and your employer has not done something to make it null and void, such as one of the reasons on the previous page, then you’re likely bound by it. Your employer might sue you and win if you do not honor it. A former employer might even have a legit suit against your new employer, if they warn your new employer that you are breaking your non-compete agreement, and your new employer does not heed the warning by firing or forcing you to quit.
If your non-compete agreement is not enforceable in your state in the first place, then you’re already out of it, unless your employer tries to set a new court precedent. If it is generally enforceable, but questionable for any of the reasons on the previous page, then you’ve probably got a good shot at breaking it, at least in part. Below are a few more examples why your non-compete agreement might not be enforceable, in whole or part.
- You quit or were fired because your employer tried to make you conduct illegal activities, and you would not.
- Your employer breached one or more terms of another contract, such as your employment separation agreement.
- Your new company did not tell you that you had to sign one, until after you quit your old job to work for the new company.
- You live in a state that does not enforce them in whole or part, but you had to sign one to work for an employer located in a different state.
The examples throughout this article are based on only a handful of court cases, so there are likely more reasons that you can—or can’t—legally break your contract. But it’s important to note that these or any example cases don’t necessarily set precedents in every state, and there may be other factors involved.
If you are gifted with the power of persuasion, you might be able to finesse your employer into letting you break your non-compete agreement. No, get it in writing with an effective date and signatures. Also be careful about threatening to air company dirty laundry as leverage, or a no-neck hairy guy resembling one in the cast of characters from The Godfather might sneak up behind you someday! Joking aside, if you do not approach it tactfully, you might never be able to use the employer as a reference. Your employment there will probably show up in background checks, so it is always a good idea to avoid burning your bridges. It is also a good idea to avoid giving the employer legal ammunition against you, like blackmail.
Another way to bypass the judicial system, is to arbitrate under the National Rules for the Resolution of Employment Disputes. (Browse the Rules/Procedures section.) You don’t need an attorney on your side of the bargaining table, but the American Arbitration Association recommends it. Aside from the adage that “A lawyer who represents himself has a fool for a client,” it might get a tad lonely on your side of the table with a pack of corporate lawyers sitting across from you.
In fact, arbitration might be your only choice, if you also signed a mandatory arbitration agreement or clause. For example, your employment contract might have included a mandatory arbitration clause.
Otherwise, to break your non-compete agreement without fear of retaliation, you might have to sue or at least threaten to file a suit via a “nasty-gram” from your attorney. Only an attorney can tell you for sure. But as with medical matters, a second or even a third opinion might be a good idea, again to avoid burning your bridges if don’t have to. Multiple opinions sound expensive, but some attorney referral services will arrange discounts for your first visits. You might not have to pay up front at all, if the attorneys smell damage or punitive dollars and make their fees contingent on winning your case.
If you signed, or if you are about to sign, a Los Angeles non compete agreement, contact a Los Angeles labor attorney at our law firm today to set up a consultation. We help explain what the non-competition agreement means, how it will affect you in the future, and what the limits of the agreement are. Our Los Angeles employment lawyer gives clients information about what to do if they have questions about their work agreements.