It takes a considerable amount of time and money to recruit and onboard top talent. It stands to reason that you want to protect that investment, so you provide a competitive wage, excellent benefits and several perks.
Still, your stellar employee may want to explore other options and take their knowledge (provided by you) to one of your competitors. To prevent that, you request that your employees sign a non-compete agreement. But can you enforce it?
What are non-compete agreements?
Non-compete agreements are contracts that restrict employees from working for a competitor or starting a competing business. These agreements typically include:
- Geographic restrictions stating where the employee can’t work
- How long does the restriction lasts
- What type of work is prohibited
Employers use these agreements to protect confidential information, client lists and competitive advantages. However, California staunchly opposes non-compete agreements. It believes that workers should have the freedom to use their skills wherever they choose, and a business’s competitive edge should come from merit and not restrictive agreements.
California’s employee-friendly stance prohibits non-competes based on several ideals:
- Employees should be able to pursue better opportunities without legal constraints, which benefits individuals and the economy.
- Competition drives innovation
- Economic development occurs when fresh ideas fuel advancement and growth
Still, there are limited exceptions when a non-compete agreement may be enforceable:
- When someone sells a business and its goodwill, they agree not to compete with the buyer in the same locality. This protects the buyer’s investment in the business’s customer relationship and reputation. However, the geographic and time limitations should be reasonable.
- When a partner withdraws from a partnership, an agreement can prevent them from competing in the same locality.
California’s anti-non-compete stance creates challenges for companies, including risks to their intellectual property. Key employees can potentially take valuable knowledge to competitors. Non-disclosure agreements are legal and enforceable in California, allowing employers to protect confidential information.
Employers should review their employment contracts to ensure they don’t contain unenforceable non-compete clauses. Instead, they should focus on developing policies for protecting confidential information. It’s vital they work with someone who can review their agreements and ensure they are compliant with California’s laws, while also protecting their competitive advantages.
