Non-Compete Clauses

In California, “non-compete” clauses are illegal. In employment contracts there are no exceptions to this rule. Your employer cannot make you sign one, and prospective employers cannot refuse to hire you because you have signed a non-compete with a prior employer. If your employer fires you for not signing one, then that would be wrongful termination.

Unfortunately, many businesses do not know California’s very basic rule. Most other States allow non-competes, and particular issues arise when employees sign non-competes with employers in different states, and then move here to work for that same employer, or move here to work for a California employer in “violation” of their out of state non-compete. For employees working in California, California law still trumps the terms of an out of state contract. However, if your out of state employer sues you in your old state, the non-compete could still be enforced there. You should consult with an attorney if this is your situation as this can get fairly tricky, particularly in contracts with choice of law clauses.

Exceptions for Business Owners

Partnerships, LLCs, and business owners are allowed to agree to limited non-compete clauses in relation to the dissolution of a partnerships, LLC, and when businesses are sold. For example, a partner who leaves a partnership can agree that the partner will not practice a similar business within a specified geographic area in which the partnership is currently operating.



Employment Contracts

There is no requirement in California for employees to have an employment contract.  If you have an employment contract, it usually governs things like confidentiality, trade secrets, cause for termination, commissions, bonus payments, salary or wages, minimum qualifications for employment, and so on.

Some employment terms are illegal in California. For instance, employees cannot agree to work for less than the applicable minimum or overtime wage.  Employers also cannot enforce “non-compete” clauses against former employees, due to California’s blanket ban on non-compete clauses. On the other hand, some employment terms have to be in writing, such as commission plans (California Labor Code section 2751) or agreements for “comp-time” (time-off in lieu of overtime pay). Also, some California laws are guaranteed regardless of whether you have an employment contract, such as your rights under the FEHA or the ADA, your rights to be free from discrimination or retaliation, and your rights to a healthy and safe working environment under various health and safety regulations.

A breach of an employment contract is governed by normal breach of contract provisions. Namely, two parties exchange promises to do something for the other, and if one does what it promised while the other does not, then the party that fulfilled its end of the bargain has a breach of contract claim against the other party.

I usually see breach of contract claims in employment law come in three contexts: (1) an employment contract lists specific reasons for termination (typically called a “just cause” or “for cause” provision), the employee is terminated, and the employee does not believe that any of the listed reasons for termination occurred; (2) an employment contract provides for specific benefits, such as stock options, and the employer refuses to provide them or in some other way frustrates the employee’s use or enjoyment of these terms; or (3) a contract provides for commission payments, and a dispute arises as to payment of those commissions.

I also commonly encounter clients who received offer letters promising at-will employment at a certain salary, and lo and behold, the employer reneges on the salary and tries to pay the person less. Or, fires them altogether. Offer letters that do not promise employment for a specified term at a specified compensation, or do not specify the reasons that the employee could be terminated, do not offer much legal protection.

Each case is different, and part of my job is to be creative on your behalf. If you have a question about an employment contract, or need me to draft one, give me a call or send me an email. 

Need to talk? Give us a call or send us an email.