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Article: Protecting-Business-Trade-Secrets-and-Non-Compete-Agreements
In a multitude of states, checks on the practice of a profession, trade, or business are defensible if practical. California, however, has for a long while rejected this route since 1872.
California's principle supporting friendly competition is now set forth in Business and Professions Code section 16600 which provides that 'every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.'
California courts have repeatedly stated section 16600 to be a representation of public rule which makes sure that each citizen maintains the right to engage in every legal employment and enterprise of their selection. Thus, section 16600 sets forth the over-arching policy in California: Covenants not to compete are unenforceable.
A few statutory exceptions to 16600 exist. Sections 16001 and 16002 allow comprehensive non compete agreements in two narrow circumstances: where a person sells the goodwill of a business and where a partner agrees not to compete in anticipation of dissolution of a partnership.
Section 16601 shelters the purchaser of a business from future competition from the seller, which would decrease the importance of the property right acquired. Section 16602 protects partners from the chance that a partnership's goodwill will be decreased by competition from a withdrawing partner.
Section 16602.5, allows that a member of a LLC may, in anticipation of dissolution of the organization, agree not to carry on a related enterprise within a specific geographic area.
California courts have held a range of non compete agreements unenforceable under section 16600. For example, an agreement not to render services to any business in connection with competing items for one year, or a proscription on competing with an employer for a year within a 40-mile radius or soliciting previous employer's past, present, or potential customers.
Similarly, terms that penalize employees for competing with a past employer are invalid under 16600.
Moreover, it has for a while been established that section 16600 does not invalidate noncompetition agreements where important to protect the employer's trade secrets. Equity will consistently cover against the unmerited disclosure of trade secrets . The abuse of trade secrets can comprise solicitation of an employer's clientele when confidential information is employed.
In the trade secret setting, the 'trade secret exception' to the ban against non-compete agreements does not mean that an employee can be banned from working for an employer, or be prohibited from soliciting the employer's customers.
The California courts have similarly expressly refused the 'inevitable disclosure doctrine' under which it could be alleged that an employee going to work for a competitor might necessarily disclose his past employer's confidential information.
Rather, the exception means that a business can bad its former employees from competing against it by using its trade secret and confidential information. Previous employees are able to still compete, but are required to do so fairly, on the same footing as any other competitor. Similarly, a company cannot place previous employees on an inferior footing than other competitors by banning or penalizing any competition or customer solicitation.
Brian Kindsvater is the owner of Internet Profit University. The #1 resource for learning how to make money on the Internet from your home business.
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