Job Hopping—A California Right | Non Compete Agreements

Job Hopping—A California Right | Non Compete Agreements

The Silicon Valley No-Poach Settlement

*For more information on this case and other California non-compete agreements, contact a San Francisco employment lawyer today.

The recently announced $324 million proposed settlement in a civil antitrust case brought by workers against Silicon Valley tech giants Google, Apple, Adobe, and Intel exposed the anticompetitive underbelly of a culture that prides itself on rewarding skill and innovation. The lawsuit brought to light a web of interrelated no-poach agreements aimed at suppressing wages and keeping would-be job hoppers in place, in an environment where the next big thing was always right around the corner. The tech workers alleged that the companies agreed not to recruit each other’s employees, to notify each other before making an offer to each other’s employees, and not to counteroffer above the initial offer. Emails unearthed through the suit showed that the companies enforced these unlawful agreements through vigilantism—Steve Jobs’s warning that hiring an engineer away from Apple “means war,” and his pleasure (expressed with a smiley face) at hearing that Google had fired a recruiter for contacting an Apple employee are emblematic.

A California Story

This story of an attempt by first-comers to line their pockets by stifling the economic prospects of more recent arrivals is archetypically Californian (think of the Gold Rush). But then so is the statute that outlaws attempt to suppress workers’ wages by inhibiting mobility. California’s non-compete law, Section 16600 of the California Business and Professions Code, makes unlawful contracts “by which anyone is restrained from engaging in a lawful profession, trade or business of any kind.” Since its enactment in 1872, California courts have consistently affirmed that Section 16600 embodies a settled legislative policy favoring “open competition and employee mobility” and protecting the right of all Californians to “engage in businesses and occupations of their choosing.” Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 946 (2008). Scholars have postulated that California’s non-compete law fostered Silicon Valley’s vibrant innovation and start-up culture by enabling tech workers to job hop, allowing them to take economically valuable knowledge to the places where it would be put to the best use.

Non-Compete Agreements are Void in California

In most other states, “reasonable” non-compete agreements are enforceable. Practically speaking, this means that employers and employees cannot determine whether a particular non-compete agreement is enforceable without a costly legal battle. California, though, is different. In California, non-compete agreements are void, regardless of whether they are “reasonable.”

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Employers can be held liable for firing or refusing to hire an employee for not agreeing to sign a non-compete agreement, and an employer who seeks to enforce a non-compete against a former employee can be held liable for interfering with the employee’s contractual relations with the new employer.

California Employers May Prohibit Employees’ Use of Trade Secrets

But this doesn’t mean that there are no limits on competition in California. California employers have a few tools available to them short of resorting to Jobsean vigilantism. First, there are three statutory exceptions to California’s prohibition on non-competes: a non-compete may be enforceable against the seller of a business, a former business partner, or a former member of an LLC. Cal. Bus. & Profs. Code §§ 16601-16602.5. Second, California employers may lawfully prohibit their employees from using trade secrets. For example, while employers may not prohibit their former employees from soliciting customers, they may prohibit the use of trade secrets (such as proprietary customer lists) to do so. A parallel rule applies to the solicitation of current employees by former employees—an employer may prohibit former employees from using confidential information to lure current employees away, though the employer may not prevent its current employee from leaving to join a former employee’s company. And beyond these, California employers seeking to retain valued employees have another tool at their disposal (the one the Silicon Valley tech giants sought to avoid): making the would-be job hopper a counteroffer attractive enough to entice her to stay put.


Non Compete Agreements FAQ

In California, agreements that prevent an employee from competing against a former employer are generally unenforceable. The California Business and Professions Code treats such noncompete agreements as against public policy and void. There are exceptions for partners, LLC Members, and other business owners, but those exceptions are narrow. In fact, California law makes it unlawful for an employer to require an employee to sign a noncompete agreement. A California employee who has been forced to sign an unlawful noncompete agreement may bring suit against the employer and recover penalties and damages.
An employer may prohibit a current employee from competing against his employer while employed. But as a general rule the employer may not seek to prevent the employee from competing after the employment relationship has ended. Even then, certain types of competition may be unfair and unlawful. For example, an employee may not take the employer’s trade secrets with him and then use those secrets to compete unfairly against his former employer.
In most states, courts impose time, place, and manner limits on noncompete clauses. So, for example, a court may limit the length of a noncompete to 2 years, and the geographic scope to Ohio. Generally, California courts do not impose time place and manner limits because they refuse to enforce any noncompete agreement of any duration or scope.


See Also:

New California laws frown on Secret Settlements

Confidentiality Agreements: The Growing Need to Take a Closer Look