Are Non-Compete Agreements Legal?

Are Non-Compete Agreements Legal?

In this interview with Jennifer Rubin, Member, Employment, Labor & Benefits Practice at Mintz Levin, we discuss the facts about non-compete agreements being illegal in California, the exceptions, and why this is important for employers and other companies in a M&A situation.

Jen focuses on C-suite executive compensation practices, and on meeting the increasingly complex employment needs of executives of public and private corporations.  When she isn’t negotiating employment, equity and severance arrangements, Jen leverages her twenty-five years of experience as a trial lawyer to help clients craft business solutions to legal problems.  Jen, who has an AV Preeminent ranking from Martindale-Hubbell, which publishes a highly respected Law Directory, that provides background information on United States lawyers and law firms.

She is also a member of the Board of Directors of Big Brothers Big Sisters of San Diego County and is a faculty member and advisor to The Honor Foundation, a non-profit organization that assists Navy Seals and other armed services special operators transition from military service to the private sector.  Jen is frequently quoted in the Wall Street Journal and other publications.

As Jen states:

“Non-compete agreements are significant here in California because they’re illegal unless someone is selling all of their equity interest in a corporation, which makes sense. If I’m coming in to buy a company, I shouldn’t allow the individual who owns all the stock to, the next day, open up business across the street from me.

There are some very limited situations where non-competes are enforced, and that’s one of them. You have to sell all of your equity interest in the company. The company buying it has to be in that business. Every other type of non-compete is illegal in California in every situation.

This is not just non-compete in terms of, ‘You can’t be in a competitive business.’ It also prohibits a company from asking an individual not to solicit the company’s customers after the individual leaves employment.

Let me make one thing clear. While you are employed, the law says you cannot compete with your employer. This relates to post employment activity. What happens when you’re no longer employed? That’s when the ban on non-compete agreements comes into play.

Another important exception is that trade secrets are protected in California. You are not allowed to use someone else’s trade secrets after or during employment. That’s another exception to the non-compete rule. I say this from practicing in New York for 25 years and then moving to California a couple of years ago.

It’s my experience that there are many companies and executives who are unaware of this ban, who come into California, engage executives here or buy companies here and they don’t even realize that there is this law on the books here in California. It is truly amazing to me how many people are completely ignorant of that fact.”

This is Patrick Henry, CEO of QuestFusion, with The Real Deal…What Matters.

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