Is "an incentive to not compete" versus a traditional non-compete legal in California?: I work for a privately-held firm in California from a privately held firm with corporate HQs in NC. I am a shareholder. If I were to leave, there is a 5-year payout on the liquidated shares. As part of the master contract that all shareholders must sign, there is a "Competitive Activity" section that list five things that would be deemed as competitive activity. If a former employee engages in competitive activity, the company will keep 1/2 of their stock dollars.
Brian’s answer:
Your contract clearly needs to be evaluated as an owner/employee noncompete situation can be complex. Some issues that are quickly apparent from addressing this type of situation:
- What are the 5 things you cannot do? California's limited noncompete exception for business owners is just that - limited - and only certain restrictions are even potentially valid. The existence of extra restrictions could invalidate the entire noncompete.
- What is the geographic scope of the restrictions? Again, the law is limited as to what restriction is valid.
- Are you being forced to sell your shares or what is required or allowed in the contract for liquidating your shares?
- What is your percentage of ownership?
- What were the circumstances requiring the contract to be signed?
- What were the circumstances of your being let go?
- Whether the 50% stock withholding constitutes liquidated damages, and whether the liquidated damages are legal. (Liquidated damages should not be confused with your reference to liquidated shares.) There are two different issues in your question. First, whether the noncompete is valid. Second, if valid can the company withhold half your shares. Without knowing the company and what you do this cannot be evaluated, but there is a good likelihood you cannot suffer a 50 percent loss.
- Where any disputes will be decided. Although California courts tend to ignore out-of-state references in noncompete situations, not enough is known about your former employer and situation to evaluate if your trying to preserve the value of your shares could alter the situation.
There are often additional issues that are evaluated in a situation like this, but unless you have an experienced attorney review the contract and get more detailed information an complete checklist of issues and then an evaluation of each one cannot be performed.
Is non-compete agreement enforceable in Los Angeles? I am a contractor & wish to change staffing firm staying with same client: I work for a large client through a small staffing agency (on W2). When I started they made me sign a contract that had the following section: "Employee acknowledges that Employer has spent much time and expended monies in obtaining its client base and contacts. As part of the consideration herein, Employee agrees that for a period of 1 year after completion of his services hereunder, Employee shall not work for Employer’s client, for whom the services rendered were performed to complete Employer’s contract, either as an employee or otherwise, without prior written approval from Employer." I will need to renew my contract soon, and wish to change staffing firm while staying with the same client. Can 1st staffing agency sue me over going with another staffing agency with the same client?
Brian’s answer:
You will want to have the contract reviewed by an attorney. Staffing agencies, broadly speaking, are notorious for trying to enforce noncompete agreements. From my litigation experience with agencies here are some issues you need to be looking for:
- Agencies will claim the identity of the client is a protected trade secret. You need to understand the issue and have a gameplan for dealing with the issue.
- Is there an arbitration clause? All the responses by my colleagues so far may be moot if there is an arbitration provision. Don't assume a noncompete can never be enforced in California.
- Can the agency sue you out of state? The concern is not that an injunction ordered by an out-of-state judge can be enforced in California, it will not as a matter of public policy, but the potential cost to you. With the assistance of an attorney your gameplan could also enable you to be reimbursed by the new agency, thus reducing your risk.
There may be other issues, which is why the entire contract needs to be reviewed.
What you do not want to do is assume "noncompetes are not enforceable in California" and think you have nothing to be concerned about, Unfortunately, broadly speaking - staffing agencies will do everything they can to keep employees from moving to another agency. You need to be prepared and not underestimate the situation.
Can a non-compete agreement from another state be upheld in California?:
I was working as a business development representative for an information technology recruiting firm. I am interviewing for a position with another firm which recruited administrative personal and forklift drivers etc. " Because xyz corporation is a minnesota corporation and has its principal administrative office in Minneapolis, Employee understands that this agreement will be construed and applied in accordance with the laws of that state of minnesota."
I live in California
Brian’s answer:
Noncompete issues commonly arise in the recruiting industry and numerous legal issues often need to be considered.
First, the Arizona attorney is incorrect. If a lawsuit is filed in California then Minnesota law will not apply. There is a California case directly on point about this. Also, the geographic scope, time, and subject matter will be irrelevant in California.
Second, on the other hand the one-liner response is not helpful. The important question isn't what law will apply, but whether the contract has an additional jurisdiction term giving XYZ the ability to sue you in Minnesota. I have seen employees forced into bankruptcy from having to litigate these issues out of state, even though my subsequent involvement was quick to get a California judge to block enforcement in California.
Third, you need the complete agreement reviewed. There are issues involving the interplay between the states, precise rules you need to follow if you may be in contact with clients of your prior firm, and how to handle the interviewing and hiring process with the prospective employer that you need to understand.
Fourth, there is one situation where a California court will enforce an employee noncompete that no one has mentioned. Has nothing to do with business ownership issues. It is a bit shocking. Without reviewing the contract no one knows if that situation is even implicated.
Fifth often there are additional issues when an out-of-state employer is involved that will prevent the company from enforcing the noncompete or which give you a significant amount of leverage if a dispute arises. An experienced noncompete attorney can quickly identify these issues and advise you.