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When I was hired I signed a 'no compete' contract. That was 4 years ago. I recently resigned. Is the no compete clause good?

Sacramento, CA |

There is no time limit or location limit on the no compete clause.

Attorney Answers 4


  1. There are several facts we would need to know to give a definitive answer. Let me tell you about the basic law in this area.

    In California, non-compete clauses are completely unenforceable except where the non-compete is signed in conjunction with the sale of the goodwill of a business. You fall outside that exception. As such I can say that if your employment was here in California, and if your contract does not provide for venue or choice of law in some other state, the provision is unenforceable. The problem lies in my qualifiers.

    If your employment contract provides that any dispute must be resolved in some other state, or that another state's laws will control in any dispute about the contract, the matter becomes far more complicated and many factors need to be considered before an answer could be given. California is actually in the minority in its position on non-compete provisions. Most states will hold the employee to a non-compete as long as it is reasonably tailored to not be overbroad.

    Check your your agreement. If there is no provision for resolving the dispute in another state, or that another jurisdiction's law will control, you should be fine. If not, get to an attorney with your documents. There are some arguments that can be used in various circumstances to assist you.

    Best of luck to you.

    This answer should not be construed to create any attorney-client relationship. Such a relationship can be formed only through the mutual execution of an attorney-client agreement. The answer given is based on the extremely limited facts provided and the proper course of action might change significantly with the introduction of other facts. All who read this answer should not rely on the answer to govern their conduct. Please seek the advice of competent counsel after disclosing all facts to that attorney. This answer is intended for California residents only. The answering party is only licensed to practice in the State of California.


  2. I agree with Neil. The general rule in California - memorialized in Business & Professions Code section 16600 - is that "non-compete" agreements are impermissible, but for a few narrow exceptions. Accordingly, so long as the agreement is to be governed by CA law (you'll want to ensure there is not a "choice of law" provision in there), it likely is unenforceable.


  3. There are limits to the State's general policy of finding non-competes to be unenforceable.
    Look at it this way. Employers own the physical property used in their business, such as the office equipment, files, and company vehicles. No problem, we can all agree to that. But, not so fast. Employers also own the information generated by their business, such as knowledge about a particular client's buying history compiled from several years of sales' records. Because the company also owns this information, employers may protect it from theft (just as employers may protect their other property, like their desks and filing cabinets).

    Trade secrets may include anything known to employers or their employees that:

    --- consists of business information,
    --- is valuable because it's unknown (particularly to competitors), and
    --- employers attempt to keep secret.

    Many who leave businesses and move down the street and open a competing business fail to realize that customer lists and similar data may be protected trade secrets. One of the most common trade secrets owned by a business is its customer list. Statistically, I figure (based on experience) that the "theft" of that list is the most likely act by a departing employee to result in litigation. However, having said that, a customer list (like any other business information) is only protected as a trade secret if it satisfies certain rules. So, for example, customer lists are trade secrets only if they contain information valuable to employers' businesses that is unknown to their competitors and, employers have made an effort to keep the information secret.
    Let me illustrate this principle with an example.
    Suppose you are an outside salesperson for a well-known drug company. As an outside sales person, you visit every drugstore in Sacramento and one of your duties and your job description is to try to get the best possible placement for your nonprescription items. You know that the head pharmacist in each store has the ability to control placement so you keep index cards that you used to remind yourself of things to talk about with that pharmacist like the fact that his son is doing well in high school football and is hoping to get a scholarship to Stanford. He smiles when your first question is about his son rather than about drug placement. Then, you are contacted by a competing drug company and you move to their sales force. You used the information that you have developed on your previous employer's time to subvert that previous employer's interests. that probably is not a trade secret violation because the information that was on the index cards was not treated as a trade secret by the drug Company that you left. On the other hand, information about the amount of inventory that that card store takes on each quarter is treated as a trade secret by your former employer and his information that would be useful to your new employer. To share that information with the new employer would violate trade secret laws and subject you to a possible claim. That is a form of "competition" that California courts do not approve of. It is tantamount to theft. The fact that you decided to visit only those drugstores that you think are likely to purchase a large inventory because you know that they have purchased large inventories before could get you into trouble. it would be more prudent to visit all of the drug stores listed in the standard directories, like for example the Yellow Pages. Visiting all drug stores in Sacramento would be a safe procedure and, who knows, you just might make a big sale in a store that you might previously have written off with your former employer. All I am saying is that it would be wise to keep the trade secret issue in the back of your mind. This is the exception to the general rule that California does not honor non-compete agreements that would be most likely to get you into trouble in the future. Just wanted to clarify. Good luck!

    This answer is made available by the above lawyer for educational purposes only. It is also offered as a public service to give you general information and a general understanding of the law. This answer is not intended to give you specific legal advice. By using or participating in this site you understand that there is no attorney client privilege between you and the attorney responding. And, no attorney-client relationship has been formed. This site should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. The information and materials provided are general in nature, and may not apply to a specific factual or legal circumstance. Only when a complete interview takes place is it reasonable to rely on legal advice.


  4. The combination of the previous answers gives you a good idea of what the law is in California. I will add this, though: customer lists, by themselves, are rarely found to constitute trade secrets. Specific information regarding the customers, such as their son's birthday or favorite golfing course, may constitute a trade secret, but even then not necessarily. It depends strongly on the facts, including what the employer had to do to obtain the information, and what the employer has done to protect the information's secrecy.

    The long and short of it is: you are likely free to work for a competitor of your previous business, so long as you don't use trade secrets in doing so. Whether information constitutes a trade secret is a fact-intensive inquiry, meaning it depends strongly on each individual situation.

    If you believe that you will need to call on previous customers, or you have some concern about whether you will need to use trade secret information, the best course of action is to take the matter to an attorney well-versed in non-compete issues. You can find many terrific employment attorneys at the California Employment Lawyers' Association website: www.celaweb.org.

    Good luck with your legal matters,
    Craig T. Byrnes

    Disclaimer: Please be aware that I am not offering legal advice, nor forming an attorney-client relationship with you. I am not representing you, nor doing anything to protect your legal rights. If you believe that you have suffered a legal wrong, take action before any statute or limitations expires, or your right to do so may be lost forever. Good luck in your legal matter.

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