Imagine you have been working at a real estate office for about three years. Another real estate company offers you a higher pay, and is located across town. Could you take the job? How could your employer prevent you from taking the job? If so, is that even legal?
The above circumstance is very common among many employees when they are thinking of leaving their company. A non-compete agreement is a legal term in a contract that states the employee will not work for another company that is in direct competition. This term is usually seen in the initial employment contract before the employee starts their employment. A non-compete agreement may prevent an employee from taking another job with the competitor during employment or after employment. Essentially, this is an agreement that prohibits the employee from working for a competitor company. A non-compete agreement time period varies depending on the company and position offered.
Non-compete agreements are also known as non-compete clauses and covenants not to compete. The enforcement of a non-compete agreement also is determined by the jurisdiction in which the employer and employee are located.
Are Non-compete Agreements Enforceable in California?
In California, starting January 1st 2017, there was legislation passed that stated non-compete agreements are generally not enforceable. However, employers can add specific conditions to an employment. If there is a non-compete agreement, California courts state that the employee can void the contract and treat their contract as discharged. The reasoning for making non-compete agreements unenforceable is because many California courts thought that this was very restrictive to the employee. Also, it was very difficult for an employer to prove what a “competitor company” was.
California Business and Professions Code Section 16600 states “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
Are Non-compete Agreements Enforceable in Nevada?
In 2016, Nevada courts held that non-compete agreements can be enforceable in Nevada. But there are specific requirements that must be met. These limitations state that the non-compete agreement:
(a) Be supported by valuable consideration;
(b) Not impose a greater restraint than is necessary for the employer’s protection;
(c) Does not impose an undue hardship in the employee; and
(d) Imposes restrictions appropriate in relation to the consideration supporting the covenant.
NRS § 613.195(1). If any of the above is met, the agreement is “void and unenforceable.”
Which Businesses Use Non-compete Agreements?
There are two types of employees: employees and independent contractors. Employees have a set time of hours in which they must work, and have a standard pay. Employees are under direct control of the employer. Independent contractors are those that have flexible hours, and flexible pay. The pay may not be stable for independent contractors. Many independent contractors are hired on an independent basis for a specific project. Non-compete agreements are most common for independent contractors. Once an independent contractor leaves their employer, they are prohibited from taking on a position with another competitor company for a certain amount of time.
In 2018 about 18% of the United States businesses had non-compete agreements. Recently, due to the pandemic, these non-compete agreements have become very controversial as employees move around to different cities.
Non-compete agreements are most common in television and production contracts. For example, when a news channel wants to prevent their anchor from going to another channel, they add a non-compete agreement in their employment contract. If their anchor were to go to another competitive news channel, it would look bad on the original news station employer.
Another type of business that includes non-compete clauses is the factory manufacturing business. Many clothing companies that have offshore factories enforce non-compete clauses with their factories to prevent the factories from making and selling similar type of clothing for their competitors.
What Does a Non-compete Agreement Include?
- Start date of the non-compete agreement
- How the employee is paid
- What the scope of the employees’ duties are
- What is expected from the employee during the non-compete agreement
- The reason why the non-compete agreement was created in the first place
- What protections the employer may have
- What protections the employee has (this sometimes may include a higher compensation or a flat fee that is paid for agreeing to the terms)
- How long the non-compete agreement will be in place
- Location of where this non-compete agreement will be enforced
A non-solicit agreement is often confused with a non-compete agreement. This is an agreement that states the employee cannot take or solicit other employees with them when they leave the company. For example, when a business owner wants to protect the list of their customer’s needs, they will use a non-soliciting agreement in their employee contracts to prevent the employee from stealing customers. California also has laws that look down upon non-solicit agreements.
A non-disclosure agreement is also confused with a non-compete agreement. A non-disclosure agreement prevents the employee from disclosing any important and confidential information regarding the business to others. This confidential information may include customers, business strategies, or new technologies the company plans to incorporate into their day-to-day activities.
The Positives and Negatives of a Non-compete Agreement
A positive factor for a non-compete agreement is that it protects confidential business information. Employees will be bound to their employers for a specified amount of time. The negatives of having a non-compete agreement are that the employee is restricted from seeking freedom to look for other employment. Employees are bound to a long period of time until they could seek another job position. They’re essentially “locked in” with their employer. Many may consider this a good thing as it is an indication of stable job security and pay.
Our experienced employment attorneys at Heidari Law Group have offices in major cities in California and Nevada. Offices include Los Angeles, Las Vegas, Sacramento, and Irvine. Because a non-compete agreement has specific requirements, it is important to seek the assistance of an experienced employment attorney to make sure it is written properly. One small mistake can potentially cause a lawsuit between an employer and their employee.
A non-compete agreement must be written with a specific legal strategy in mind, and each agreement varies depending on the type of business and what activities the employer wants to prevent their employees from engaging in. We work with our clients diligently to understand their concerns, look into the effects of their non-compete agreement, or draft an agreement for them. Our attorneys are experienced in several types of business and workers compensation lawsuits. If you or someone you know needs a non-compete agreement drafted up for their employees to prevent any future complications and lawsuits, contact our Los Angeles attorneys for a free consultation today.
***Disclaimer: This page is created by Heidari Law Group for educational purposes. This article provides a general understanding of the law. It does not provide specific advice. By using this site and reading through this page, there is no attorney-client relationship created between you and any member of Heidari Law. Further, due to the constant change of the law, some parts of the information above may no longer be good law.