Non-compete Agreements Crash and Burn in California
The California Supreme Court recently ruled that non-compete agreements were void in the state, with three exceptions. The ruling is based on the language of a 1872 statute. In summary, the statute in question declares any contract that restrains a person from practicing their lawful trade or profession void, with some exceptions such as the sale of a business. The court determined that a non-compete agreement did just that - restrained a person from practicing their trade. The agreement in question seemed focused on competition with existing clients.
The court found that the statute didn't require the agreement to prohibit employment to be invalid, but instead ruled that the plain language of the statute makes any agreement to restrain any person from practicing their lawful trade or profession, void. Therefore since all non-competes "restrain" the practice of a profession, they are illegal and unenforceable in California.
Most states allow reasonable non competition restrictions that are not over reaching in the length of time or the geographic area of the restraint. Is this California decision a waive of the future? Probably not, but courts have usually balanced the right to contract with key employees for a reasonable restriction on competing, and attempts to impose over reaching restrictions that essentially restrict a person from earning a living at their trade or profession.
