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Can you use non-compete agreements with your employees?

Jun 15, 2023 | Employment litigation

You may be tempted to use a non-compete agreement with your employees to better ensure that they don’t simply leave your company to start their own competing business or work directly for your current competition. Part of the goal here would be to keep talent away from the competition, of course. But you would also be attempting to protect your business so that you weren’t simply training employees who were going to work for someone else.

But can you use this type of agreement in California? Non-compete agreements are common across the United States, so you may be used to using them with workers in other locations. But it’s important to know that these are prohibited under California law. You are not allowed to use non-compete agreements, and, if they are included in an employee’s contract, they would not stand up in court.

What about businesses outside of California?

In today’s world, workers are often located far from the businesses that they work for. You may employ California residents, even though your business is located in Texas or Michigan. Even so, although the laws in your state may allow you to use noncompete agreements, you cannot use them for your employees who work in California.

Why is California’s approach restricted?

California has made this change because legislators are largely concerned that non-compete agreements stifle competition in the labor market. Employees have far less ability to move between companies, and such restrictions can inadvertently be used to suppress their wages. If an employee wants to get paid more money but knows that they can’t work for the competition in California, they are more likely to accept a lower wage to stay where they are. They have no leverage when asking for a raise. By allowing employees to move around as much as possible, companies have less protection, but employees can theoretically seek higher wages.

This is certainly not to say that you, as a business owner, are attempting to suppress wages or financially harm your employees. You’re just protecting your business. But this theory is why non-compete agreements are not allowed in California. There are, however, other ways to protect your business interests that affect employee contracts. You can seek legal guidance for more information at any time.