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Covenants Not To Compete

Covenants Not To Compete

Employers often worry that new employees may take the free training provided to them at the company’s expense and either go into the market for themselves, or worse, to a competitor. Covenants not to compete in an employment contract can be an effective means of protecting your investment. Unfortunately, depending on your location, the use of these covenants may be highly circumscribed or outright prohibited. If you think that your company might benefit from covenants not to compete, consider consulting with a trained Orange County business lawyer about the possibility of adding them to your contracts.

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What Is A Non-Compete Clause?

Covenants not to compete, also known as non-compete clauses, are agreements in an employment contract that prevent a former employee from competing directly with their employer for a certain amount of time. Since they are part of a contract, the traditional rules of contract law apply. However, because they are restrictions on trade, covenants not to compete are disfavored in most courts. This means that unless they conform precisely to the law, they will likely be held invalid. An Orange County business lawyer can help you structure a non-compete clause that will hold up in court.

What Does A Valid Covenant Not To Compete Look Like?

Since non-compete clauses are part of contract law, their validity will depend on the state where the contract was entered into and on where it is being enforced. Traditionally, covenants not to compete were only valid if they were reasonably limited in duration, scope, and geographical area so as to protect the legitimate interests of the employer. This means a restriction will be invalid if it lasts too long, embraces too large of a territory, or prohibits activities which are not reasonably necessary to safeguard the employer.

In California, covenants not to compete are generally made void by Business & Professional Code Section 16600. This includes any covenants from an out-of-state contract that an employer is attempting to enforce in California. However, covenants not to compete are still allowed if based on the sale of a business, the dissolution of a partnership, or the dissolution of a limited liability company.

If your business is using or plans to use non-compete clauses, a skilled Orange County business lawyer can help you navigate the potential pitfalls. The lawyers of Daily Alijian, LLP will advise you on the best course to take with your employment contracts. For a consultation, call 949-861-2524.