The Non-Solicitation Agreement; Why Use It?
California has a strong public policy against restraining the ability of its citizens from engaging in their chosen professions. California Business and Professions Code Section 16600 essentially prohibits almost all forms of agreements between an employer and employee wherein the employee agrees not to compete with the business of the employer. So strong is this policy that there are very, very few exceptions to the rule, and the rule has been broadly interpreted by the courts to include almost any form of anti-competitive conduct. Because of this strong public policy, one may wonder, why use a non-solicitation agreement at all, or if such a thing even exists in California.
While Section 16600 prohibits agreements that forbid employees from directly competing against former employers, several exceptions do exist. One exception is in the context of a sale of “business entity” (defined as any partnership, limited liability company, or corporation). Under California law, a non-solicitation agreement would likely be valid if entered into in connection with the sale of a business entity that includes the sale of “the good will” by “any owner.” Under this exception, if an owner of a business sells all of the assets of the business along with the “good will” of that business, the new owner may require, as a condition of the sale, the former owner enter into a non-solicitation agreement prohibiting the former owner from competing against the new owner. Similarly, an agreement not to compete entered at the time of formation of a partnership in anticipation of the dissolution of the partnership is permitted. Of course, any prohibition against competition must be “reasonable” and limited to a specific, narrowly defined, geographic area and for a reasonable time.
One area for concern for California businesses is the “raiding” of talented employees by competitors. As the California Supreme Court noted “public policy generally supports a competitor’s right to offer more pay or better terms to another’s employees so long as the employee is free to leave.” Reeves v. Hanlon, 33 Cal.4th 1140, 1151-52 (2004) [emphasis added.]. To prevent your employees from being raided, you should consider including a covenant in their employment agreement that prohibits them from soliciting their co-workers to leave their employment for a specified period of time. Provided these non-solicitation agreements are properly drafted, they should be valid and enforceable.
If you would like to arrange for a consultation to discuss employment agreements or non-solicitation agreements with your key employees, or any other employment or business-related matter, call Michael Leonard, Esq. of San Diego Corporate Law, a rising star in the San Diego area. He has the experience and knowledge to ensure all of your business agreements are enforceable in the California courts. He can be contacted by visiting San Diego Corporate Law or by telephone at (858) 483-9200.