James A. Goodman, a Member of the Firm, and Amy B. Messigian, an Associate, in the Employment, Labor & Workforce Management and Litigation practices, in the firm’s Los Angeles office, authored an article in IPWatchdog, titled “California Non-Competes: Things You Can Do ‘Around the Edges.’”
Following is an excerpt:
There are not many things an employer can do to prevent unfettered competition by a former employee. B&P Section 16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The statute provides three exceptions, none of which apply to the typical employer/employee relationship: (1) a person who sells the goodwill of a business or sells substantially all of its operating assets may lawfully agree to refrain from carrying on a similar business; (2) a partner may, upon the anticipation of the partnership dissolution or disassociation from the partnership, lawfully agree not to carry on a similar business; and (3) any member of a limited liability company may lawfully agree not to carry on a similar business.
Those exceptions are not realistic business models for most companies. California courts will carefully scrutinize business structures that ostensibly fall within one of the exceptions to determine whether structures are shams created to circumvent B&P Section 16600.