California Continues To Go After Non-Competes
We’ve written at length about the rapidly-changing landscape regarding covenants not to compete, including the first-in-the-nation law in California that essentially prohibits all such agreements, and we’ve kept you abreast of how various states have responded to the California statute, including New York and Massachusetts. (“The State-by-State Smackdown”)
Now, covenants not to compete typically arise in the context of an employment agreement, with the employee agreeing that if she leaves the company (or is fired), she will not flee to the company’s closest competitors. Typically, the question as to whether such agreements are enforceable turns on how narrowly-tailored the covenant is to serve its purpose, which means the determination is generally made on a case-by-case basis. This reflects a balancing of two goals: ensuring free and fair competition in the marketplace, and also protecting a company against rivals seeking to “poach” its employees and potentially steal secrets, practices, and other confidential information. It’s a tough balance to strike, and the parties typically only figure out exactly where the line should be drawn once one party sues the other.