Non-solicitation provisions in employment contracts are usually unenforceable in California. Therefore, California employers generally cannot stop their former employees from hiring current employees or soliciting current customers, but courts have made some exceptions.
Here are four key things to know:
- Courts have found non-solicitation agreements legal if they posed “no negative impact” on business.
- Court has also found non-solicitation agreements legal if they are necessary to protect trade secrets.
- Non-solicitation agreements are different from non-compete agreements, where employees agree not to work at a competing business after termination.
- Like non-solicitation agreements, non-compete agreements are largely unenforceable.
In this article, our California employment attorneys discuss:
- 1. What is a non-solicitation agreement?
- 2. Are non-solicitation agreements legal in California?
- 3. What if there is a lawsuit?
- 4. How are non-compete agreements different?
- Additional Resources
1. What is a non-solicitation agreement?
A non-solicitation agreement (also called a “non-interference agreement”) is where an employee agrees – if that employee later leaves the company – not to either:
- hire or offer employment to the company’s other employees; and/or
- solicit the company’s customers.
In short, non-solicitation agreements prohibit ex-employees from poaching talent and/or customers from their former employer.
Non-solicitation clauses are typically found in employment contracts that new employees must sign in order to work at the company.
Non-solicitation clauses in employment contracts are usually void in California.
2. Are non-solicitation agreements legal in California?
In general, California law prohibits employee non-solicitation provisions. This is because the state’s public policy is to minimize restrictions for people to be able to work where they want, hire whom they want, and solicit whom they want.1
However, there have been instances where California state courts upheld narrowly-tailored employee non-solicitation agreements.
“No Negative Impact”
In one court ruling involving a breach of contract for employment, the judges said that the non-solicitation provision was enforceable because the plaintiff’s employees were not hindered from getting work with the defendant or reaching out to the defendant. The only restriction was that the defendant could not contact the plaintiff’s employees first.
In sum, since the non-solicitation provision had “no overall negative impact on trade or business,” the provision was enforceable.
So it would appear that the broader and more restrictive an employment agreement’s non-solicitation provision, the more likely it is unenforceable under California state law. Though if the non-solicitation agreement has a short reach and poses little restriction on employee mobility, then courts may be more inclined to let such agreements stand.2
Trade Secret Exception
California courts do enforce non-solicitation agreements when they are necessary to protect the company’s trade secrets and other confidential information. The purpose of the “trade secret exception” is to protect the company from unfair competition by former employees who wish to exploit the company’s intellectual property for their own benefit.3
Sale of the Business
Non-solicitation agreement can be enforceable if they are ancillary to an owner selling all their shares or interest of a corporation, partnership, or limited liability corporation. In practice, these solicitation agreements are part of a global business deal, and courts interpret such non-solicitation agreements based on the entirety of the transaction.4
Dissolution of Partnerships
Non-solicitation agreements can be enforceable in cases where partners agree not to solicit its partners or clients in the event the partnership dissolves.5
Most cases involving non-solicitation agreements are settled out of court.
3. What if there is a lawsuit?
In lawsuits involving non-solicitation agreements, California employers (plaintiffs) generally sue the former employee (defendant) on some or all of the following grounds:
- breach of contract
- breach of fiduciary duty
- interference with contractual relations
- interference with prospective economic advantage
- unfair competition
- misappropriation of trade secrets
The defendant could then file a motion to dismiss, claiming that the former employer failed to state a claim for relief. Failing that, the defendant can then file a motion for summary judgment (asking the court to decide the case based on the undisputed facts of the case).
If that does not work, then the case would go to trial unless the parties agree to settle out of court. (Note that in some cases, disputes are settled through arbitration instead of the courts.)
Employers typically seek two types of relief:
- Injunctive relief, such as a court order for the defendant not to hire the plaintiff’s employees or solicit their clients; and/or
- Compensation for any money the defendant’s actions allegedly cost the plaintiff.
Any case decided at the state district court level could be appealed to the appellate court and finally to the California Supreme Court. (Certain state supreme court cases can be appealed to the U.S. Supreme Court, but this is rare.)
Since these cases can drag on for years in the courts, most of the time they resolve out-of-court.
Non-solicitation clauses can be enforced in California to protect trade secrets.
4. How are non-compete agreements different?
Non-competition agreements are clauses in employment contracts that prohibit employees who later leave the company from then working at a competing business for a certain period of months or years.
So whereas non-solicitation agreements restrict a company’s former employees from hiring the company’s current employees and/or soliciting their clients, a non-compete agreement restricts a company’s former employees from working at a competing company.
Similar to non-solicitation agreements, non-compete agreements are usually unenforceable in California because they hinder people from practicing their chosen profession.6
Additional Resources
For more in-depth information, refer to these scholarly articles:
- Protecting an Employer’s Human Capital: Covenants Not to Compete and the Changing Business Environment – University of Pittsburgh Law Review.
- Regulate Physician Restrictive Covenants to Improve Healthcare – Kentucky Law Journal.
- Utilizing Telehealth to Practice Medicine across State Lines: The Enforceability of Physician Non-Compete Agreements and Non-Solicitation Clauses – Hofstra Labor and Employment Law Journal.
- Questioning the Employee Non-Solicitation Covenant – Loyola of Los Angeles Law Review.
- The Parameters of “Solicitation” in an Era of Non-Solicitation Covenants – ABA Journal of Labor & Employment Law.
Legal References
- California Business and Professions Code section 16600 (“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.“). AMN Healthcare, Inc. v. Aya Healthcare Services (California Court of Appeal, Fourth Appellate District, Division One, 2018) 28 Cal. App. 5th 923 (“The undisputed evidence thus shows section 3.2 of the CNDA restricted individual defendants’ ability to engage in their “profession, trade, or business.”). Edwards v. Arthur Andersen LLP (California Supreme Court, 2008) 44 Cal. 4th 937 (“California courts have not embraced the Ninth Circuit’s narrow-restraint exception…Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.”). See also Barker v. Insight Global, LLC (United States District Court for the Northern District of California, San Jose Division, 2019) 2019 U.S. Dist. LEXIS 6523 (federal court decision).
- Loral Corp. v. Moyes (California Appellate Court, Sixth Appellate District, 1985) 174 Cal. App. 3d 268 (“The potential impact on trade must be considered before invalidating a noninterference agreement, a contract must be construed to be lawful if possible, and the restriction only slightly affected plaintiff’s employees, who were not hampered from seeking employment with defendant’s new employer nor from contacting defendant. Since the noninterference agreement had no overall negative impact on trade or business, it was not void on its face under § 16600.”)
- Moss, Adams & Co. v. Shilling (Court of Appeal of California, First Appellate District, Division Five, 1986) 179 Cal. App. 3d 124 (“Antisolicitation covenants are void as unlawful business restraints except where their enforcement is necessary to protect trade secrets.”). Edwards v. Arthur Andersen LLP (California Supreme Court, 2008) 44 Cal. 4th 937. Dowell v. Biosense Webster (Cal.App. 2009) 179 Cal.App.4th 564. (“The court also found that Biosense’s common law trade secret defense failed as a matter of law because the restrictive clauses were not narrowly tailored or carefully limited to the protection of trade secrets and that, in any event, there was no evidence that Biosense’s customer list is a trade secret because “it appears that the customers for the products at issue ( e.g., physicians [and] hospitals) are easily identified from any number of publicly available directories and resources.””).
- See BP 16601. Blue Mountain Enterprises, LLC v. Owen (Court of Appeal of California, First Appellate District, Division One, 2022) 74 Cal. App. 5th 537.
- See BP 16602. See also BP 16602.5.
- See Edwards v. Arthur Andersen (“We hold that the noncompetition agreement here is invalid under section 16600, and we reject the narrow-restraint exception urged by Andersen. Noncompetition agreements are invalid under section 16600 in California, even if narrowly drawn, unless they fall within the applicable statutory exceptions of section 16601, 16602, or 16602.5“). See International Business Machines Corp. v. Bajorek (9th Cir. 1999) 191 F.3d 1033 (“It is one thing to tell a man that if he wants his pension, he cannot ever work in his trade again, as in Muggill, and quite another to tell him that if he wants a million dollars from his stock options, he has to refrain from going to work for a competitor for six months. Because of the limited scope of the restriction, we are bound to hold, under Campbell, General Commercial Packaging, and Smith, that the covenant did not violate section 16600.”). General Commercial Packaging, Inc. v. TPS Package Engineering, Inc. (9th Cir., 1997) 114 F.3d 888 (“Apart from Disney, TPS was not barred from soliciting work from any firm with which it had a prior relationship. The contract thus only limits TPS’s access to a narrow segment of the packing and shipping market.”). AB 1076 (2023). SB 699 (2023). See also FTC Announces Rule Banning Noncompetes, Federal Trade Commission, April 23, 2024.