Recent Developments In California Law Regarding Noncompetition Agreements

In many states, restraints on the practice of a trade or business (i.e., noncompetition agreements) are valid if reasonable and geographically limited. In these states, employers have some ability to prevent former employees from engaging in certain forms of competition after the employment relationship has ended. California, however, has a long-standing public policy prohibiting restraints on trade. California’s policy is embodied in California Business and Professions Code Section 16600 ("Section 16600"), which states: "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

Of course, exceptions to Section 16600 do exist. In particular, the Legislature has created statutory exceptions that validate contracts restraining competition when those contracts relate to the sale of a business, the dissolution of a partnership, or the sale or disposition of a stockholder’s stock in a corporation. Over the