Are Employee 'No-Hire' and Non-Solicitation Provisions Enforceable Under California Law?

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In most states, noncompetition agreements are enforceable if reasonably necessary to protect trade secrets

and other confidential information. California, however, has a long standing public policy generally prohibiting

noncompetition agreements. This policy is embodied in California Business & Professions Code section 16600

(“Section 16600”). Limited exceptions are set forth in subsequent sections of the California Business &

Professions Code, such as the “sale of business” exception in Section 16601.

In VL Systems v. Unisen, Inc.,[fn1] the California Court of Appeal found that an employee no-hire provision in a

business-to-business computer consulting agreement was overbroad and unenforceable. The holding was based in part on the public policy established by Section 16600. As drafted, the no-hire clause in the consulting agreement purported to prohibited the client from hiring: (1) employees of the consulting company that did not

provide any consulting services to the client; and (2) individuals that were hired by the consulting company

after its engagement by the client ended.

The Court of Appeal, however, was careful to point out that its decision was limited to the facts of the case, and

that a “more narrowly drawn clause limited to soliciting employees who had actually performed work for the

client might pass muster.” [fn2]

Below is a summary of the facts and analysis set forth in the VL Systems case, and other relevant California

cases addressing employee no-hire and non-solicitation clauses.

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Published In: General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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