Employers, in case you were wondering, your employees cannot compete with you

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Many California laws seek to restrict the terms and conditions an employer may place on an employee during employment. Tuesday, the California Court of Appeal confirmed that Business and Professions Code Section 16600 is not one of those laws.

Section 16600 provides: “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.” This law is often raised as a defense when an employer attempts to prevent a former employee from working for a competitor.

In Techno Lite, Inc. v. EMCOD, LLC 2020 WL 289084, two Techno Lite employees attempted to use Section 16600 to invalidate their promise not to compete with Techno Lite during their employment.

The Court of Appeal rejected the employees’ position finding Section 16600 only applies to non-compete agreements after the employee’s employment has ended. It does not permit a current employee to “transfer his loyalty to a competitor” during employment.

The Techno Lite decision is important and confirms what may seem obvious: “[N]o firmly established principle … authorizes an employee to become his employer’s competitor while employed. Section 16600 is not an invitation to employees to bite the hand that feeds them.”

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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