Is My Out-Of-State Noncompete Agreement Enforceable In California?
Updated September 28, 2023
Probably not. California has one of the strongest public policies of any state prohibiting the enforcement of restrictive covenants (such as noncompete agreements) by employers against employees. In addition to voiding “every contract by which anyone is restrained from engaging in a lawful profession, trade or business,” Section 925 of the California Labor Code also restricts employers’ ability to draft around that ban through forum selection and choice-of-law provisions.
That Section states that employers shall not require employees who primarily reside and work in California to agree to (i) adjudicate outside of California a claim arising in California or (ii) deprive the employee of the substantive protection of California law in a controversy arising in California. In short, employers cannot require California employees to adjudicate non-competes in other states or under other states’ laws.
In the absence of such a law, courts use “conflict of law” rules to determine what state’s laws apply when the laws of more than one state might apply to a dispute but would produce different results. For example, a noncompete agreement between a California-based employer and a Nevada-based employee that was signed in Nevada could be construed under Nevada or California law, depending on the circumstances. If Nevada law applies, the restrictive covenant might be enforceable against the employee. If California law applies, it will not be enforceable.
Because of these issues, parties often include choice-of-law provisions telling a court to apply a particular state’s law rather than determine what state’s substantive laws apply under a conflict-of-law analysis. In most cases a court will readily accept a choice-of-law provision and apply it as the parties intended. But that’s not so California under Section 925, precluding employers from circumventing the near-absolute ban against noncompetes by prescribing another state’s law to apply.
Another more recent California law goes even further—voiding non-competes regardless of where and when they were signed and even if the employment occurred outside California.
Employees can bring private actions against employers who violate that law—or any of California’s laws against non-competes—and prevailing employees are entitled to attorney’s fees among other remedies.
If you’d like to learn more about noncompete agreements in California, please see this Bona Law primer. In short, California law prohibits employers from enforcing restrictive covenants against employees, particularly covenants that take the form of a noncompete agreement. See Cal. Bus. & Prof. Code § 16600.
Update: You can read a detailed discussion about California, non-compete agreements, choice-of-law clauses, and forum-selection clauses at The Antitrust Attorney Blog.