The Uncertain State of Employee Nonsolicitation Clauses in California

Elena K. Kouvabina, Wilson Sonsini Goodrich & Rosati law firm

Abstract

Employee nonsolicitation clauses continue to be a common feature of employment agreements in California. While Section 16600 of the California Business and Professions Code prohibits contractual restraints on the practice of a lawful profession, trade or business, in 1985, the California Court of Appeal held that employee nonsolicitation clauses do not violate Section 16600 because they do not significantly affect employees’ ability to engage in a lawful profession, trade or business. In a recent decision, however, the California Supreme Court pronounced that Section 16600 is violated even if a covenant does not completely preclude one from engaging in a lawful profession, trade or business, and invalidated a noncompetition clause at stake in that case. The Supreme Court’s decision raises questions about the continued validity of nonsolicitation clauses, as well as the so-called trade secret “exception” to covenants restricting trade. This article attempts to answer the question whether employee nonsolicitation clauses continue to be valid in light of the California Supreme Court’s decision and the evolution of the law of restrictive covenants over the past twenty-five years.