California State Supreme Court Nixes Employment Non-Competes

(MoneyWatch)  California's Supreme Court ruled yesterday that employers in the state cannot keep employees from working for competitors in their next job or from starting competing businesses. This will likely prevent federal courts from using a particular interpretation of California law that favored some employers.

"An employer cannot by contract restrain a former employee from engaging in his or her profession, trade or business," said Justice Ming Chin in Thursday's ruling. He said the law recognizes only a few limited exceptions, for non-compete agreements that are part of the breakup of a corporation or partnership.

Non-competes in the state have been largely unenforceable in state courts, but according to Paul Murphy, managing partner of Murphy Rosen & Meylan and a business litigator, some companies have gone to federal courts, which have sometimes interpreted California law differently.

"I could see in the future that the [federal] Ninth Circuit [Court] would abandon that doctrine in light of the California court's ruling," he says.

Companies operating in California that want to keep an employee from working with or creating a competitor would likely be limited to trade secret law. However, proving a trade secret case is more difficult. "They have to be able to prove that the employee took the information and is trying to use it against them," Murphy says.

Handcuffs image via Flickr user Jason Clapp (CLAPP Photography), CC 2.0.