Q: Is a non-compete/non-solicitation agreement tied to stock appreciation rights legal in California?
My previous employer is headquartered outside of California and I worked managed their California branch. They issued me stock appreciation rights, but included a 2 year non-compete/non-solicitation clause in the SAR agreement. The agreement states that if I break the non-compete /non-solicitation agreement then I would have to repay all money paid out to me as part of the SAR program. If I part ways with the company and start my own company, do they have legal recourse if I operate in California only?
A:
In California, non-compete agreements are generally unenforceable, with a few limited exceptions. California Business and Professions Code Section 16600 states that "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 designed to promote employee mobility and free competition.
However, there are some nuances to consider in your case:
1. Non-solicitation agreements: While non-compete agreements are generally void, courts may enforce narrow non-solicitation agreements that prohibit former employees from soliciting the company's employees or customers. The enforceability of such clauses depends on their scope and reasonableness.
2. Choice of law: If the agreement specifies that it is governed by the laws of a state other than California, the company may argue that the non-compete should be enforced under that state's laws. However, California courts have often refused to enforce out-of-state non-compete agreements that violate California's public policy.
3. Forfeiture provisions: The clause requiring you to repay the money from the SAR program if you breach the non-compete/non-solicitation agreement is called a forfeiture provision. Some California courts have enforced such provisions, while others have found them unenforceable if they are tied to an invalid non-compete.
Given the complexity of your situation, it is advisable to consult with a California employment attorney who can review the specific language of your agreement and provide guidance based on your individual circumstances. They can help you assess the risks and potential legal recourse the company may have if you choose to start your own business in California.
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