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Note: Covenants not to compete are not enforceable against employees in California. Since a California statute invalidates noncompete agreements except in very limited circumstances, California judges won't enforce a noncompete agreement against an employee. However, California employers can use nonsolicitation agreements and nondisclosure agreements to protect their trade secrets, client lists and employees when an employee leaves. (See Nondisclosure Agreements for an in-depth discussion of nondisclosure agreements.)
Common Sense Considerations
While noncompete agreements are a very effective way to protect your business's trade secrets, you should know that the legal system puts a high value on a person's right to earn a living. If your noncompete agreement ends up under a legal microscope, it will have to pass some legal hurdles.
Have a Good Business Reason
First and foremost, you need a good business reason for asking an employee to sign the agreement -- the agreement shouldn't simply punish an employee for leaving your company. Usually, your business reason will be to protect your trade secrets or a customer base you've worked long and hard to develop.
If you're selective about the employees who sign noncompete agreements, you'll up your chances of success, because judges are much more likely to enforce noncompete agreements against employees who truly possess inside information.
Provide a Benefit to the Employee
Next, you must provide a benefit to the employee in exchange for his or her promise not to compete against you. Making a job offer contingent on signing a noncompete agreement probably satisfies this requirement, since the employee is receiving a benefit (a job) in exchange for the promise. It's more difficult to provide an existing employee with a benefit, but generally, coupling the agreement with a promotion or a raise will do the trick.
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