The Legal Ramifications of Breaking a Non-Compete Agreement

Non-compete agreements have long been a source of confusion for California workers and business owners alike. If you have signed one, or if your business relies on them, understanding what actually happens when these agreements are violated is important knowledge to have.

California takes a notably different approach to non-competes than most other states, and that distinction has significant legal consequences for everyone involved.

California’s Strong Stance Against Non-Competes

Under California Business and Professions Code Section 16600, non-compete agreements are largely unenforceable in the state. California courts have consistently interpreted this statute broadly, protecting the right of employees to pursue their chosen profession. This puts California in stark contrast with states like Texas or Florida, where courts routinely enforce these restrictions.

What this means in practical terms is that an employer generally cannot prevent a former employee from working for a competitor or starting a competing business simply because a non-compete clause exists in an employment contract. For California workers, this is a meaningful protection. Signing a non-compete agreement does not automatically obligate you to follow it. In most cases, that agreement is void from the start under California law, regardless of what the document says.

Recent Changes Strengthened These Protections

In 2023, California enacted Senate Bill 699 and Assembly Bill 1076, which went into effect on January 1, 2024. These laws reinforced and expanded California’s existing protections against non-competes in several important ways.

Under SB 699, employers are now prohibited from entering into, maintaining, or attempting to enforce a non-compete agreement, even if the agreement was signed while the employee worked in another state. AB 1076 further codified long-standing California case law to make clear that non-compete agreements are void in the employment context, no matter how narrowly tailored they may be, unless a statutory exception applies.

Employers who violate these provisions can face civil penalties and be held liable for attorneys’ fees. This represents a meaningful expansion of employee rights and creates a genuine legal risk for businesses that attempt to enforce these agreements.

When Non-Competes Are Enforceable in California

While the general rule strongly favors employees, California law does recognize a few narrow exceptions where non-compete agreements carry legal weight.

Sale of a business

When a business owner sells their company, a non-compete agreement preventing that person from opening a competing business in the same market is generally enforceable. The rationale is that the buyer is paying for the goodwill of the business, and protecting that purchase is a legitimate interest.

Dissolution of a partnership

Partners who dissolve a business partnership may also be bound by non-compete terms, provided they are reasonable in scope and geography.

Trade secret protection

While not strictly a non-compete, employers can seek to prevent former employees from using or disclosing trade secrets. This is distinct from restricting competition generally, but it often appears in the same legal disputes.

If your situation falls into one of these categories, the legal analysis becomes considerably more complex, and the risks of violating an agreement increase substantially.

What Happens When Someone Violates an Enforceable Non-Compete

For the limited situations where a non-compete is valid under California law, breaking that agreement carries real consequences. Courts can order injunctive relief, meaning a judge can legally require you to stop working in the restricted role or for the competing business. This can happen quickly and without a full trial, through a temporary restraining order or preliminary injunction.

Beyond injunctions, the party who violated the agreement can face monetary damages. This includes proven financial losses suffered by the other party as a result of the breach, and in some cases, liquidated damages if the agreement specifies a penalty amount.

Attorneys’ fees are another significant exposure. If the agreement includes a fee-shifting provision and the court enforces it, losing the case can result in paying the opposing side’s legal costs in addition to your own.

What to Do If You Are Facing a Non-Compete Dispute

Whether you are an employee who has received a cease-and-desist letter or a business owner dealing with a former employee who appears to have violated a valid agreement, the first step is the same: get legal guidance from someone who understands California’s specific framework.

Do not assume that because a document exists, it is enforceable, and do not assume that because California generally voids these agreements, you are completely in the clear without reviewing the specifics of your situation. The exceptions are real, and the factual details of each case matter.

Non-compete disputes sometimes arise in connection with broader business disputes, debt obligations, or even business closures. At the Law Offices of Brent D. George, we regularly assist clients navigating the intersection of business law and financial hardship, including situations where employment disputes complicate an already difficult financial picture. If you have questions about a non-compete situation in California, speaking with an attorney who understands the state’s legal environment is the most reliable way to assess your options.

The Bottom Line

California stands firmly on the side of worker mobility, and the law continues to evolve in favor of employees. But the landscape has enough nuance that treating every non-compete as automatically void is risky, especially for business owners operating in the narrow situations where these agreements do hold up in court.

Understanding where the lines are drawn, and what exposure exists on either side of a dispute, gives you the clearest path forward.

Contact the Law Offices of Brent D. George today to schedule your free, confidential consultation and find out where you stand.