Employers may not force employees to sign illegal non-competition agreements

In general, California employers may not force employees to sign illegal non-competition agreements as a condition of employment. Terminating an employee who refuses to agree to or sign the illegal covenant may sue the employer for wrongful termination in violation of law or public policy. Forcing an employee to sign an unlawful non-compete agreement as a condition of employment may foster a claim for unfair competition. Even merely asking an employee to sign such an agreement, or implying that signing the agreement is a requirement, may lead to a lawsuit.
For example, an employee sued his employer for wrongful termination alleging that his employer violated public policy when it fired him for refusing to sign a confidentiality agreement that contained a non-compete clause. The court ruled that an employer cannot lawfully make the signing of an employment agreement which contains an unenforceable covenant not to compete a condition of continued employment, even if such agreement contains choice of law or severability provisions that would enable the employer to enforce the other provisions of the employment agreement. The court held that there exists a clear legislative declaration of public policy against covenants not to compete in California Business & Professions Code §16600 which formed the basis of plaintiff’s cause of action for wrongful termination in violation of public policy. Thus, the D’Sa court held that an employer’s termination of an employee who refuses to sign an illegal noncompete agreement that is contrary to California law and policy constitutes a wrongful termination. (D’Sa v. Playhut, Inc. (2000) 85 Cal.App.4th 927; see also Kolani v. Gluska (1998) 64 Cal.App.4th 402.)
Most covenants not to compete between an employer and employee are invalid in California. Only in specific, limited circumstances have such agreements been upheld. An employer who insists, or even simply requests, that an employee sign such a document may, in some cases, be sued for unfair competition under California Business and Professions Code section 17200 (“Section 17200”). Section 17200 allows an aggrieved employee, and sometimes even another, to bring an action for unfair competition based on any unlawful business practice. Because Business & Professions Code section 17200 covers an employer’s business practices, the employer’s relationships with its employees are also implicated. Business & Professions Code section 17200 subjects employers to lawsuits for unfair competition should they try to include an unlawful covenant not to compete in their employment agreement. (See Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881.)

By Janeen Carlberg