When it comes to non-competes, the state of California, is not like much of the United States. The state maintains one of the most employee-friendly legal regimes in the country when it comes to post-employment restrictions, and those who fail to appreciate the breadth and force of California’s prohibitions risk not only unenforceability but also significant legal exposure.
California’s legal landscape demands that startups and investors approach restrictive covenants with clear eyes. Noncompetition agreements and customer nonsolicitation clauses are void. Employee nonsolicitation provisions are very likely void. And the increasingly popular strategy of repackaging a restrictive covenant as a trade secret protection, including by prohibiting the “use of proprietary information in order to” compete, solicit, or recruit, should be drafted and enforced narrowly to avoid an argument that they are operating as noncompetes in disguise.
The Foundation: Business and Professions Code Section 16600
California’s hostility toward restrictive covenants is rooted in Business and Professions Code Section 16600, which provides, in relevant part, 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.” Courts have interpreted this provision broadly. Unlike jurisdictions that evaluate noncompetition agreements under a “reasonableness” standard, weighing the employer’s legitimate interests against the burden on the employee, California’s statute operates as a near-categorical prohibition. A contractual provision that prevents a former employee, consultant, or advisor from freely pursuing their livelihood is void on its face, regardless of how narrowly it is drafted, how short its duration, or how limited its geographic scope.1
The California Supreme Court held that the statute prohibits noncompetition agreements except in narrow statutory exceptions such as the sale of a business or the dissolution of a partnership. The court expressly rejected the argument that California should adopt a “narrow restraint” exception permitting noncompetition clauses that impose only limited restrictions on an employee’s future activities. The message was unambiguous: In California, noncompetition agreements with employees are void.
In 2024, the California Legislature further strengthened these protections by expressly confirming that any noncompete clause that does not fall within a statutory exception is void, regardless of where or when the contract was signed. The legislature also made it unlawful for an employer to enter into or attempt to enforce a noncompete agreement that is void under California law, even if the agreement was entered into outside of California. These amendments also created a private right of action, allowing individuals to seek injunctive relief, actual damages, and attorneys’ fees against employers who violate the statute. The practical consequence for startups is stark: Attempting to enforce or even maintain a void noncompete provision in an employment agreement can itself give rise to liability.
Beyond Noncompetes: Employee Nonsolicitation Covenants
Founders and investors often assume that even if noncompetition agreements are off the table in California, employee nonsolicitation provisions, which are clauses that prevent a departing worker from recruiting former colleagues to join a competitor, remain permissible. This assumption is incorrect, or at least highly precarious.
California courts have increasingly treated employee nonsolicitation covenants as restraints on trade that fall within the ambit of Section 16600. The reasoning is straightforward: If a former employee cannot contact or recruit colleagues they previously worked with, their ability to engage in their profession is meaningfully restricted. They cannot freely build a team, they cannot leverage their professional network, and they are placed at a competitive disadvantage relative to others in their field who are not subject to such restrictions. While some practitioners still debate the outer boundaries of the holding (for instance, whether a narrowly drawn “no-raid” provision aimed at preventing the mass departure of an entire team might survive scrutiny),the prevailing trend in California jurisprudence strongly disfavors employee nonsolicitation covenants of any kind.
For startups, this has significant implications. It is common in the technology sector for key engineers, salespeople, or executives to depart and bring colleagues with them to a new venture. While this can be deeply disruptive to a young company, attempting to prevent it through contractual nonsolicitation provisions is unlikely to succeed in a California court and may expose the company to counterclaims.
Customer Nonsolicitation Covenants: An Equally Hostile Landscape
Customer nonsolicitation provisions - clauses that prohibit a former employee from soliciting or doing business with the company’s clients or customers - face a similarly difficult road in California. The California courts have confirmed they are just as much a restraint on mobility as an employee noncompete.
Some California courts have drawn a distinction between clauses that prevent a former employee from soliciting customers and clauses that merely prevent the misuse of trade secret information (such as confidential customer lists) to solicit those customers. This distinction brings us to one of the most important, and most misunderstood, issues in this area of law.
The Trade Secret “Workaround” That Isn’t
Precisely because California’s prohibition on restrictive covenants is so broad, creative drafters have long sought workarounds. One of the most common is to frame a restrictive covenant not as a restriction on competition or solicitation, but as a restriction on the use of your proprietary or confidential information. Under this approach, an agreement might provide that the employee or consultant “shall not use Company proprietary information or trade secrets in order to compete with the Company,” or “shall not use Company confidential information to solicit Company employees or customers.”
The logic behind this formulation is superficially appealing. California law does, after all, protect trade secrets through the California Uniform Trade Secrets Act (CUTSA) and does permit employers to require employees to maintain the confidentiality of genuinely proprietary information. If the clause is framed as a trade secret protection rather than a restraint on competition, the argument goes, it should survive scrutiny under Section 16600.
The critical question is whether the clause, as drafted and as applied, operates as a genuine trade secret protection or as a de facto restrictive covenant dressed in the language of trade secret law.
Consider a clause that states: “Employee shall not use Company proprietary information in order to solicit Company’s customers.” On its face, this appears to be a narrow, information-based restriction. But in practice, a former employee who spent years managing a portfolio of customer relationships will find it nearly impossible to demonstrate, to the satisfaction of a litigious former employer, that their solicitation of a customer was based entirely on publicly available information and not, in any respect, on knowledge acquired during their employment. The clause effectively gives the former employer a veto over any customer solicitation by the departing employee, because the employer can always allege that the solicitation was informed by proprietary knowledge. The practical effect may be difficult to distinguish from a customer nonsolicitation covenant.
The same analysis applies to clauses framed as restrictions on using proprietary information to compete. A provision stating that the employee “shall not use Company trade secrets in order to engage in a competing business” may sound like a reasonable trade secret protection, but if the employee’s general knowledge of your business strategies, product roadmap, or market positioning is broad enough, the clause effectively prevents the employee from working in the same industry. At that point, it is a noncompete in all but name. The important takeaway is that the inclusion of trade secret language does not immunize a clause that functions as a restrictive covenant.
This does not mean that employers cannot protect their trade secrets. They absolutely can, but they must do so through mechanisms that California law actually recognizes. A well-drafted confidentiality and nondisclosure agreement that identifies categories of protected information and prohibits its disclosure or use is generally enforceable. An employer can also bring a claim under CUTSA if a former employee actually misappropriates trade secrets to gain a competitive advantage. What an employer cannot do is use the specter of trade secret protection to achieve what amounts to a blanket prohibition on competition or solicitation.
Practical Implications for Consultants and Advisors
Much of the foregoing discussion has focused on employees, but the same principles apply with equal force to independent contractors, consultants, and advisors - relationships that are ubiquitous in the startup ecosystem. Technology companies frequently engage advisors under advisory agreements that include restrictive covenants, sometimes imported wholesale from templates designed for jurisdictions where such provisions are enforceable. In California, these provisions are no more valid when imposed on a consultant than when imposed on an employee.
Indeed, the case for enforceability may be even weaker with respect to independent contractors and advisors, who by definition maintain their own businesses and serve multiple clients. A nonsolicitation or noncompetition clause imposed on a consultant who advises several companies in the same sector would directly restrict the consultant’s ability to carry on their independent business and be squarely at odds with Section 16600.
All parties should review their advisory agreements, consulting agreements, and independent contractor agreements to ensure that they do not contain provisions that California law would render void. The inclusion of such provisions does not merely result in unenforceability; under the 2024 amendments, it can result in affirmative liability.
A Word About Choice of Law and Forum Selection
Some parties sometimes attempt to circumvent California’s restrictions by including choice-of-law provisions that designate a more permissive jurisdiction, for example, specifying that the agreement will be governed by the laws of Delaware or New York. This strategy is largely ineffective for individuals who work in California. California courts have consistently held that Section 16600 reflects a fundamental public policy of the state, and they will apply California law to restrictive covenants affecting California-based workers, regardless of the contractual choice of law. Furthermore, it is unlawful to enforce a void noncompete in California even if the agreement was signed outside of California.
For investors conducting due diligence on California-based portfolio companies, this is an area of particular concern. A company whose key employee agreements rely on restrictive covenants (whether styled as noncompetes, nonsolicitation clauses, or trade-secret-based activity restrictions) may have a materially weaker competitive moat than its cap table suggests. Diligence should specifically address the enforceability of employee and consultant agreements under California law and should flag any provisions that may expose the company to liability under the current statutory framework.
1. There are limited exceptions to the rule, including the ability to obtain noncompete covenants in connection with the sale or dissolution of a business, partnership, or LLC. This article does not address those exceptions and instead discusses restrictive covenants only in the employment or service relationship itself.
