In a post this summer, I raised three issues employers may want to consider before even requesting that an employee execute a covenant not to compete. One issue that I did not mention is whether the company’s employee lives and works in California. Although where an employee lives may be relevant, contrary to what many attorneys think, it may be possible for a Massachusetts company to enforce a non-compete against a California resident.
As Renee discussed in a recent post, some states, like Massachusetts, enforce non-competes while others do not. In the case of California, Section 16600 of the Business and Professional code states:
Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
California’s disdain for non-competes is so strong and has been publicized so well, that many attorneys have been misled into believing that there simply is no hope of enforcing a non-compete against a California resident, even if he or she is employed by a Massachusetts company. One strategy that employers can use to potentially thwart the defenses of a California resident/employee that he or she cannot be forced to abide by a non-compete is simply to include a statement that the non-compete will be governed by Massachusetts law and that all disputes arising out of the agreement must be pursued in a Massachusetts state court. Indeed, under Massachusetts law, a court will honor a choice of law provision unless enforcement would be contrary to a fundamental policy of a state which (1) has a materially greater interest than the chosen state in the determination of the particular issue; and (2) would be the state of applicable law in the absence of an effective choice of law provision.
In a case last year in the Federal District Court in Massachusetts, a company sought to enforce a non-compete against a former employee who resided in California. While the non-compete was contained in an employment agreement that specifically called for Massachusetts law to apply, the former employee argued that California law should apply because California had a fundamental policy against enforcing non-competes that was materially greater than any interest that Massachusetts had. The Federal District Court rejected this position, holding in that case:
[Any interest California had in] the freedom of its residents to seek employment [and] the freedom of its employers to hire an employee… would not materially outweigh Massachusetts’ interest in ensuring that Massachusetts contracts are enforced.
So, as I discussed generally in “Choice of Law in a Contract can be Critical,” including a Massachusetts choice of law provision in an agreement containing a non-compete could turn out to be a game changer.
In my next post, I will discuss how you might be able to enforce restrictions on an employee’s post-employment work even if California law does apply.