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No noncompete agreements in California: Are there workarounds?

California is one state that prohibits almost all kinds of noncompete agreements for employees. That means employees in California cannot be required to refrain from competing with their employer after leaving the company.

There are other ways, though, for companies to discourage competition after the employee's job is finished. Business owners and employees alike need to be aware of the legal strategies companies can use to incentivize against competition post-employment.

Since state law in California prohibits noncompete agreements, using federal law is one way to discourage employees from later competing with the company. Federal law preempts state law, and this is where the Employment Retirement Income Security Act -- or ERISA -- can come into play in preventing future competition.

ERISA is federal legislation that regulates employee pension and health plans, as well as other employee benefits. In some cases, if an employee has a deferred compensation plan, then a contract that meets ERISA requirements can include a provision requiring the employee to forfeit that compensation if he or she later competes with the business.

This kind of provision must be carefully drafted, however, in order to meet federal requirements. Anyone with questions about such a provision would do well to speak with an attorney with experience in noncompete agreements as they pertain to federal and state laws.

In any case, business owners want to avoid costly disputes, just as employees want the best employment options available. Documents regarding competition and compensation need to be tailored for the specific situation at hand in order to avoid litigation or resolve a dispute.

Source: Business Management, "Are there alternatives to noncompetes for employees who work in California?" Carl Crosby Lehmann, Dec. 29, 2012

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