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Employee noncompete agreements prohibited in California

Noncompete agreements are a method for organizations to keep their talented employees and prevent other companies from gaining inside information on them. However, such agreements must be balanced with the freedom of employees to determine their own careers.

The hiring and recruiting strategies of EMC Corp., a data storage company, have highlighted the differences in how states, particularly California, treat noncompete clauses for employees. California does not allow noncompete agreements, meaning that employees can be hired away from rival organizations with no legal recourse.

Other states allow such agreements, and EMC Corp. has opposed any actions in those states to make them illegal. Those against noncompete agreements feel that they prevent employees from launching their own companies or joining other companies that they would like to work for. Others argue that these agreements are needed to prevent rival companies from using inside information or trade secrets from another organization to their own advantage.

Noncompete agreements are used by organizations to prevent them from losing employees and other assets to rival companies. Such agreements are contracts that employees enter into when they begin working with a company that prevent them from going to another company or taking any trade secret information with them and providing it to a rival.

California, as mentioned above, does not allow noncompete agreements. The reasoning is that the state would rather promote innovation and industry development, which is furthered by allowing employee mobility. Companies in California must instead use nondisclosure agreements to protect their trade secret information if an employee goes to another organization. If a company in a state that allows noncompete agreements intends to hold their employees to such contracts, they must be sure that they are entered into for legitimate business reasons, provide some incentive and benefit to the employee and have reasonable terms to increase their chances of prevailing in a contract dispute.

Courts often feel that it is important to protect the freedom of employees to earn a living however they choose, making it difficult for many noncompete agreements to be enforced. Companies must be aware of the laws in their state concerning these agreements to find the best methods for retaining their employees and other assets.

Source: The Boston Globe, "Tactics of EMC put spotlight on noncompete clauses," Callum Borchers, May 18, 2014

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