Understanding Non-Compete and Non-Solicitation Agreements

In California, non-compete agreements are illegal and void for employees and independent contractors.

The three main types of restrictions are (1) a true noncompete where an employee cannot work for a competitor, (2) a non-solicitation of customers restriction, and (3) and non-solicitation of employee’s restriction.

The only exception in California is for the owners of a business, corporation, LLC, or partnership. If you sell your ownership in a business, you can be prevented from turning around and soliciting your former customers and taking them from the business you sold.

If an employer terminates an employee who refuses to sign such an agreement they may be liable for wrongful termination in violation of public policy.

An employee can be prohibited from using trade secret and confidential information.

For example, they can be prohibited from using a confidential customer list to solicit customers. However, the claimed protection of trade secrets cannot be used to impose a noncompete. A contract term saying an employee cannot use confidential company information to solicit customers post-employment is a valid protection of company information. This allows a former employee to compete, so long as they are not using confidential information.

What about Non-Solicitation restrictions?

Most states allow employers to ask employees to sign non-solicitation agreements, in which they agree that they will not solicit their coworkers for a given period after leaving the company. Some states will even allow a “no hire” agreement, in which the employee agrees not to hire former coworkers, even if the employee has taken no steps to actively seek out or encourage the coworkers to leave the company.

In California, the courts have generally held that “no hire” agreements are illegal. In other words, your employer cannot stop you from hiring co-workers who decide to leave of their own accord.

On the other hand, a non-solicitation agreement that merely prohibits you from actively reaching out to former coworkers about job opportunities is more likely to be enforced. However, even then, the agreement should be limited in time (for example, one or two years) and scope (for example, limited to coworkers with whom you worked).

What about a Non-Poaching agreement?

Careful, the federal government is starting to go after companies who have agreements with other companies not to “poach” or solicit their employees. The Department of Justice views this as violating Anti-trust laws is starting to file criminal charges against employers in these arrangements. 

The bottom line about non-compete and non-solicitation agreements is that in most cases they are illegal and are not enforceable in California. Even if you are an out of state employer who employs workers in California, they can still not be enforced. Many employers still have employees sign these agreements and think they are enforceable, which is surprising considering the stance that California has taken on the matter. 

Lauren Sims is the article’s author and the Director of Human Resources.

Whenever you require professional Human Resources or Payroll guidance to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, contact us for a no-obligation consultation.

eqHR Solutions offers professional, tactical and strategic human resources support; ADP payroll product implementation/training and payroll processing services for businesses throughout Southern California.

Summer Interns are Coming - Are you Prepared?

If you are planning on hiring summer interns this year, you should be aware of the issues involved. Employers always ask the question, should I pay my interns? The easiest and safest answer is yes, you should pay your interns at least the minimum wage and thereby avoid any potential claims and issues.

However, now that the Department of Labor has adopted a "primary-beneficiary test" for determining whether interns are employees, more employers are considering have unpaid internships.

This new text eliminates the prior rigid test whose six parts all had to be met for someone to be considered an unpaid intern and not an employee.

The new federal guidelines apply in California, as the state doesn't have policies or case law on the topic.

The new DOL test does not require each of its seven factors to be met. The new test includes consideration of the extent to which:

• Both parties understand that the intern is not entitled to compensation.
• The internship provides training that would be given in an educational environment.
• The intern's completion of the program entitles him or her to academic credit.
• The internship corresponds with the academic calendar.
• The internship's duration is limited to the period when the internship educates the intern.
• The intern's work complements rather than displaces the work of paid employees while providing significant educational benefits.
• The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship's end.

If an employer decides to offer unpaid internships, there must be clear communication and documentation that both the intern and the employer have agreed that the internship will be unpaid.

Employers should also connect the internship with the academic progression of the intern. If the intern can get academic credit for the internships, it will go far in supporting that the internship is to the primary benefit of the intern.

Employers should be cautious that managers do not view interns as potential free summer labor. Employers should provide interaction, learning, mentoring and other training opportunities to create a valuable experience for their interns.

Lauren Sims is the article’s author and the Director of Human Resources.

Whenever you require professional Human Resources or Payroll guidance to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, contact us for a no-obligation consultation.

eqHR Solutions offers professional, tactical and strategic human resources support; ADP payroll product implementation/training and payroll processing services for businesses throughout Southern California.

Do You Offer Makeup Time?

Makeup time gives employees who are entitled to overtime flexibility so that they can attend to personal matters without using vacation time.

Makeup time is available to California employees and allows the employee to “makeup” work hours during a week that would otherwise be lost because of some personal obligation. 

For example, an employee has a doctor’s appointment on a Friday afternoon that will take 3 hours. Makeup time allows the employee to work 3 extra hours earlier in the week so they will not have to use paid time off or take the hours as unpaid.

In this example, if the employee works 9 hours on Monday, Tuesday, and Wednesday, they would not be entitled of overtime for the ninth hour worked on those days, because those hours are applied to the hours lost on Friday afternoon.

Things to keep in mind:

• The employee needs to provide a signed written request to the employer for each occasion that they want to make up time 
• Employers should have a carefully drafted policy on makeup time and a system to document employee requests
• Any hours over 11 in a day or 40 in a week must be paid as overtime, even if makeup time is used during that week
• Makeup time for a recurring obligation can be requested up to 4 weeks in advance
• Makeup time must be for time missed during the same week
• Employers cannot solicit or encourage employees to request makeup time, but employers may inform employees of this option

Developing a compliant policy and procedure can be easy to administrate and would provide an excellent option to offer your non-exempt employees.

Lauren Sims is the article’s author and the Director of Human Resources.

Whenever you require professional Human Resources or Payroll guidance to navigate the ever-changing landscape of California and Federal Employment Laws & Regulations, contact us for a no-obligation consultation.

eqHR Solutions offers professional, tactical and strategic human resources support; ADP payroll product implementation/training and payroll processing services for businesses throughout Southern California.