Non-Solicitation Clauses in California

by Practical Law Commercial Transactions

A Practice Note discussing customer and employee non-solicitation clauses in commercial transactions under California law. This Practice Note examines the general unenforceability of non-solicitation language under California Business and Professions Code Section 16600 and outlines the limited statutory exceptions for transactions involving the sale of a business, the dissolution of a partnership, or the dissolution of a limited liability company. It explores how California courts distinguish between post-employment restraints and business-to-business agreements, including the "rule of reason" analysis applied to the latter following the Ixchel Pharma, LLC v. Biogen, Inc. decision. This Note also addresses the questionable viability of the common law trade secrets exception, courts' refusal to enforce non-California choice of law provisions intended to bypass California's public policy, and the judicial reluctance to "blue pencil" or revise unenforceable clauses. Finally, this Practice Note details the potential consequences of using unlawful non-solicitation language, including the risk of an action under California's Unfair Competition Law.