Most states allow employers to reasonably restrict departing employees from working for a competitor. California isn’t one of them. Section 16600 of the California Business and Professions Code forbids noncompete clauses in nearly every circumstance, and California courts have consistently stricken attempts to circumvent the general prohibition. But recent cases show that there may be another way—mandatory forum selection clauses.
Replacing the ‘Race to the Courthouse’ with a Forum Selection Clause
Historically, many multistate employers sought to get around California’s prohibition on noncompete agreements by stating that the noncompete was governed by the law of a state that permitted a noncompete agreement. California courts, however, would ignore these choice of law provisions, as it led to a California court enforcing a restrictive covenant that violated California’s public policy. The result was that many California-based employees would file a declaratory judgment action in California to invalidate the noncompete agreement immediately after leaving their jobs. Out-of-state employers, conversely, were motivated to file first in their home state, hoping to get an earlier judgment in a more favorable forum. These conflicting incentives meant that enforcement of the non-compete depended on who won the race to the courthouse.
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