Non-Compete Clauses in San Francisco Severance Agreements

Your San Francisco employer just handed you a severance agreement, and buried on page four there's a non-compete clause. It says you can't work for a competitor for 12 months. Or maybe 18 months. Maybe it covers "any company in the same industry" within some absurdly large geographic area.

Here's the short version: it's almost certainly unenforceable. California has banned non-compete agreements for over a century, and recent legislation has made the state's position even more aggressive. But the fact that it's sitting in your severance agreement creates problems you shouldn't ignore.

California's Position Is Clear

Business and Professions Code Section 16600 says that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." That language doesn't leave much room for interpretation. Non-compete clauses are void in California.

But the legislature went further. AB 1076, which took effect January 1, 2024, made it explicitly unlawful for an employer to enter into or attempt to enforce a non-compete agreement with an employee. It didn't create a new rule so much as it put teeth behind the existing one. Employers who include non-competes now face actual legal consequences.

SB 699, also effective January 2024, tackled the out-of-state problem head-on. It made it unlawful for any employer to enforce or threaten to enforce a non-compete against a former employee who works in California, regardless of where the agreement was signed. It also gave employees the right to sue employers who try to enforce void non-competes, including recovery of attorney's fees.

Why SF Tech Companies Still Include Them

If non-competes are so clearly void, why does your severance agreement have one? A few reasons.

Your employer's HQ is in another state. This is the most common scenario in San Francisco. A huge number of SF tech workers are employed by companies headquartered in Seattle, Austin, New York, or other cities where non-competes are enforceable (or were until recently). The company's legal department drafts one set of severance documents and sends the same package to employees in every state. The non-compete was written for their Texas employees. You're getting it because nobody bothered to tailor the agreement for California.

They're betting you don't know the law. An unenforceable clause still works if you think it's real. If you believe you can't join a competing company for a year, you'll turn down opportunities, delay your job search, or accept a lower-paying role outside your industry. The non-compete achieves its purpose without ever being tested in court.

They want it to travel. If you might relocate to a state where non-competes are enforceable, the clause could theoretically follow you. SB 699 and Section 16600 create strong defenses against this, but having a signed agreement with a non-compete gives the company an argument it wouldn't otherwise have.

Non-Competes vs. Customer Non-Solicitation

This is where it gets more nuanced. Your severance agreement might not use the words "non-compete." Instead, it might include a "customer non-solicitation" clause that prevents you from doing business with the company's clients for 12 or 18 months.

These clauses are analyzed differently than traditional non-competes, but they're still vulnerable under California law. The key question is whether the restriction effectively prevents you from doing your job. If you're a salesperson and you can't contact any of the clients in your territory, that's functionally the same as a non-compete. It restrains you from engaging in your profession.

California courts have been inconsistent on customer non-solicitation clauses, which means the outcome can depend on how the clause is drafted and how broadly it reaches. A narrow restriction (you can't actively solicit specific named clients for six months) might survive. A broad one (you can't do business with any company that was ever a customer) probably won't.

Either way, it's worth pushing to remove or narrow these clauses. Don't assume that because it says "non-solicitation" instead of "non-compete," it's automatically enforceable.

Employee Non-Solicitation Is Also at Risk

Many San Francisco severance agreements include a clause preventing you from recruiting your former colleagues. For managers and team leads, this can be the most personally frustrating restriction in the entire agreement.

California courts have increasingly treated employee non-solicitation clauses as restraints on trade that violate Section 16600. The trend accelerated after the appellate court's decision in AMN Healthcare v. Aya Healthcare. While the law isn't perfectly settled, the direction is clear: California disfavors restrictions on employees' ability to change jobs and work with whomever they choose.

If your agreement has an employee non-solicitation clause, negotiate to remove it. At minimum, narrow it to cover only direct reports and limit the duration to six months or less.

What to Do About the Non-Compete in Your Severance

Don't just ignore it. Don't sign it and assume it won't matter. Here's the right approach.

Demand removal. You're asking the company to take out a clause that's illegal for them to include. This should be a simple ask. Frame it that way: "Under AB 1076, this provision is unlawful. Please remove it." Most companies will comply rather than defend an indefensible position.

If they won't remove it, add a carve-out. Get language added to the agreement that says the non-compete does not apply to the extent it is prohibited by California law, including Business and Professions Code Sections 16600 et seq., AB 1076, and SB 699. This creates a written record within the agreement itself that the clause has no force in California.

Don't trade something valuable for its removal. Some employers will try to frame the removal of the non-compete as a "concession" that you should give something up for. Don't fall for it. They're not giving you anything. They're removing something they were never legally allowed to include.

Consider your next employer. If your next role is with a Bay Area company, they probably understand that California non-competes are void. But if your next employer is based in a state where non-competes are enforceable, they might get nervous seeing one in a signed agreement, even with a California carve-out. A clean agreement with no non-compete at all is always better.

The Bottom Line

California law is firmly on the side of employees when it comes to non-competes. But having an unenforceable clause in a signed document still creates friction, confusion, and risk. Get it out of your severance agreement before you sign.

If your San Francisco employer is pushing back on removing a non-compete, or if you're dealing with a customer or employee non-solicitation clause that feels like a non-compete by another name, talk to an employment attorney. Free consultation for SF and Bay Area employees.