My Severance Agreement Has a Non-Compete. Is It Enforceable in California?

Almost certainly not. California has one of the strongest prohibitions against non-compete agreements in the country. And recent legislation has made the state's position even clearer. But the fact that your employer put it in your severance agreement anyway tells you something worth understanding.

What California Law Says

Business and Professions Code Section 16600 states 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's about as clear as legal language gets. Non-compete clauses are void in California, with very limited exceptions that almost never apply to employees.

This isn't new. California has prohibited non-competes for over a century. But the state strengthened its position significantly with AB 1076 (effective January 1, 2024), which made it explicitly illegal for employers to even include non-compete clauses in employment agreements. Employers who include them can now face legal consequences.

SB 699 (also effective January 2024) went even further. It made it unlawful for a California employer to enforce a non-compete against a former employee, even if the agreement was signed in another state. And it gave employees the right to bring a private lawsuit against employers who try to enforce void non-competes.

Why Your Employer Included It Anyway

If non-competes are clearly unenforceable, why is one sitting in your severance agreement? A few possible reasons:

The agreement was drafted using a template from another state. Multi-state employers with offices in Los Angeles sometimes use a one-size-fits-all template drafted by corporate counsel in New York or Texas, where non-competes are enforceable. They may not have tailored the agreement for California.

They're counting on you not knowing the law. An unenforceable clause still has a chilling effect if you think it's real. If you believe you can't work for a competitor for 12 months, you'll avoid those opportunities even though the restriction has no legal teeth.

They want leverage over you in other states. If you might move to a state where non-competes are enforceable, the clause could theoretically be used there (though SB 699 and Section 16600 create strong arguments against this).

What You Should Do About It

Don't just ignore it. Even though the clause is likely unenforceable, having it in a signed agreement can create headaches. Future employers might see it and get nervous, especially if they don't know California law. Recruiters at out-of-state companies may pass on you. And while enforcement is unlikely to succeed, defending against a breach claim still costs time and money.

Negotiate to remove it. This should be a straightforward request. You're asking your employer to remove a clause that's illegal for them to include in the first place. Most employers will agree to remove it rather than defend including an unenforceable provision.

If they won't remove it, negotiate a carve-out. At minimum, get language added that says the non-compete does not apply to the extent it is prohibited by California law. This at least creates clarity in the signed document.

What About Non-Solicitation Clauses?

Many severance agreements include a non-solicitation clause that prevents you from recruiting your former colleagues or contacting the company's clients. The enforceability of these clauses in California is also very limited.

California courts have generally treated employee non-solicitation clauses as restraints on trade that violate Section 16600, especially after the court's decision in AMN Healthcare v. Aya Healthcare. Client non-solicitation clauses are analyzed on a case-by-case basis, but many are also found to be unenforceable restraints.

If your severance agreement includes non-solicitation provisions, they deserve the same scrutiny as a non-compete. Negotiate to remove or narrow them.

The Narrow Exceptions

There are very limited situations where non-compete-like restrictions may be enforceable in California:

Sale of a business. If you're selling your ownership interest in a business, a non-compete tied to the sale may be valid under Business and Professions Code Sections 16601-16602.

Trade secrets. While you can't be restricted from working for a competitor, you can be restricted from using or disclosing trade secrets. This is different from a non-compete. You can take the job; you just can't bring proprietary information with you.

For the vast majority of employees receiving severance agreements, these exceptions don't apply.

Get It Removed

Don't sign a severance agreement with a non-compete clause if you can avoid it. And you usually can. A Los Angeles employment attorney can negotiate its removal as part of the broader severance negotiation. This is one of the easiest wins in any severance review because the law is entirely on your side.

Free consultation for employees in Los Angeles and throughout Southern California. Contact our employment team to review your agreement.