3 ms·

My understanding is that merely proposing an illegal noncompete in California creates a cause to sue, but I’ve never heard of that being acted on.

by User23 3y ago

lazide 3y ago
The just passed law would make it a civil violation (which if documented would be a slam dunk) to propose such a clause it looks like. Here is the text of the bill [https://legiscan.com/CA/text/SB699/2023 https://legiscan.com/CA/text/SB699/2023] The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=BPC&division=7.&title=&part=2.&chapter=&article= https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600 https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing. It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though). [https://www.littler.com/publication-press/publication/california-reaches-across-state-lines-invalidate-employee-non-compete https://www.littler.com/publication-press/publication/califo...]
- OkayPhysicist 3y ago
  Seems like it would be a pretty fun little hustle to create a tiny law firm specializing in racking up some legal fees while suing companies being stupid enough to include such illegal noncompete clauses. The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.
surfacing_vol 3y ago
Right, I thought that got buried a bit in the article. It doesn't matter if the non-compete is paid or not or if it's 18 days or 18 months long. It shouldn't be enforceable. The exceptions I'm aware of are: * Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-cases-stricter-review-sale-business-non-competes https://www.mofo.com/resources/insights/230331-delaware-case... * If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that. * Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.

My understanding is that merely proposing an illegal noncompete in California creates a cause to sue, but I’ve never heard of that being acted on.

by User23 3y ago

My understanding is that merely proposing an illegal noncompete in California creates a cause to sue, but I’ve never heard of that being acted on.

lazide 3y ago

The just passed law would make it a civil violation (which if documented would be a slam dunk) to propose such a clause it looks like. Here is the text of the bill [https://legiscan.com/CA/text/SB699/2023 https://legiscan.com/CA/text/SB699/2023] The previous section of the B&P code (16600) can be found at [https://leginfo.legislature.ca.gov/faces/codes_displayexpandedbranch.xhtml?tocCode=BPC&division=7.&title=&part=2.&chapter=&article= https://leginfo.legislature.ca.gov/faces/codes_displayexpand...] specifically [https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600 https://leginfo.legislature.ca.gov/faces/codes_displaySectio....] which makes it illegal to restrain anyone from trade (which includes non-compete). No civil violations, but if you suffered an injury due to such a clause, then you could probably sue over it. Just way less clear, and also way less clear you could get things like attorneys costs - which the new law makes a thing. It also adds a section making any such contract signed elsewhere unenforceable in California (how that would play out in Federal Court still TBD. Seems unlikely to go well though). [https://www.littler.com/publication-press/publication/california-reaches-across-state-lines-invalidate-employee-non-compete https://www.littler.com/publication-press/publication/califo...]

OkayPhysicist 3y ago
Seems like it would be a pretty fun little hustle to create a tiny law firm specializing in racking up some legal fees while suing companies being stupid enough to include such illegal noncompete clauses. The actual damages payouts probably wouldn't be great (as, at best, you've got the employee's salary over the period of their unemployment due to thinking the noncompete was binding), but for a trivial amount of work ("Your honor, here's the employer's signature, here's the illegal noncompete clause, No further arguments"), it could be a half decent cash flow for the lawyers. Not sure if it's legal to kick back legal fees to your client, but if so, that might work.

surfacing_vol 3y ago

Right, I thought that got buried a bit in the article. It doesn't matter if the non-compete is paid or not or if it's 18 days or 18 months long. It shouldn't be enforceable. The exceptions I'm aware of are: * Voleon could claim that Delaware law applies. They'd have a tough case since they have literally no presence in the state - they're just a Delaware LP (like most hedge fund management companies). But, as the article noted, this works only if the employee had an attorney review the agreement. And even if that did happen, recent cases in Delaware suggest that Delaware might still rule that California law applies: https://www.mofo.com/resources/insights/230331-delaware-cases-stricter-review-sale-business-non-competes https://www.mofo.com/resources/insights/230331-delaware-case... * If Voleon pays its employees through a K-1, basically giving them shadow equity, then you could argue that the employees are LLC members or limited partners and that the non-compete is enforceable. But Voleon doesn't do that. * Really, Voleon seems to be putting most of its weight on the (totally bogus) argument that the non-compete is voluntary. Telling that the spokesperson wouldn't say how many employees, particularly at higher comp levels, actually chose not to sign.