Is a non-compete agreement with a Delaware company enforceable when working in California
I work in California for a company that is based in Delaware. I am asked to sign a non-compete agreement that would prevent me from doing what I do today for 18 months after termination anywhere in the world.
I have read that these types of agreement are not enforceable in California and I would like to know if the fact that the company is from Delaware makes any difference.
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I'm actually quite curious why this one picked up down votes... – rbwhitaker 10 years ago
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I think it is because, and as I said in my answer, we're not lawyers and therefore cannot comment on the legality of contract terms bar very basic and generic legal issues. http://area51.stackexchange.com/proposals/48901/legal is more where I'd expect this to be picked up, if it leaves area 51 of course. – Liam Dolman 10 years ago
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@Liam what are you talking about? Have you ever signed an employment contract? That's a basic question about a basic condition which is pretty clear and settled. And no, "it will never happen to you so ignore it" is not a valid response. If you don't want to respond because you're a lawyer - don't respond. You, instead, went on and wrote something totally wrong! – Littleadv 10 years ago
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@RaySF - what is the penalty for contract breech? – Ekoostik Martin 10 years ago
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Penalty is roughly 5 times my annual salary. – Ray Sf 10 years ago
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@RaySF - don't sign it, I don't know why a lot of otherwise good companies try to sneak some pretty unreasonable terms into their standard contract but you can usually negotiate those terms down to something insignificant (I have personally done this twice before) – Nir 10 years ago
3 Answers
They cannot control anything that happens following the termination of a contract as it is terminated.
As Answers OnStartups does not have lawyers and your question is primarily a legal issue you would be better off seeking profession legal advice.
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-1. This is not an answer to the question asked. – Littleadv 10 years ago
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The fact that the term wouldn't be enforced makes the issue of jurisdiction moot. Which is the core issue he is asking about. Although your answer is just as valid as you answered the direct question. – Liam Dolman 10 years ago
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Based on what are you assuming that the term would not be enforced? The contract is **not** terminated. The employment is. The contract **remains** valid and enforceable. – Littleadv 10 years ago
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YOU clearly know nothing about contract law. The contract would have a termination clause which would state that the contract would be terminated at the end of employment. All contracts must have a termination clause. Else, in the case of employment contracts, they would have to pay, both fiscal and with the premium services stated, indefinably. The only things enforceable following the termination of a contract is anything that occurred pre-breach, wages to the point of termination ect. Also, I'm not a lawyer but I can share the legal advice I have paid for on this subject. – Liam Dolman 10 years ago
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you're plain wrong. You don't know what you're saying. – Littleadv 10 years ago
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@LiamDolman - that's not how employment contracts work in the US - provisions which indicate rules for what happens after employment is terminated do not just go away...after employment is terminated. That makes no sense. – Ekoostik Martin 10 years ago
It makes no difference. You can still be sued for a breach of contract in Delaware, and the judgement against you will still be enforceable (including levies and garnishes in California).
Whether or not the non-compete itself is enforceable or not (i.e.: whether the courts will actually rule against you in case you're sued) is an entirely different issue.
To clear up the confusion: non-compete provisions are generally void in California. But they're not in Delaware. The full faith and credit clause of the US Constitution demands that States uphold other States' laws. That means that you can be sued based on the DE law, even if you're in CA, if the contract is based on the DE law and jurisdictions. In the past, CA courts ruled that even out of state clauses cannot be enforced in California, but there are 2 issues with this:
- It has never been decided by the US Supreme Court that the CA courts acted within their right to do so. Reason stands that the US Supreme Court would invalidate such a decision as contradicting the US Constitution, had it given it a consideration.
- You may move later out of CA, or work for an employer that is also a DE corporation. The clause may be enforced against the future employer, not only you, to demand your dismissal.
Bottom line: don't take this lightly. Don't listen to people who say "It didn't happen to me, so it won't happen to you". You don't want to be the one that it does happen to.
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Thanks, that's the information I was looking for. – Ray Sf 10 years ago
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I disagree, doesn't this fall under employment law...which is enforceable in the state which you work out of? For example, if my company is headquartered in DE, but I work in CA, they must pay the minimum wage of CA. – Ekoostik Martin 10 years ago
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@EkoostikMartin that would be the matter of "whether it is enforceable". As I said - that is an entirely different issue. As a matter of general principle - one should assume that a contract one signs is enforceable. It is very rare that the State will interfere with a contract, and usually if a State forbids something - the contract would mention that "For California: XXX instead of YYY". In the case of the OP the contract has a non-compete "anywhere in the world". There are places in the world that would allow that, and others that would not. – Littleadv 10 years ago
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In the jurisdictions that allow that - the clause will be enforced. In the jurisdictions that don't - it won't. So it may be that if he stays in California and competes - the California court will throw the suit out (and Delaware court will refuse to take it on since the offense was not done in DE, hence no jurisdiction). But if he competes in DE - the fact that he signed the contract while in CA would probably **not** matter. – Littleadv 10 years ago
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Not sure what you are saying here. I could write literally anything in a contract. The whole point is whether it is enforceable or not right (and the point of the OP's question)? I think you give to much weight to the fact that someone created a "contract" and got someone else to sign it. – Ekoostik Martin 10 years ago
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@EkoostikMartin As I said - whether or not it is enforceable depends on the jurisdiction. In CA it would generally be non-enforceable, although there are exceptions and we don't know whether they apply to the OP. But it is now, not in the future. In the future, the OP may move to a different place, or the law may change, and either of these may make this enforceable. The fact that **now** it is not enforceable **here** doesn't make it unenforceable **then** or **there**. – Littleadv 10 years ago
I've signed these very agreements before, and broken them. They are difficult to enforce in general. As someone with personal experience in this matter as well as a decent laypersons understanding of employment law, I wouldn't worry about this non-compete at all unless you breech and then go move to DE to work for a different DE company who is a competitor of your original company.
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Again, claiming that the employer won't move against the OP based on your personal past experience is a very bad thing to do. You could also say that you crossed the street on a red light and didn't get a ticket. Does it mean that everyone can do that and tickets will not be given? No! That's ridiculous. US Constitution requires each State to uphold the laws of other States, and there's no law in the US that says that California can ignore Delaware laws. The fact that you hadn't been sued personally, doesn't mean that it cannot be done in the future. – Littleadv 10 years ago
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See my updated answer. I think it will clear things up for you. – Littleadv 10 years ago
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It doesn't clear up anything. Employment law is enforceable in the state in which you work, not the location of the headquarters of the company. There are a few exceptions to this but the OP has not indicated he falls into those categories. – Ekoostik Martin 10 years ago
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Again - this is not employment law, this is contract law. Is the *contract* enforceable? I believe since we're both not lawyers, we won't reach any agreement. Had we been lawyers, there would be even less chances to reach an agreement. My bottom line is that you do not just ignore clauses in your contract just because some guy on the Internet said so. I hope you agree with that, but I'm OK if you don't, it's the OP who should be worried - not me. – Littleadv 10 years ago
