Trade Secrets vs. Non-Competes in California: What You Can Actually Protect in 2026
A key employee resigns to join a competitor, taking years of customer relationships and knowledge of your business. Can you stop them from competing? In California, most employee non-competes are void, but trade secret laws can protect confidential source code, pricing information, and qualifying customer data.
Limited non-compete exceptions exist for business sales and certain ownership transitions. For employees, changing jobs is generally lawful. Taking or misusing a former employer's trade secrets is not.
The Law Offices of David H. Schwartz, INC handles trade secret and restrictive covenant disputes for businesses and individuals throughout the San Francisco Bay Area and California. Whether you are concerned about a departing employee or an agreement restricting your next job, understanding what California law protects can help you decide what to do next.
Are Employee Non-Competes Enforceable in California?
California voids most employee non-compete agreements, even when narrowly tailored. California Business and Professions Code Section 16600 generally invalidates contracts restraining someone from engaging in a lawful profession, trade, or business.
The statute reflects the California Supreme Court's decision in Edwards v. Arthur Andersen LLP, which rejected a narrow-restraint exception for employee non-competes. A restriction lasting six months or covering one county does not become enforceable merely because it is limited.
Business and Professions Code Section 16600.5 makes a void non-compete unenforceable regardless of where or when it was signed. Employers that enter into or attempt to enforce prohibited non-competes may face lawsuits seeking injunctive relief, actual damages, and attorney's fees.
An out-of-state choice-of-law clause usually won't change the result either. California Labor Code Section 925 generally prevents employers from requiring employees who primarily reside and work in California to resolve covered employment claims elsewhere or waive California's substantive protections, unless the employee was individually represented by counsel in negotiating those terms.
For employers, threatening to enforce an invalid agreement can create legal exposure rather than protect the business.
What Changed in 2026 for Stay-or-Pay Agreements?
Beginning January 1, 2027, California restricted employment agreements that impose certain financial penalties on workers for leaving their jobs. Under Business and Professions Code Section 16608 and Labor Code Section 926, covered agreements entered into on or after that date generally cannot require workers to repay employment-related debts or pay penalties simply because their employment ends.
The law contains specific exceptions, including qualifying tuition arrangements, approved apprenticeships, and certain discretionary sign-on bonuses. Workers subjected to prohibited terms may seek statutory remedies, including the greater of actual damages or $5,000 per worker, plus reasonable attorney's fees and costs. Earlier agreements require separate evaluation under applicable law.
When Can a California Non-Compete Still Be Enforced?
California permits certain non-competes connected to genuine business sales and ownership transitions. Business and Professions Code Section 16601 provides exceptions involving qualifying sales of business goodwill, ownership interests, and certain business assets. Sections 16602 and 16602.5 address specified partnership and LLC transactions.
These restrictions must satisfy statutory requirements, including applicable geographic limitations tied to the business's operations. They cannot simply be used to prevent ordinary employees from joining competitors.
If you are purchasing a business, the restriction should be clearly connected to the qualifying transaction. Including a non-compete in the seller's subsequent employment agreement does not automatically make it enforceable.
What Information Qualifies as a Trade Secret?
A trade secret is economically valuable information that is not generally known and that its owner has made reasonable efforts to keep confidential. Under the California Uniform Trade Secrets Act, protected information can include source code, formulas, manufacturing processes, pricing strategies, and compilations of customer data.
The courts consider whether businesses restricted access, used confidentiality agreements, and took other reasonable steps to preserve secrecy. An employee's general skills, experience, and industry knowledge ordinarily remain available for use elsewhere.
Businesses can seek injunctions and monetary remedies for misappropriation, including damages, unjust enrichment, or reasonable royalties. Willful and malicious misconduct may support exemplary damages.
California generally imposes a three-year limitations period measured from when misappropriation was discovered or reasonably should have been discovered. In litigation, businesses must also identify the allegedly misappropriated secrets with reasonable particularity before beginning discovery relating to those secrets.
Preserving download records, access logs, and other evidence early can strengthen trade secret litigation.
Can a Former Employee Contact Your Customers?
A former employee generally may compete for customers but cannot lawfully use misappropriated trade secrets to do so.
A salesperson who changes employers may contact customers using personal relationships and information that is not legally protected. But exporting a confidential customer database containing negotiated prices, renewal dates, and purchasing preferences may constitute misappropriation.
Whether customer information qualifies as a trade secret depends on its contents, economic value, availability to competitors, and the business's efforts to protect it. Publicly available contact lists are different from carefully maintained compilations of nonpublic information.
In The Retirement Group v. Galante (2009), the California Court of Appeal rejected an injunction broadly preventing former representatives from soliciting customers while recognizing that trade secret misuse could be restrained.
How Can Businesses Protect Trade Secrets Without Non-Competes?
Businesses can reduce misappropriation risk by establishing safeguards before employees leave. Useful measures include:
Targeted confidentiality agreements that identify protected information without broadly restricting future employment.
Access controls that limit sensitive information to authorized personnel and maintain appropriate records.
Federal whistleblower immunity notices in applicable confidentiality agreements. Omitting the required notice can prevent recovery of exemplary damages and attorney's fees under the Defend Trade Secrets Act against the affected employee.
Structured departure procedures to collect devices, disable access, document returned information, and preserve evidence when misconduct is suspected.
Employees should not assume every confidentiality obligation is invalid; agreements protecting genuine trade secrets generally remain enforceable.
Protect Your Trade Secrets or Challenge an Unlawful Restriction with Attorney David H. Schwartz
With more than 45 years of litigation experience, Attorney David H. Schwartz represents businesses protecting trade secrets and individuals challenging restrictive employment agreements. In The Retirement Group v. Galante (2009), he represented the defendants and appellants in a California Court of Appeal case addressing customer solicitation and trade secret protections. At the Law Offices of David H. Schwartz, INC, clients work directly with him to evaluate their agreements, evidence, and legal options.
The firm serves San Jose, Santa Clara, San Mateo, Alameda County, Oakland, and the wider San Francisco Bay Area. If you suspect a former employee is misusing confidential information or you face an unlawful employment restriction, contact the Bay Area trade secret attorney to discuss your options.