Are California Non-Compete Provisions Enforceable?

Non-competition agreements are generally disfavored in California, but there is a key exception when such a provision is included in the purchase agreement for an existing business. California courts will enforce such a provision under specific conditions, but the enforceability is more restrictive than other states. Here are the basics:

1. General Rule: Non-Competes Are Void in California

• Under California Business & Professions Code § 16600, non-compete clauses in employment contracts are void except in very limited circumstances (i.e., sale of a business or dissolution of a partnership).

• Courts generally disfavor non-competes and strictly interpret exceptions.

2. Exception: Non-Competes in Business Purchase Agreements

A non-compete can be enforceable if:

• It is part of the sale of a business (or its goodwill);

• It is necessary to protect the buyer’s legitimate business interests; and

• It is reasonable in scope (i.e., with respect to time, geography, and activity).

Key Requirements for Enforceability:

✅ Limited Duration – Typically up to 5 years (shorter is safer; courts may reject overly long restrictions).

✅ Reasonable Geographic Scope – Only covers areas where the business operates. 

✅ Narrow Activity Restriction – Must relate to the sold business (i.e., ensuring that seller doesn’t open a directly competing business).

3. Risks of Overly Broad Non-Competes

• If a non-compete provision is too broad (e.g., nationwide ban, lifetime restriction, or unrelated industries), a California court may strike it down entirely and decline to enforce it.

• Example: A 10-year non-compete for a local bakery would likely be unenforceable.

4. Alternatives to Non-Competes

Since California courts scrutinize non-competes, consider:

• Non-solicitation clauses (preventing a seller from poaching customers/employees);

• Confidentiality agreements (protecting trade secrets); and

• Earn-out provisions (tying seller’s payout to the future success of the sold business).

5. Drafting Tips

• Work with a California business attorney to ensure the clause complies with §16601 and will be upheld by CA courts.

• Define specific competitors, locations, and timeframes to allow the new owners a competitive chance.

• Avoid boilerplate language—tailor it to the deal.

Bottom Line

Yes, you can include a non-compete provision in a business purchase agreement in California, but it must be narrowly tailored to protect the business’s value. If it is overly broad in time, duration, or scope, a CA court may decline to enforce it, even if both parties agreed to that language.

Do you have questions about utilizing a non-compete provision or a specific business transaction? Reach out to Carucci Legal, PC to schedule a consultation today.

Disclaimer: This blog provides general information and does not constitute legal advice. Any referenced laws or regulations may no longer be current and subject to change.