September 2011

Enforceability of business-to-business employee anti-poaching clauses

One frequently encountered provision in software license, support or development agreements is an employee non-solicitation clause, in which the customer agrees not to solicit, recruit or hire the vendor's employees during the term of the agreement and for a period of time thereafter, typically six to twelve months. While such clauses can lead to acrimony during negotiations, for the most part customers typically understand the reasoning of and the need for such clauses, and most often agree to them in some form.

What may not be widely understood, however, is that such clauses may run afoul of California's statutory prohibition against non-competition covenants, embodied in section 16600 of California's Business & Professions Code. This statute renders void and unenforceable "every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind …." Any company domiciled in California, or any company doing business with a California company, should be aware of the issues and risks employee non-solicitation and similar no-hire clauses resulting from application of section 16600.

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