Is a non-compete contract enforceable in California?

No, non-compete agreements are not enforceable within California.

The General Rule "California has a settled public policy in favor of open competition." Kelton v. Stravinski, 138 Cal. App. 4th 941, 946 (2006). The general rule, as embodied in section 16600 of the California Business and Professions Code ("Section 16600") is that, with limited exceptions, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Section 16600 is "an expression of public policy to ensure that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice." Hill Medical Corp. v. Wycoff, 86 Cal. App. 4th 895, 900, 901 (2001); Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514, 1520 (1997); see also Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th, 881, 900 (1998) (observing that section 16600 reflects a "strong public policy" of California). The Narrow Exception One "narrow exception" to section 16600 is articulated in section 16601 of the California Business and Professions Code ("Section 16601")[1]. Hill, 86 Cal. App. 4th at 901. "Pursuant to section 16601, in certain defined circumstances, persons who sell the goodwill of a business may agree to refrain from carrying on a similar business." Hill, 86 Cal. App. 4th at 901 (citing Monogram Indus., Inc. v. Sar Indus., Inc., 64 Cal App. 3d 692, 698 (1976)). The logic is that "when the goodwill of a business is sold, it would be 'unfair' for the seller to engage in competition which diminishes the value of the asset he [or she] sold." Id. "[I]n order to uphold a covenant not to compete pursuant to section 16601, the contract for sale of the corporate shares may not circumvent California's deeply rooted public policy favoring open competition. The transaction must clearly establish that it falls within this limited exception." Id. at 903 (emphasis added). Otherwise, the non-compete agreement is void. Id.; Kelton, 138 Cal. App. 4th at 947. Moreover, "[t]here must be clear indication that in the sales transaction, the parties valued or considered goodwill as a component of the sales price . . . ." Hill, 86 Cal. App. 4th at 903. If a business (or shares in a business) are sold, but the sales price did not include goodwill, a non-competition provision that was executed as part of the sale is void. Id. (holding that the non-competition provision was unenforceable because the price of the shares did not include goodwill). A non-compete may "literally" fall within section 16601, but it is still void if it is a sham to evade the public policy against such provisions. Bosley Medical Group v. Abramson, 161 Cal. App. 3d 284 (1984). In Bosley, a doctor was hired by a medical group and was required to purchase nine percent of the corporation's shares. The agreement required him, upon termination, to resell his stock and prohibited from competing. The court refused to enforce the non-compete as a sham because the share purchase and sell-back provisions made little sense except as a device to prevent the doctor from competing. Id. Though the agreement literally fell under section 16601, a literal interpretation "would permit a major public corporation to require any employee to purchase one of several million shares and to enter into an agreement not to work for a competitor-an absurd result, and contrary to this state's policy prohibiting such agreements." Id. "[A] covenant not to compete will be enforced [under section 16601] to the extent it is reasonable and necessary in terms of time, activity and territory to protect the buyer's interest." Monogram, 64 Cal. App. 3d 692, 698 (1976) (emphasis added). Section 16601 "permits a covenant not to engage in a business' 'similar' to the one sold, in the area where the business sold has been carried on, so long as the buyer carries on a like business therein." Id.(emphasis added). "Otherwise, a seller could be barred from engaging in its business in places where it poses little threat of undercutting t