Non-Compete Clauses Between Partners in California

In California, non-compete clauses between partners are generally unenforceable under Business and Professions Code § 16600, which voids contracts restraining anyone from engaging in a lawful profession, trade, or business.

California's Legal Framework

Business and Professions Code section 16600 states that every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. This statute applies directly to operating agreements and partnership contracts. Courts interpret it broadly to protect an individual's right to work, making most post-termination restrictions on competition unenforceable between cofounders or partners.

Application to Partnerships and LLCs

The rule covers both general partnerships and LLC operating agreements. Even if partners voluntarily agree to a non-compete, the clause is typically struck down. Limited exceptions exist for the sale of a business interest under section 16601, but these require an actual sale of goodwill and reasonable geographic and time limits. Routine partner exits without a sale do not qualify.

When Non-Competes Might Still Apply

California courts rarely uphold non-competes in partner contexts. However, confidentiality and non-solicitation provisions tied to trade secrets may survive if narrowly drafted. Broad restrictions that prevent a partner from starting a competing venture or working in the same industry are void. Partners should review whether any clause effectively functions as a non-compete despite different labeling.

Comparison with National Norms

Red Flags in Partnership Agreements

• Any clause barring a departing partner from operating a similar business for 1-3 years after exit.
• Provisions that tie non-compete compliance to receipt of buyout payments or profit distributions.
• Language restricting partners from soliciting clients or employees without clear trade-secret linkage.
• Clauses that apply statewide or nationwide without a legitimate business justification tied to a sale of goodwill.

Practical Implications for Cofounders

Founders reviewing California operating agreements should assume non-compete language will not protect the business. Instead, focus on strong Exit and Buyout Clauses in California LLC Operating Agreements and clear Decision Rights in California Partnership Agreements to manage transitions. Over-reliance on unenforceable non-competes can leave the company exposed when a partner departs.

Key takeaway: Never assume a non-compete in a California partnership agreement will hold up in court; draft agreements around enforceable alternatives like confidentiality and intellectual property protections.

This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for your specific situation.

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