California does not follow the general rule of the majority of states that allows restrictive covenants to be considered valid so long as they are reasonable in purpose and scope. Business litigation in Newport Beach California can center upon whether the restraint in question falls outside the purview of this stance. Additionally, business litigation in Newport Beach California may allege that a former associate or employee has violated trade secrets.

According to California Business and Professions Code Section 16600, contracts that restrain a person from engaging in a lawful profession, trade or business are void unless they fall within one of the exceptions stipulated by state law. In application, California courts have consistently applied this statute to invalidate non-compete agreements that attempt to prohibit employees from working for competitors of their current employer. While most states look to the geographic restrictions, time prohibitions and the scope of the limitation, California courts begin with the assumption that the contract is void.

In California, employers may even be held liable for damages for wrongful termination if they terminate an employee who refuses to sign the covenant not to compete. While the prohibition on this restraint certainly applies to any type of post-employment conduct, it does not apply during employment. California employees owe a duty of loyalty to their employer, which may be express or implied. Therefore, the employee can be held liable for damages if he or she violates this loyalty by soliciting customers or even colleagues. Additionally, restrictions prohibiting the disclosure of trade secrets are outside the prohibition on restrictive covenants.