Non-Compete Agreements in California

A topic that often arises in the context of a business is non-compete agreements. As the name should hopefully suggest, a non-compete agreement is a contract in which a party agrees not to engage in a lawful profession, trade, or business. A non-compete agreement might arise with two potential competitors agreeing to divide a particular market between them. Collusion like this is generally illegal on, among other things, federal antitrust grounds which are waaaaaay beyond the scope of this blog post. The more common scenario I encounter involving non-compete agreements is where the restriction is not voluntary. A common scenario would be where an employee works for an employer who, deep in the legalese of the papers the employee signed when they hired on, forbids the employee from either going to work for a competitor or opening up a competing business. In other words, if the employee is fired or quits, they can’t go continue in the same line of work. The vast majority of people have experience, training, etc in only one line of work so the employer’s restriction effectively means that they cannot make a living if they upset their employer. Can an employer impose restrictions like this on an employee? In California, the answer – in general – is no and it is because of Section 16600 of the California Business and Professions Code. Section 16600 states: Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. As with everything in the law, of course, there...

Female Directors on California Boards of Directors

Some of you might have heard that California recently¬†(less than 24 hours as of the time I write this)¬†passed a law that requires a certain number of directors on a corporation’s Board of Directors to be female. I’ve already gotten several inquiries about this new law and it’s been less than a day. In this post, I’m going to summarize what I think are the major pieces of the new law. It’s not going to be a comprehensive summary, of course as I cannot go over every possible aspect of any law. As always, I encourage you to do your own research, consult with your own legal counsel, etc. This new law arose as California Senate Bill 826 in the 2017-2018 regular session and does basically three things: It imposes a dual-level requirement for Boards of Directors with respect to female directors, It creates a publication requirement to disclose which companies are and are not in compliance, and It imposes fines for non-compliance. Dual-Level Requirement The news has basically described this new law as a requirement to have a certain number of female directors on a company’s Board of Directors. If you read the actual statute (California Corporations Code section 301.3), you’ll discover that there are actually two requirements, hence why I call it a “Dual-Level Requirement.” The first level is that as of the close of calendar year 2019, every corporation that has its Principal Executive Offices (PEO) in California must have at least one female director on its board. The PEO shall be determined based on what the corporation says in its annual 10-K filing to the...

Can a Corporation Represent Itself in California?

Many people nowadays have legal entities like corporations and limited liability companies. With the Internet, forming such entities is much simpler now than it was years ago when a lawyer was required for even the most basic of transactions. If you have formed a legal entity yourself, one situation you might encounter is what to do if your entity gets sued or otherwise finds itself in court. An individual generally has the right to represent themselves in court subject to obvious limitations, such as if the individual is a minor, has dementia, etc. However, a legal entity — such as a corporation or a limited liability company — generally cannot represent itself in court and must be represented by an attorney. There is no California statute that says this, but it is instead the result of many courts in California holding so over the last 40 or so years. The case I always cite to is the 1978 California Supreme Court case of Merco Construction Engineers v. Municipal Court. The cite, for the lawyers in the audience, is: 21 Cal. 3d 725. This rule of “entities must hire an attorney” applies even though your particular corporation or limited liability company is just you. The rule also applies even if the case your entity is involved in is super simple, completely frivolous, etc. California statutes provide for two exceptions to this rule that a legal entity cannot represent itself in court and must hire an attorney: First, a legal entity may be represented by a non-lawyer in a small claims court action. This is under Code of Civil Procedure section...

How Many Officers Does a California Corporation Need?

Nowadays, it is quite common for individuals to form a legal entity (e.g. a corporation) themselves. Years ago, forming a corporation usually required a lawyer, but you can often form one online now with minimal effort and cost. One question that often arises after an individual forms a corporation is who can serve as an officer of said corporation. More often than not, however, the question is actually: Can the same person serve in all the different officer roles that a corporation in California has? The answer to that question can be found in Section 312(a) of the California Corporations Code, which states that a corporation’s officers fall in to four categories: A chairperson or president. In other words, this is the person who is in charge of the corporation, A secretary, A treasurer or chief financial officer, and Other officers as the bylaws may dictate or as the Board of Directors may designate. As to whether the same individual can serve in all officer roles simultaneously, the same person can serve in all the officer roles simultaneously unless the corporation’s bylaws or Articles of Incorporation forbid it. Thus, the same person could, in theory, be the president, secretary, and treasurer at the same time. In practice, however, it is generally a good idea for the secretary and president/chairperson of the corporation to not be the same person. As part of the corporation’s business, the secretary needs to attest to the president/chairperson’s signature on documents and it’s obviously circular to have an individual attest to their own signature....