How do the California antitrust laws limit covenants not to compete?

One area in which the California antitrust laws differ from many other jurisdictions’ laws concerns how they restrict covenants not to compete. A covenant not to compete is an agreement that limits the extent to which businesses or persons will compete with one another. For example, an employee is often asked to sign a covenant not to compete with his or her employer for a certain time period after the employment ends.

Covenants not to compete are often held to be outside the antitrust laws. However, California has a statute that voids any contract that restrains anyone from engaging in a lawful business or profession. Although the statute has some exceptions, including a prohibition on "unfair competition," it can serve to void covenants not to compete that would be effective under federal law or the laws of other states.