Are their penalties for putting a non-compete clause in an employee contract in California?

Question

This question is NOT whether non-compete clauses are enforceable or not in California. It's instead a more meta question. A company can put a non-compete clause in the employment contract to try to lie to their employees' about the employee's rights. Even though the company knows, or should know, that non-compete clauses are not enforceable they might still be compelled to try to scare employees by putting those unenforceable terms in the contract, hoping that the employee doesn't know better and so doesn't quit and start a competing business.

My question is, is there any precedent or law that would punish a company for putting such misleading terms in an employment contract?

Answer 1

Are there penalties for putting a non-compete clause in an employee contract in California?

No. California Business and Professions Code at §1660 only provides that non-compete prohibitions/restraints are null and void (with some exceptions), which is short of penalizing the employer for inserting such clauses in an employment contract.

Edwards v. Arthur Andersen LLP, 44 Cal4th 937 (2008) and Silguero v. Creteguard, Inc., 187 Cal.App.4th 60 (2010) are two examples where non-compete clauses were ruled unenforceable insofar as these clauses contravene California public policy on employee mobility. Neither case reflects any awards for the mere inclusion of a non-compete clause.

is there any precedent or law that would punish a company for putting such misleading terms in an employment contract?

Other than non-compete clauses, the matter varies by jurisdiction and depends on what exactly the clauses at issue provide. For instance, M[ichigan]CL 408.483a(1)(a) prohibits an employer to require "nondisclosure by an employee of his or her wages". The remedies that Michigan Payment of Wages and Fringe Benefits Act provide upon an employer's violation of that statutory prohibition are not limited to invalidating the unlawful clause.

Likewise, under California law the mere inclusion of certain clauses might be illegal. However, that is not the case with non-compete clauses.