Introduction
In California’s competitive real estate market, brokerage firms, agents, and affiliated professionals frequently explore ways to protect business goodwill, client relationships, and proprietary information. One mechanism often considered is the non-compete agreement—a contractual provision that restricts an individual’s ability to engage in similar business within a defined geographic area and timeframe after leaving employment or a partnership. However, the enforceability of such clauses in California is severely restricted by statute and case law.
This article examines the enforceability of non-compete agreements in the context of real estate professionals, analyzing relevant statutes, judicial interpretations, and practical exceptions. The intent is to provide clarity to brokers, agents, and real estate firms navigating the complex intersection of employment mobility and business protection in the Golden State.
General Rule: Non-Competes Are Void in California
California Business and Professions Code § 16600 establishes the baseline rule:
“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.”
This statute reflects California’s public policy favoring employee mobility, free competition, and the right to earn a livelihood. Accordingly, the courts have uniformly held that employee non-compete agreements—whether during or after employment—are presumptively void, unless a statutory exception applies.
In Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), the California Supreme Court reaffirmed this strict interpretation, rejecting the “narrow restraint” doctrine and holding that any post-employment contractual restraint on professional practice violates § 16600, unless a statutory exception exists. This decision effectively extinguished arguments that non-competes could be enforceable if “reasonable.”
Applicability to Real Estate Professionals
The rule applies with equal force to real estate agents, brokers, and employees of brokerage firms. Even where such agreements are tailored narrowly—for example, a clause preventing an agent from soliciting clients within five miles for one year post-termination—such provisions are typically unenforceable unless they fall into a statutory exception.
Brokerage firms often attempt to impose non-competes on agents, particularly when agents leave to join a competing brokerage or start their own firm. However, courts in California are hostile to such restrictions. See The Retirement Group v. Galante, 176 Cal. App. 4th 1226, 1238 (2009), where the court held that “the right to compete in a lawful business cannot be restrained by contract unless it falls within a specific statutory exception.”
Exceptions to the Rule: Statutorily Permitted Non-Competes
There are only three narrow exceptions under which a non-compete agreement may be enforceable in California:
- Sale of a Business or Partnership Interest
Non-compete clauses may be enforceable when tied to the sale of a business’s goodwill, corporate shares, or partnership interest. See Bus. & Prof. Code § 16601 (sale of goodwill), § 16602 (partnership), and § 16602.5 (LLC membership). In the real estate context, if a broker sells his firm—including its book of clients, goodwill, and business name—the buyer may lawfully require the seller to agree not to compete in a defined geographic area for a reasonable period. Courts have upheld such agreements provided they are reasonably limited and connected to the protection of transferred goodwill. See Hill Medical Corp. v. Wycoff, 86 Cal. App. 4th 895, 903–04 (2001). - Dissolution of a Partnership or LLC
Upon dissolution of a real estate partnership or limited liability company, a partner or member may agree not to compete with the former firm. This exception is codified in Bus. & Prof. Code §§ 16602–16602.5, allowing certain restrictive covenants during winding-up processes. - Trade Secret Misappropriation
While non-compete clauses themselves are void, courts will enjoin misappropriation of trade secrets, even if doing so functionally restrains competition. The Galante decision distinguishes between invalid non-competes and enforceable restrictions on unfair competition. Real estate firms may protect client lists, proprietary marketing strategies, or internal systems under the Uniform Trade Secrets Act (Civ. Code §§ 3426–3426.11), but only if such information qualifies as a legally recognized trade secret.
Non-Solicitation of Clients or Agents
Non-solicitation clauses—those prohibiting a former agent from contacting clients or co-workers—are also generally unenforceable under § 16600 unless they protect trade secrets. The AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018) court held that even a narrowly tailored employee non-solicitation clause was void when it impeded lawful competition. In the real estate context, this means agents may legally announce their move to clients or recruit colleagues—unless they misuse proprietary, confidential data in the process.
Practical Guidance for Real Estate Firms
Given these constraints, real estate brokerages should not rely on non-compete provisions as a method of retaining talent or controlling competition. Instead, they should consider:
- Strengthening commission agreements to define when and how commissions are earned, especially for post-departure closings;
- Using carefully drafted confidentiality agreements that comply with California trade secret law;
- Limiting access to proprietary data through internal policies and system controls;
- Emphasizing strong branding, client service, and agent culture as long-term retention strategies.
Overreliance on void non-compete clauses may not only lead to unenforceability but could expose firms to liability under California’s Unfair Competition Law (Bus. & Prof. Code § 17200) if such clauses are used to suppress lawful competition.
Conclusion
Non-compete agreements in California real estate are presumptively void unless they fall within a narrow statutory exception related to the sale of a business or dissolution of a firm. Brokerage firms and professionals must understand that contractual attempts to restrict future competition are unlikely to survive judicial scrutiny. However, carefully crafted agreements focusing on confidentiality, trade secret protection, and commission structure remain viable tools.
At Guiding Legal Counsel, APC, we assist real estate professionals in crafting enforceable agreements that comply with California law. Whether you are structuring the sale of a brokerage, drafting agent employment agreements, or seeking to protect proprietary systems, we provide the strategic counsel you need to navigate a rapidly evolving regulatory environment. Contact us today to schedule a consultation and secure your firm’s future with lawful, forward-thinking protections.