Readers will know that California marches to its own
drummer when it comes to the enforceability of covenants not to compete.
California Business & Professions Code Section 16600 declares these
covenants void unless they fall within a statutory exception. Nonetheless, some
companies continue to insist on including non-compete clauses in their
agreements. Sometimes, they even try to
enforce these clauses with lamentable results.
Such was the case of Robinson v. U-Haul Co. of Cal., Cal. Superior Ct.
Case Nos. A141396, A145828 (Oct. 18, 2016).
The case started nearly a decade ago when U-Haul sued
one of its independent dealers for breach of contract. After U-Haul failed to
convince the court to issue a preliminary complaint, it dismissed its
complaint. Not inclined to let bygones be bygones, the dealer filed an action
for malicious prosecution and violation of California’s unfair competition
statute, Business & Professions Code § 17200. The unfair competition claim
was based on U-Haul’s inclusion of a covenant not to compete in its dealer agreements. The dealer prevailed and received:
More than $195,000 in compensatory damages for
A permanent injunction prohibiting U-Haul from
initiating or threatening to initiate judicial action to enforce the
non-compete covenant in California; and
More than $800,000 in attorney’s fees on the unfair
The trial judge’s observations concerning U-Haul’s
decision to include non-compete clauses in its dealer agreements is
First off, the clause is void and unenforceable as a
matter of law. [Section] 16600 was – the
law predated these events herein by many, many years. Their only reason to put a void contract
clause in a contract is to mislead people. U-Haul knew when it put that it its
contract that [Section] 16600 of the [Business & Professions] [C]ode was in
existence. That statute was clear. [¶]
Why would you possibly put something in a contract where the law say it’s void?
You do that so you can cause somebody to think that that clause is, in fact,
valid when it isn’t. So it is void and
unenforceable as matter of law.
U-Haul did not challenge this ruling on appeal. Read more here.
In : Contracts