Every agency owner who has handed a client's work to a subcontractor has had the same quiet worry: what stops that subcontractor from going to the client directly next year, at a lower rate? The usual answer is a non-solicitation clause copied from a template. In California, whether that clause holds depends on a question most templates never ask: are you restraining a person, or a business?
This post reads the California Supreme Court's decision on that question and turns it into a drafting checklist. It is general information, not legal advice. Have your own counsel finalize any clause.
What does California's non-compete statute say?
Business and Professions Code section 16600 is short. As the California Supreme Court quotes it in its 2020 opinion in Ixchel Pharma, LLC v. Biogen, Inc., it reads: "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."
Read alone, that sounds like it kills every restraint in every contract. For a long time, lawyers assumed it did. A template that says "the subcontractor shall not solicit the agency's clients" looks like exactly that kind of restraint.
Does that rule apply the same way between two businesses?
No, and this is the part that matters for an agency. In Ixchel, decided on 3 August 2020, the Court held that "a rule of reason applies to determine the validity of a contractual provision by which a business is restrained from engaging in a lawful trade or business with another business." The Court said it had long applied a reasonableness standard to contractual restraints on business operations and commercial dealings.
The Court contrasted that with its 2008 decision in Edwards v. Arthur Andersen, which it described as holding that "an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule." In Edwards, the restraint barred a tax manager from working for or soliciting certain clients of his former employer. That one was void without any balancing.
So the same sentence, "don't go after my client," lands in two different places. Aimed at an employee, it is void. Aimed at another business in a commercial contract, a court asks whether it is reasonable. The Court expressly declined to say whether the particular clause in Ixchel was valid, so the opinion gives you a standard, not a safe harbor.
Which side of the line is your subcontractor on?
Picture a 12-person agency that engages a two-person development firm for a client's mobile build. The subcontract has a clause: for 12 months after the engagement, the firm will not solicit or accept work from the agency's client. If the firm is a real business with its own other clients, that is a restraint between businesses, and the Ixchel rule of reason is the starting point.
Now change one fact. The agency instead brings in a freelance engineer who works only for the agency, full time, and is paid like staff. That person looks much more like the employee in Edwards. In California the label "contractor" does not settle that. The state's own Employment Development Department publishes the business-to-business test with 12 criteria, which we covered in our intake checklist for the California B2B exemption. A person who fails that test and signs a client non-solicit is the person section 16600 was written to protect.
That is the practical rule: the less independent the subcontractor, the more likely the clause is read as a restraint on a worker, and the less likely it holds.
Did California change this since 2020?
It tightened the neighborhood. The Judicial Council's summary of 2023 legislation describes SB 699, effective 1 January 2024, as clarifying that any contract void under California's restraint-of-trade law is unenforceable regardless of where and when it was signed, by adding Business and Professions Code section 16600.5. For an agency, that means a subcontract signed in another state does not escape the rule by choice of venue alone if California law applies to the restraint.
I could not confirm from a primary source how courts now apply the rule of reason to a client non-solicit between two small software firms, and I did not find a published decision on it for a development agency. Treat any confident claim about a "standard 12-month clause" with suspicion, including from us.
What protects an agency better than the clause?
My view: lean on what you control, not on a restraint you may not be able to enforce.
- 1.Keep the client relationship yours. The subcontractor does not attend steering calls alone, does not hold the client's billing contact, and works through your accounts. A sub who never had the relationship has little to take.
- 2.Protect the information, not the market. Confidentiality terms, with the federal notice we covered in the DTSA whistleblower clause check, cover client lists and roadmaps without barring anyone from lawful business.
- 3.Own the work product. Assign the code in writing, as explained in why work made for hire is the wrong clause, so a departing sub cannot reuse what you paid for.
- 4.Make the restraint narrow if you use one. A clause tied to the specific client and engagement, short in duration, and limited to the work you brought in is easier to defend as reasonable than a blanket ban.
- 5.Pay on time. A sub treated well has fewer reasons to go around you.
When a non-solicitation clause is the wrong tool
If your subcontractor is effectively your employee, the clause will not save you and may expose you. Fix the classification first. If the real fear is that the client will leave, a clause will not keep a client who is unhappy. And if you only use a partner for one small task, the cost of negotiating terms can exceed the risk.
If you want overflow capacity from a partner who works inside your client relationship rather than around it, see how our agency partner arrangement works, and ask any partner you consider, including us, to show you the exact clause and have your counsel read it. If you have a scope in mind, tell us about it.
