California has historically maintained some of the strictest laws in the country regarding covenants not to compete. The California Business and Professions Code, Section 16600, provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” California courts have further interpreted this law to prohibit most post-employment non-compete agreements.
Now, California has strengthened these laws with serious implications for employers. California’s two new laws—SB 699 and AB 1076—went into effect on January 1, 2024. SB 699 adds a series of new restrictions against non-competes:
- Any non-compete is void regardless of where and when it was signed and employers cannot attempt to enforce any void non-compete.
- An employer or former employer cannot sue to enforce a non-compete regardless of whether the contract was signed and the employment was maintained outside of California.
- It is a civil violation (potentially a $2,500 penalty) to enter into a non-compete that violates this law or to attempt to enforce a void non-compete.
- An employee, former employee, or prospective employee can sue the employer for damages and attorney’s fees.
The new law codifies California’s strong interest of protecting worker’s rights in California regardless of their state of residence or if the employee signed a restrictive covenant outside of California for a non-California employer. The law also seemingly closes prior gaps in California’s laws where the agreement was signed outside of California, or an employee subsequently moved to California. Put simply, the law makes clear that non-compete agreements with California residents are contrary to public policy in most circumstances.
Employers should also take note of the potential for liability should they attempt to enforce a non-compete that is void under the law. The liability carries statutory damages and attorney fees for prevailing employees.
California’s new AB 1076 also limits non-competes and requires employers to give notice of these new restrictions to covered employees. An employer must specifically notify any employee with a covered non-compete clause or agreement in writing that the non-compete clause is void. Employers must notify covered employees by February 14, 2024, to comply with the new law.
The new laws are also unclear in some respects and employers will need further guidance from courts. One area of uncertainty is how the new laws address non-solicitation provisions. The statutes do not refer to non-solicitation provisions, so all non-solicitation agreements are left to be decided on a case-by-case basis by courts. Jurisdictional questions also remain unanswered as the degree of connection with California remains unknown. For example, if an employee does remote work in California for an employer in another state, can that employee sue their out of state employer for damages? The answer is currently unknown.
Any employer with California employees should prepare for the February 14th deadline and review their existing employee contracts and any non-compete provisions along with their form agreements. Employers should also be prepared to send a written notice to any covered California employees. Our firm is available to assist you in conducting a comprehensive review of your current practices and developing strategies to navigate this evolving legal landscape. Please do not hesitate to contact us if you have any questions or if you need help in updating your employment agreements.