Business Law

Two New California Non-compete Laws Take Aim At Employers In The Golden State And Beyond

Please share:

Since 1872, California has favored open competition and declared, with limited exceptions, that contractual provisions restraining an individual from ”engaging in a lawful profession, trade, or business” are void.  California Business & Professions Code § 16600.  In case there was any doubt, California has doubled-down and reached across state lines in the employment context with the enactment of SB 699 and AB 1076, both taking effect January 1, 2024.  

SB 699, signed by Governor Newsom on September 1, 2023, enhances employee protections and mobility to reflect the current landscape of remote teleworking and a mobile workforce.  The amendment adds new Section 16600.5 to the California Business & Professions Code to make any contract with a restraint on trade unenforceable “regardless of where and when the contract was signed” and “regardless of whether the contract was signed and the employment was maintained outside of California.”  In other words, an employer may not attempt to enforce a contract in California that restricts an employee’s ability to engage in a lawful profession, trade or business, even if the contract was signed outside of California and the employment was maintained outside of California.  The new law also creates a private right of action for employees, former employees or prospective employees whose employment agreements contain restrictive covenants to seek injunctive relief, actual damages, and attorney fees and costs if they prevail in a lawsuit against their employer, former employer, or prospective employer.    

AB 1076, signed by Governor Newsom on October 13, 2023, similarly adds new Section 16600.1 to make it unambiguously clear that an employer cannot include a non-compete clause in an employment agreement or cannot require an employee to enter into a non-compete agreement unless it satisfies one of the statutory exceptions.  The new law requires employers to give notice to both current and former employees, who were employed after January 1, 2022, and who are subject to an unlawful non-compete agreement or clause, that such agreement or clause is void. These notices must be in writing, individualized, and delivered to the individual’s last known physical address and email address on or before February 14, 2024.  Failure to comply constitutes unfair competition under California Business & Professions Code § 17200 with civil penalties up to $2,500 for each violation. 

The potential implications of the new laws cannot be overstated.  Consider the following: a California fresh produce distributor seeks to hire a new salesperson who recently moved from Arizona.  Arizona’s state laws generally allow for non-compete agreements.  While previously working for the Arizona company, the employee received a severance and entered into a separation agreement with a non-compete provision.  After the California company hires the salesperson, the Arizona employer takes legal action to enforce the non-compete against the employee and prevent him from taking the job.  The employee can exercise rights under SB 699 to prevent enforcement of that non-compete, which will surely be met by legal challenges from the Arizona employer.

Not all restrictive covenants are in the crosshairs of the new legislation, however. California still allows for limited exceptions to non-competes, including agreements relating to the sale of the goodwill of a business, when the seller of a business can be prohibited from carrying on a like business within a reasonable time and reasonable geographic area.  In addition, contractual clauses which protect “trade secrets” under the California Uniform Trade Secrets Act and the federal Defend Trade Secrets Act are still valid and enforceable in California.  Under these trade secret acts, former employees can be prohibited from misappropriating trade secrets to gain an unfair advantage for a competing business – but they cannot be prevented from outright working for a competing business.

California Employer Take Aways 

  • Understand that employee non-compete agreements are void and unenforceable in California, regardless of where and when the contract was signed.
  • Conduct a privileged audit of employment contracts with current and former employees since January 1, 2022, to determine if they contain unlawful non-competition provisions without a statutory exception.
  • To the extent notice under AB 1076 is required, provide such written and individualized notice sent to the last known address and email address of each affected employee by February 14, 2024.
  • Work with legal counsel to modify agreements with current employees that may contain void non-competition provisions or other void restrictive covenants.
  • Work with legal counsel to adopt employment and business agreements to protect your confidential, proprietary and trade secret information.

This article is republished with permission and was originally prepared by June Monroe (email: jmonroe@fennemorelaw.com) and Elise O’Brien (email: eobrien@fennemorelaw.com) of Fennemore, LLP with offices in California, Arizona, Nevada and Colorado.


Forgot Password

Enter the email associated with you account. You will then receive a link in your inbox to reset your password.

Personal Information

Select Section(s)

CLA Membership is $99 and includes one section. Additional sections are $99 each.

Payment