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Non-compete clauses have long been disfavored and under attack in California. The passage of new legislation, Senate Bill 699 and Assembly Bill 1076, is no exception. These new laws are set to come into effect on January 1, 2024, and will dramatically expand California’s limitations on non-competition and non-solicitation agreements for most employees.
Existing law under California’s Business and Professions Code Section 16600 (“Section 16600”) states: “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 interpreted this law as prohibiting post-employment non-compete clauses and non-solicitation of customers clauses, with some exceptions.
The legislature determined that despite existing law, “California employers continue to have their employees sign non-compete clauses that are clearly void and unenforceable under California law.” Accordingly, Senate Bill 699 bolsters employee protections by adding Business and Professions Code Section 16600.5, which amends the law follows:
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Ban On Non-Compete Clauses: The new law makes clear that non-compete clauses violate Section 16600. Employers are prohibited from entering into these contracts with employees or prospective employees (“An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter”)
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Non-Compete Clauses Are Void in California Regardless of Where They Were Signed: The new law provides that a non-compete or non-solicitation contract that is void under Section 16600 is unenforceable regardless of where and when the contract was signed. This means that even if an employee signed a non-compete clause outside of California or remained employed outside of California, the employee is still protected by the law. (“An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.”)
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Employees May Sue Employers For Damages and Attorneys’ Fees: One of the most significant changes brought by Senate Bill 699 is the expansion of enforcement rights to employees. If an employer attempts to enforce a non-compete clause or a contract restricting an employee’s ability to pursue their profession, trade, or business, the employee may file a lawsuit and seek damages, along with attorneys’ fees. (“An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both” and “a prevailing employee… shall be entitled to recover reasonable attorney’s fees and costs.”)
Assembly Bill 1076 takes it a step further by adding Section 16600.1, which requires employers to notify current employees and former employees (employed after January 1, 2022), that any non-compete agreement or clause that the employee signed is void unless the agreement or clause falls within one of the exceptions set forth in Business and Professions Code section 16600, et seq. The notice must be an individualized written communication to the current or former employee, delivered to the last known address and email address the employee provided to the employer, and must be provided by February 14, 2024. Failure to provide timely notice constitutes an act of unfair competition in violation of California’s Business & Professions Code section 17200, et seq.
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