California’s strong policy against non-compete agreements is reinforced by two new bills taking effect in 2024
California’s public policy has long favored open competition and opposed restraints on employees’ practice of their trades. For decades, California courts have held that noncompete agreements are not enforceable, absent certain narrow exceptions. Today, this public policy is set forth in a long line of case law and codified in Business and Professions Code section 16600.
This year, two new Bills were signed into law by Governor Newsom which add significant additional teeth to reinforce this public policy.
First, Assembly Bill (AB) 1076 adds new Business & Professions Code §16600.1, making it unlawful to impose non-compete clauses on employees – which contractual restrictions are already void under Business & Professions Code §16600.
Under AB 1076, employers must notify current employees and former employees (employed after January 1, 2022), that any noncompete clauses contained within an agreement that the current or former employee signed is void unless such agreement or clause falls within one of the statutory exceptions. The statute sets forth specific time deadlines and manners of notification. Notices must be an individualized communication to the employee 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.
AB 1076 also provides that a violation of the prohibition on noncompete provisions in employment contracts also constitutes unfair competition under California’s Unfair Competition Law, Business & Professions Code section 17200, et seq., which carries its own set of remedies for the employee against the employer.
The second Bill passed by the Governor (SB699) takes effect January 1, 2024, and adds Business & Professionals Code section 16600.5, and makes void noncompetition agreements unenforceable “regardless of where and when the contract was signed.” It does not matter that the contract was signed in another state or the employment occurs outside of the state, California Courts will find them void and unenforceable.
Moreover, the new law empowers the “employee, former employee or prospective employee” to file a civil lawsuit for injunctive relief, damages and reasonable attorneys’ fees for prevailing in a lawsuit against anyone trying to enforce such a contract. These provisions make it more attractive and potentially lucrative for employees to challenge noncompete agreements from employers.
Employers who include noncompete clauses in employment agreements should take the actions above and consider carefully whether their contracts may violate California public policy. If you have questions regarding these new laws, please contact us.