New California laws further restrict non-compete agreements
Employers must provide written notice to any employee who entered into an illegal non-compete agreement as of January 1, 2022, informing the employee that the non-compete agreement is null and void.
It is well known in the business community that non-compete agreements are generally unenforceable in California unless specific, narrowly tailored exceptions apply. Section 16600 of the California Business and Professions Code broadly prohibits “every contract by which any person is restrained from engaging in a lawful profession, trade, or business of any kind.” In short, if a contract or agreement seeks to prevent, through a non-compete provision, a former employee from engaging in a legal profession, that provision will be void under the law of California.
Under two new laws that will be effective starting Jan. 1, 2024, California added additional restrictions on an employer’s ability to enter into and enforce non-compete agreements. Senate Bill 699 and Assembly Bill 1076 provide that non-compete agreements are no longer enforceable under California law — attempting to enforce them would be a civil offense. In the event of a breach, a current, former or prospective employee may seek injunctive relief, recover actual damages, or both. A prevailing employee may also recover reasonable attorney’s fees and costs.
SB 699 applies to contracts “wherever and when the contract is signed” and “if the contract is signed and the work is continued outside of California.” Accordingly, the new law prohibits an out-of-state employer’s ability to enforce a non-compete agreement if a former employee moves to California, even if the former employee signed a cannot be enforced non-compete while working in another state.
Finally, and importantly, AB 1076 also creates a new and extremely burdensome notification requirement for employers. Employers must now affirmatively notify an employee who has previously entered into an illegal non-compete agreement that the agreement is void through a written, individual communication to the employee.
Employers must provide this notice by February 14, 2024, to any current or former employees employed after January 1, 2022. Therefore, employers should carefully consider all current agreements with non-competition provisions and determining whether such notices are required under the new law.