Vondran Legal® Business and IP law. Non-compete agreements get NO RESPECT in California. If you are dealing with a contractual or trade secret dispute, call us at (877) 276-5084.
Introduction
THE STATUS OF NON-COMPETE AGREEMENTS IN CALIFORNIA JUST GOT WORSE FOR 2024 The status of non-compete agreements in California is a topic of much concern for employers and employees alike. And it looks like things just got worse for 2024. Recently, Governor Gavin Newsome signed two new laws that are set to have a major impact on the enforceability of non-compete agreements. SB699 and AB1076 both aim to restrict the use of these agreements, making it more difficult for companies to restrict their former employees from working for competitors. This news is sure to be met with mixed reactions, but one thing is certain: the landscape of employment law in California is changing rapidly.
Attorney Steve® California Non-Compete Crash-course (including SB699 and AB1076)
California SB 699
Existing law regulates business activities in order to maintain competition. Existing law voids contractual provisions by which a person is restrained from engaging in a lawful profession, trade, or business of any kind, except as otherwise provided.
This bill would establish that any contract that is void under the law described above is unenforceable regardless of where and when the contract was signed. The bill would prohibit an employer or former employer from attempting to enforce a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California.
The bill would prohibit an employer from entering into a contract with an employee or prospective employee that includes a provision that is void under the law described above. The bill would establish that an employer who violates that law commits a civil violation.
The bill would authorize an employee, former employee, or prospective employee to bring an action to enforce that law for injunctive relief or the recovery of actual damages, or both, and would provide that a prevailing employee, former employee, or prospective employee is entitled to recover reasonable attorney's fees and costs.
The Legislature finds and declares the following:
(a) Noncompete clauses in employment contracts are extremely common in the United States. Research shows that one in five workers are currently subject to a noncompete clause out of approximately 30 million workers nationwide. The research further shows that California employers continue to have their employees sign noncompete clauses that are clearly void and unenforceable under California law. Employers who pursue frivolous noncompete litigation has a chilling effect on employee mobility.
(b) California's public policy provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except under limited statutory exceptions. California has benefited significantly from this law, fueling competition, entrepreneurship, innovation, job and wage growth, equality, and economic development.
(c) Over the past two decades, research on the harm of noncompete clauses and other contract clauses involving restraint of trade to pursue one's profession has been accelerating. Empirical research shows that noncompete clauses stifle economic development, limit firms' ability to hire and depress innovation and growth. Noncompete clauses are associated with suppressed wages and exacerbated racial and gender pay gaps, as well as reduced entrepreneurship, job growth, firm entry, and innovation.
(d) Recent years have shown that employers utilizing broad noncompete agreements attempt to subvert this longstanding policy by requiring employees to enter void contracts that impact employment opportunities once an employee has been terminated from the existing employer. Moreover, as the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees.
(e) The California courts have been clear that California's public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer.
(f) California has a strong interest in protecting the freedom of movement of persons whom California-based employers wish to employ to provide services in California, regardless of the person's state of residence. This freedom of employment is paramount to competitive business interests.
California SB 1076
AB 1076, Bauer-Kahan. Contracts in restraint of trade: noncompete agreements.
Existing law voids contractual provisions by which a person is restrained from engaging in a lawful profession, trade, or business of any kind, except as otherwise provided. Existing case law, as established in the case of Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, interprets this provision to void noncompete agreements in an employment context and noncompete clauses within employment contracts, even if that agreement is narrowly tailored, unless an exception applies.
Existing law, the Unfair Competition
Law (UCL), makes various practices unlawful and makes a person who engages in unfair competition liable for a civil penalty, as specified. Existing law provides for enforcement of these provisions exclusively by the Attorney General or other specified local agency attorneys.
This bill would codify existing case law by specifying that the statutory provision voiding noncompete contracts is to be broadly construed to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy specified exceptions. The bill would state that this provision is declaratory of existing law. The bill would make these provisions applicable to contracts where the person being restrained is not a party to the contract.
This bill would also make it unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy specified exceptions. The bill would require employers to notify current and former employees in writing by February 14, 2024, that the noncompete clause or agreement is void, as specified. This bill would make a violation of these provisions an act of unfair competition pursuant to the UCL.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1.
Section 16600 of the Business and Professions Code is amended to read: (a) Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.
(b) (1) This section shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in this chapter.
(2) This subdivision does not constitute a change in, but is declaratory of, existing law.
(c) This section shall not be limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.
SEC. 2.
16600.1.
(a) It shall be unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter.(b) (1) For current employees, and for former employees who were employed after January 1, 2022, whose contracts include a noncompete clause, or who were required to enter a noncompete agreement, that does not satisfy an exception to this chapter, the employer shall, by February 14, 2024, notify the employee that the noncompete clause or noncompete agreement is void.
(2) Notice made under this subdivision shall be in the form of a written individualized communication to the employee or former employee, and shall be delivered to the last known address and the email address of the employee or former employee.
(c) A violation of this section constitutes an act of unfair competition within the meaning of Chapter 5 (commencing with Section 17200).
Contact a Business and IP Attorney
You can reach us at (877) 276-5084 or fill out our contact form, and we will contact you.
