California’s strong public policy disfavors noncompete agreements. Under California Business & Professions Code Section 16600 “every contract by which any one is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Recent California law significantly increases the stakes for employers who utilize such improper covenants in their employee contracts.
On September 1, 2023, California Governor Gavin Newsom signed Senate Bill (“SB”) 699 into law, which, effective as of January 1, 2024, adds Section 16600.5 to the California Business & Professions Code. Section 16600.5 authorizes a former, current, or prospective employee to bring an action to enforce Section 16600 for injunctive relief or the recovery of actual damage, or both, and entitles a prevailing plaintiff to recover reasonable attorneys’ fees and costs. This new law will further bar current and former employers anywhere from entering into or attempting to enforce a noncompete contract with a former, current, or prospective employee, including similarly restrictive covenants such as non-solicitation or non-poaching agreements regardless of when the agreements were entered into, or whether they were signed in California, or the employment was maintained outside of California.
On October 13, 2023, Gov. Newsom also signed Assembly Bill (“AB”) 1076 into law, which, effective as of January 1, 2024, adds Section 16600.1 to the Business & Professions Code. Section 16600.1 obligates employers to notify current and former employees (who were employed after January 1, 2022) that any post-employment noncompete agreements that have been signed are void, unless one of the three exceptions to Section 16600 applies. Notably, Section 16600.1 requires that, by February 14, 2024, employers give written individualized notice to current and former employees’ last known address and email address that the noncompete clauses or agreements previously entered into are void.
Together, AB 699 and AB 1076 underscore a national trend of distrust of noncompete agreements and restrictive covenants in the employment context. Because of these changes, we recommend that employers audit their employment and other agreements to determine if they include restrictive covenants of any kind and modify any illegal provisions with current employees. Further, if AB 1076 notice is required, it must be prepared and sent by the rapidly approaching deadline of February 14, 2024.
We have deep counseling and litigation experience in these areas. If you have any questions, please feel free to contact us.