California has two new non-compete laws that went into effect at the start of 2024 that advance the state’s already strong public policy on limiting employee mobility. Together, these bills go farther than simply rendering non-compete agreements unenforceable; these bills make it clear that employers must stop using these types of restrictions altogether.
The New Non-Compete Bans in California: SB 699 and AB 1076
SB 699 reiterates existing California law and goes further even further. Specifically, under SB 699, any non-compete contract that is void under California Business & Professions Code section 16600 is unenforceable, regardless of where and when the agreement was signed. This means that non-California employers will be unable to enforce non-compete agreements in California. It also means that non-California employers will likely not be able to enforce non-competes signed by a current California resident when they lived and worked out of the state.
The law seeks to void any agreement with a California resident containing a non-compete clause. The scope of this new law is ripe for judicial interpretation; however, SB 699 may not just invalidate a non-compete provision within an otherwise enforceable contract – read broadly, this new law could potentially invalidate the entire agreement.
Pursuant to SB 699, employees now have a private right of action, enabling current and former employees to seek injunctive relief and recover damages and reasonable attorneys’ fees. Employers attempting to enforce a non-compete could also be found to have committed a civil violation. Employers everywhere should proceed carefully since this new statute has far-reaching scope, the potential for retroactive application and creates the potential for significant damages exposure.
Building on SB 699, AB 1076 requires employers to notify current employees and former employees who were employed after January 1, 2022, and who signed a non-compete agreement, that the agreement or contract provision is void unless it falls within one of the narrow statutory exceptions. Notice must be provided by companies by February 14, 2024.
The penalties for non-compliance are significant – $2,500 per violation, which can add up quickly when you consider the number of employees potentially requiring notice.
Next steps for companies:
- Employers should promptly write to any current and former employees in California, advising that their non-compete clauses are void. As mentioned, the individuals should be notified by mail and email by February 14, 2024 – so this should be addressed immediately, if you haven’t already done so. Notice is required to the employee’s last known mailing and email addresses.
- Employers should immediately review non-compete clauses from existing employment contracts and any other agreements with their employees that contain these provisions. Employers should work with counsel to determine whether new agreements need to be created and signed.
- Employers should review other employment-related documents, such as offer letters, confidentiality agreements and NDAs, to determine if revisions are necessary.
- Employers should also review existing documents and internal processes relating to confidentiality and non-disclosure. Non-compete agreements are sometimes viewed as a necessary vehicle to prevent employees from bringing one company’s ideas to another. Since non-competes are unlawful, companies should look to strengthen internal protections of trade secrets and confidential information. NDAs and confidentiality agreements should also be reviewed.
If you need assistance with your workplace policies and/or investigations, you are encouraged to reach out. The CGL employment attorneys would love to help you develop compliant workplace policies and practices.
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