California strengthens laws barring noncompetition agreements

by Oct. 23, 2023

California law has long disfavored or barred noncompetition agreements. Courts have struck down such agreements made with out-of-state employers and voided overbroad confidentiality agreements that amounted to noncompetition agreements. A new law has further strengthened the state’s policy.

Senate Bill 699, which Governor Newsom signed into law on September 8, 2023, strengthened California’s position on noncompetition agreements. Senate Bill 699 will add Section 16600.5 to the California Business and Professions Code on January 1, 2024, expanding on the section that bans noncompetition agreements. The bill largely tracks past court decisions and clarifies that an improper noncompetition agreement may not be enforced regardless of whether the contract was signed and even if the employment was maintained outside of California. The law provides than an employer who enters into an unlawful noncompetition agreement with an employee commits a violation. The law also creates a private right of action allowing current, former, and prospective employees to sue for injunctive relief, damages, and attorney’s fees.

Section 16600.5 will read as follows: 

(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.

(b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.

(c) An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter.

(d) An employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation.

(e) (1) An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both.

(2) In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney’s fees and costs.

Another recent bill adds still more protections for employees against non-compete agreements. Assembly Bill 1076 — approved by Governor Newsom on October 13, 2023 — imposes a new notification requirement obligating some employers to notify current and former employees that their noncompetition clauses and agreements are void. New Bus. & Prof. Code § 16600.1(b)(1) will read, in key part:

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.

California’s protections against noncompetition agreements make the state an outlier, as most states enforce noncompetition agreements so long as they are reasonable. Laws against such agreements may soon become more common, however. In 2024, the Federal Trade Commission will vote on implementing a nationwide ban on noncompetition agreements.

Employers who might be affected by the new laws, and anyone wondering whether they are bound by a noncompetition contract they signed, should retain an attorney to help them navigate these issues.

Photo credit: Romain Dancre on Unsplash