Under California law, it has been the longstanding policy that non-compete restrictions are generally void and unenforceable, subject to narrow exceptions.
At the end of 2023, California signed two more bills into laws to further restrict non-compete agreements and reiterate the state's public policy in favor of employee mobility. SB 699 prohibits employers from including, entering into, and attempting to enforce a noncompete clause in an employment contract, regardless of whether the employee signed the contract in another state or worked in another state when the contract was executed. AB 1076 restates the invalidity of non-compete clauses and requires employers to provide notice to current and former employees about unlawful non-compete covenants in their contracts.
Both of these laws went into effect on January 1, 2024. However, employers must comply with the notice requirements of AB 1076 by February 14, 2024.
What Are the Notice Obligations?
Under AB 1076, employers must provide notice to all current and former employees (who were employed after January 1, 2022) whose contracts included an unlawful non-compete provision. The notice must be a written, individualized communication to the employee or former employee and must be delivered to their last known mailing address and email address.
Failure to provide such notice is actionable under Section 17200 of California's Business and Professions Code, which provides remedies such as injunctions, restitution, and per-violation civil penalties.
Further, SB 699 allows current, former, and prospective employees to bring a private action based on unlawful non-compete agreements and, if successful, recover damages, including attorney's fees and costs.
What Should Employers Do?
With little time before the notice deadline, employers inside and outside of California should review their employment contracts to identify potentially unlawful non-compete provisions with current and former employees who are residents of California.
Employers must not only issue the required Notice to those affected, but also correct the issue going forward.
In particular, employers doing business in California should review their employment contract templates applicable for California employees and remove any unlawful restrictive covenant provisions.
Additionally, employers should take note that non-compete agreements signed by employees while working outside of California will become void and unenforceable if that employee later begins working in the state of California.
Finally, to ensure proper protection of confidential business information, employers should avoid solely relying on non-compete agreements even in states that do not maintain restrictions as burdensome as California.
Instead, employers should take a varied approach (such as enforceable nondisclosure restrictions) to protect their confidential information, trade secrets, and client base to ensure that future challenges to non-compete provisions under SB 699 (or other similar restrictions) do not leave them exposed and at risk of unanticipated competition and misuse of confidential information if such provisions are deemed unlawful.
The breadth of these new California laws is astonishing and could have far-reaching implications even for employers without physical operations in California. Employers should carefully review these requirements and contact legal counsel to discuss whether and to what extent their non-competes may be impacted.
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This article is not intended to give, and should not be relied upon for, legal advice in any particular circumstance or fact situation. No action should be taken in reliance upon the information contained in this article without obtaining the advice of an attorney.