You Might Have Missed This Action-required New Law

Ready or not, employers have until February 14th to review employment and independent contractor agreements for non-compete clauses and send people notice that any non-compete provisions are now null & void.

Failure to send this notice could constitute a violation of California’s Unfair Competition Law.

Effective January 1, 2024, two new laws limiting restrictive covenants will extend the state’s consistent trend toward encouraging employee mobility and open competition.

SB 699, Prohibition Against Non-Compete Agreements, establishes that any contract that is void under California’s non-compete prohibition is unenforceable regardless of when and where the contract was signed. For example, if an employee was working in Texas, a state that allows such agreements, and subsequently moves to California to take a job there, the non-compete clause will not apply.

AB 1076 creates the new notice requirement for employers and codifies the holding in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), which states that any non-compete, no matter how narrowly tailored, is void. 1076 expressly prohibits employers from entering into non-compete agreements and imposes fines and notice requirements for violations.

An employer that enters into or seeks to enforce an unlawful non-compete will be considered to have committed a civil violation. Further, employees may sue for violations of this new law and seek recovery of damages, injunctive relief, and attorneys’ fees.

There remain some non-compete agreements that are enforceable in California, including those that accompany the sale of goodwill of or an ownership interest in a business entity or the dissolution of or disassociation from a partnership or limited liability company.

It is sensible to consult counsel about the applicability of any of these exceptions to the general prohibition.