California Breaks Up With Non-Competes For Valentine’s Day

Employers waiting until the last minute may receive penalties instead of flowers this year. Effective January 1, 2024, California AB 1076 and SB 699 prohibit employers from including or enforcing non-compete clauses in employment agreements or requiring employees to sign non-compete agreements. Companies that use non-compete clauses or agreements have until February 14th to notify current and former employees that they are void.

California Is Just Not Into You

Non-compete clauses and agreements legally prohibit current or former employees from working for a competitor. They are typically linked to a period of time, geographic location, and/or a specific market area. In effect, they prevent employees from getting jobs in their field if they leave their employer. California has long considered any contract that restrains anyone from engaging in a lawful profession, trade, or business as against public policy, and California courts have historically invalidated non-compete clauses and agreements. AB 1076 and SB 699 codify California’s public policy and case law in the Business and Professions Code.

Everyone Gets a Boundary!

Under SB 669, employers are prohibited from enforcing a non-compete agreement void under California law, regardless of where and when it was signed. It doesn't matter if the agreement was signed and the employment was maintained outside of California. Furthermore, employers are not allowed to include a non-compete provision in an agreement with an employee or prospective employee if it is void under California law.

If an employer enters into or attempts to enforce a void non-compete agreement after January 1, 2024, it is a civil violation. In addition, current, former, or prospective employees have a private right of action to enforce the law, which may include obtaining an injunction, recovering actual damages, or both. They are also entitled to recover reasonable attorney's fees and costs if they prevail.

Under AB 1076, if an employer has a non-compete agreement with a current or former employee hired after January 1, 2022, the employer must inform the employee that the non-compete language or agreement is no longer valid by February 14, 2024. The notification must be personalized and sent to the employee's last known address and email address. If feasible, the notice should specify the agreement or non-compete clause that is now void. Failure to provide the notification is considered “unfair competition,” subject to $2,500 per violation.

A Rose By Any Other Name

AB 1076 and SB 699 address non-compete restraints. However, California courts have also invalidated non-solicitation of clients/non-solicitation of employees clauses that essentially function as non-competes. Non-solicitation clauses that are narrowly worded to protect trade secrets and confidential information have survived in court but just barely. The language added to the Business Code by AB 1076 states explicitly that the prohibition on non-competes will be broadly construed to void the application of any non-compete language in an employment context, even if the person being restrained from engaging in a lawful profession is not a party to the agreement or contract.  Going forward, confidentiality agreements prohibiting departing employees from disclosing trade secrets and truly confidential and proprietary information may be the only restraints still enforceable after AB 1076 and SB 699.

Time to Move On

Employers still have time to comply, but they must move fast to identify current employees and former employees hired after January 1, 2022 who signed a non-compete agreement or an employment agreement with a non-compete clause. Given the tight deadline, sending the email notice before February 14th with a ‘read receipt’ would be prudent to demonstrate good faith compliance as the hard copy may not arrive on time.

Employers should seek legal assistance with reviewing and amending their employment agreements and legal advice to determine if their non-solicitation clauses are overly broad or should be replaced with a confidentiality agreement that complies with California law.

Subscribe to Taylor English Insights by topic here.