Non-compete agreements are contracts designed to prevent employees from working for a competitor or launching a similar business after they leave a company. While commonplace in many states, California has historically frowned upon these agreements, favoring employee mobility and open competition.
California law generally considers non-compete agreements a restraint of trade, rendering them unenforceable under Business and Professions Code Section 16600. However, recent legislation — AB 1076 and SB 699, effective January 1, 2024 — has further solidified this stance.
These changes have significant implications for employers, both within California and those who hire California residents. Let’s take a closer look at what these new laws mean for you and your business when it comes to non-compete California.
Understanding Non-Compete Agreements and California’s Legal Framework
If you’re working in California, or thinking about working here, you’ve probably heard that non-compete agreements are generally not enforceable. But what exactly are non-compete agreements, and why does California take such a strong stance against them?
What Are Non-Compete Agreements?
A non-compete agreement is a contract that tries to limit what you can do after you leave a job. It might say you can’t work for a competitor, or that you can’t start your own business in the same field for a certain amount of time.
Non-competes often come bundled with other restrictive covenants, like:
- Non-solicitation agreements: These say you can’t try to steal clients or employees from your old company.
- Non-disclosure agreements: These protect confidential information and trade secrets.
- No-raid agreements: These prevent you from poaching former colleagues.
California’s Historical Opposition to Non-Competes
California has a long history of disliking non-compete agreements. Section 16600 of the California Business and Professions Code pretty much says that any contract that stops someone from working in their chosen profession is void. This is because California believes that people should be able to move freely between jobs and start their own businesses. The state believes that this freedom promotes competition, innovation, and economic growth.
AB 1076 and SB 699: Strengthening California’s Non-Compete Ban
California has long been known for its strong stance against non-compete agreements. Recent legislation, Assembly Bill 1076 (AB 1076) and Senate Bill 699 (SB 699), further solidify this position, making it even more challenging for employers to enforce these restrictive covenants.
AB 1076: Codifying the Unenforceability of Non-Competes
AB 1076 explicitly states that non-compete clauses are unlawful in California. This law reinforces the state’s existing prohibition on non-competes, leaving no room for ambiguity.
Perhaps even more significantly, AB 1076 requires employers to take proactive steps to inform employees of their rights. Employers must notify current and former employees hired after January 1, 2022, that any existing non-compete agreements they may have signed are void and unenforceable. This written notice had to be provided by February 14, 2024.
SB 699: Expanding the Reach and Penalties
SB 699 takes aim at employers located outside of California who attempt to circumvent California law by enforcing non-competes against employees based in California. This law makes it clear that California’s ban on non-competes applies even if the employer is not physically located within the state.
Violating SB 699 can be costly. Employees now have the right to sue employers who violate the law, and employers may face civil penalties of $2,500 for each violation of § 16600.1.
The Question of Remote Work: California Residents Working Outside the State
One area of uncertainty remains: the application of these laws to California residents working remotely for companies based outside of California. While the intent of the law is clear, its application in these situations is still subject to interpretation and potential litigation. It remains to be seen how courts will rule on these cases, leaving some ambiguity for remote workers and their employers.
California’s non-compete ban compared to other states and the FTC
California’s stance on non-compete agreements is among the strictest in the country. While some states allow non-competes if they’re reasonable in scope and duration, California pretty much outlaws them, as described above.
But what about other states, and what about the federal government?
The Federal Trade Commission (FTC) recently put out a final rule that would ban non-competes nationwide. However, a Texas federal judge has already set aside this rule, and legal challenges are expected to continue. It’s possible that federal courts will disagree about the FTC’s rule, which would create a circuit split and further muddy the waters.
As of this writing, the FTC’s rule is on hold, so California employers and employees should continue to follow California law. However, the legal landscape surrounding non-competes is constantly evolving, so it’s important to stay up-to-date on the latest developments.
What this means for California employers and employees
Here’s what employers in California should do:
- Check your current employment contracts and remove any non-compete agreements.
- Let employees know that their non-competes are no longer valid.
- Train your HR and legal teams on the new regulations.
Here’s what employees in California should do:
- Learn about your rights regarding non-compete agreements under California law.
- Talk to a lawyer if you think your employer is breaking the law.
Navigating these legal waters can be tricky, but understanding your rights and responsibilities is crucial.
The Bottom Line
California has doubled down on its longstanding ban on non-compete agreements with two new laws, AB 1076 and SB 699. These laws create an even more favorable environment for employees, making it easier for them to move between jobs and start new businesses.
It’s crucial for both employers and employees to understand and comply with these new regulations. These changes could have a significant long-term impact on California’s economy and workforce, potentially fostering greater innovation and competition.