Existing Business and Professions Code 16600 prohibits California employers from having their employees sign non-compete clauses that restrain them from engaging in lawful professions, trades or businesses.

The legislature has now created these additional prohibitions:

1. AB 1076 amended section 16600, effective January 1, 2024, to require that the statute “be read broadly . . . to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored,” unless there is a legally-recognized exception, such as non-competes signed by owners who are selling a business.

AB 1076 also added Business and Professions Code 16600.1, which expressly states it is unlawful to have a non-compete in an employment contract or require an employee to sign such a contract unless it is subject to an exception. This new statute also requires employers – by February 14, 2024 – to notify any employees who have signed such agreements that the non-compete clauses are void.

2. SB 699 created new Business and Professions Code 16600.5 which mandates that neither current nor former employers may enforce non-compete clauses signed by an employee or former or prospective employee, even if they were entered into outside of California and the work also was performed outside this state.  It allows a private right of action for violations of the non-compete laws.

Take Aways:

Employers must leave non-compete clauses out of employment contracts.  If their existing contracts have such clauses, they will either need to replace them with compliant contracts prior to February 14, 2024 or notify employees those clauses are void.  And they also must not enforce such clauses against California-based workers, even if the individual was not working in California when the non-compete was signed.  Any employer that wants a non-compete clause in a contract needs to consult with competent employment counsel.

For further information, please contact Tim Bowles, Cindy Bamforth or Helena Kobrin.

See also:

• What’s New in 2024 – California vs. Arbitration: Next Round Legislature Permits Courts to Carry on with Cases While Arbitration Denial Appealed (October 23, 2023)
• Find Out What’s New in 2024 – Annual Seminar for Employers Covering Employment Legal Essentials and New Workplace Laws (October 20, 2023)
• Competition Free-For-All: Most Non-Competes Are Unenforceable in California(July 23, 2021)

Helena Kobrin
November 3, 2023