By Hinshaw & Culbertson – Employment Law Observer | Dec 12, 2023
In the spirit of the season, we are using our annual “12 days of the holidays” blog series to address new California laws and their impact on California employers. On the fourth day of the holidays, my labor and employment attorney gave to me four calling birds, SB 699, and AB 1076.
It is well known that California prohibits or disfavors non-competes. California’s public policy provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except under limited statutory exceptions.
California views non-competes as “having a chilling effect on employee mobility.” The latest enactment of non-compete laws further illustrates California’s disfavor for non-competes and how it wants to protect its residents and employers.
California’s public policy provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except under limited statutory exceptions.
According to the legislature, research has continued to show that California employers continually try to have employees sign non-compete clauses that are void and unenforceable under California law. It further notes that as the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent their hiring of former employees. This led to the passage of two new laws.
With the enactment of SB 699, Section 16600.5 will be added to the Business and Professions Code, effective as of January 1, 2024. In essence, SB 699 prohibits employers from entering into non-competes with California employees that are void under state law and also prohibits employers from attempting to enforce such non-competes against California employees regardless of where and when the contract was signed.
SB 699 further provides that an employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief, the recovery of actual damages, or both. Further, a prevailing employee, former employee, or prospective employee in an action covered by SB 699 shall be entitled to recover reasonable attorney’s fees and costs.
In addition to SB 699, California passed AB 1076, which requires a notice regarding non-competes to employees. AB 1076 codifies the 2008 case of Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, where the court ruled that even a narrowly drawn non-compete agreement that does not completely prohibit a former employee from engaging in the former employee’s profession, trade, or business, still violates Section 16600 unless the agreement specifically falls within one of the statute’s narrow exceptions.
Employers must notify current and former employees employed after January 1, 2022, in writing by February 14, 2024, that the non-compete clause or agreement is void, as specified, in the cases where the employer has had the employee sign a contract containing a non-compete. The notice must be in the form of a written individualized communication to the employee or former employee. It shall be delivered to the last known address and the employee’s or former employee’s email address.
It is not advisable to have a non-compete in any of your California employment contracts. For those employers who do have signed non-competes, they must be reviewed to ascertain whether there are any potential non-compliant agreements that trigger the notice requirement. If so, the agreements should be updated, and the requisite notice should be given. All in all, unless an employee fits a set exemption, a non-compete should not be used.