Employers nationwide need to evaluate whether they must now comply with the February 14, 2024 written notice deadline created by new California noncompete laws. In addition, California's new noncompete laws introduce enhanced remedies that mean employers nationwide need to carefully evaluate when, and with whom, to seek a noncompete agreement.
Background
California has historically prohibited noncompete agreements (including traditional noncompetes as well as non-solicitation covenants) in the employment context. On September 1, 2023, California Governor Gavin Newsom signed Senate Bill (SB) 699 into law effective January 1, 2024. SB 699 makes two meaningful additions to California's existing ban on noncompetes by (1) extending the reach of California's restrictions to contracts signed out of state and (2) creating a private right of action for employees whose agreements include restrictive covenants.
On October 13, 2023, Governor Newsom signed into law additional legislation, Assembly Bill (AB) 1076, which expands and strengthens California's ban on noncompete agreements. Among other things, AB1076 makes it an act of unfair competition, punishable by civil penalty, to include a noncompete in an employment agreement or require an employee to enter into a noncompete. In addition, the law creates an affirmative obligation for employers to provide notice to current and former California employees who were employed after January 1, 2022, and subject to a noncompliant noncompete agreement, that their noncompete agreement is void. AB 1076 further claims it codifies existing case law requiring a broad reading of the California ban on noncompetes.
Notably, however, California's noncompete ban has three exceptions where noncompete agreements are enforceable: in the sale of a business, in the dissolution of a partnership, or upon the dissolution or termination of interests in a limited liability company. AB 1076 does not narrow or alter those exceptions.
Impact on Employers Based Outside of California
California's new laws not only impact employers based in California but also purport to apply to out-of-state employers that have remote workers in California or former employees who move to California while subject to the out-of-state employer's noncompete—even where the noncompete was entered into outside of California. While the reach of California's new laws is likely to be challenged, employers should review their employment contracts with California employees to ensure they do not contain a noncompete that may run afoul of the new laws. Furthermore, employers who have employees relocate to California during employment, should be sure to advise such employees, in writing, that they will not attempt to enforce any agreement or provision of any agreement to the extent contrary to California law. Finally, employers should not attempt to enforce a noncompete against a former employee who subsequently moves to California.
Provide Notice by February 14, 2024
Employers who have entered into a non-compliant noncompete with current or former California employees after January 1, 2022 must provide notice to such individuals by February 14, 2024, that such noncompete is void. Notice must be a written, individualized communication to the employee or former employee delivered to the last known address and email address of the employee or former employee. Failure to provide such notice can result in injunctive relief, restitution, civil penalties of up to $2,500 per violation and recovery of attorneys' fees and costs.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
