United States:
Newly Minted California Law Declares Void Noncompete Agreements Unenforceable Regardless Of Where They Were Signed
12 September 2023
Allen Matkins Leck Gamble Mallory & Natsis LLP
To print this article, all you need is to be registered or login on Mondaq.com.
Since at least 1941, California has declared, with certain
limited exceptions, that every contract by which anyone is
restrained from engaging in a lawful profession, trade, or business
of any kind is to that extent void". Cal. Bus. & Prof.
Code § 16600. This prohibition is found in Chapter 1, Part 2,
Division 7 of the California Business & Professions Code.
Earlier this month, Governor Newsom signed SB 699 which adds the following new section
16600.5 to the Business & Professions Code:
(a) Any contract that is void under this chapter is
unenforceable regardless of where and when the contract was
signed.
(b) An employer or former employer shall not attempt to
enforce a contract that is void under this chapter regardless of
whether the contract was signed and the employment was maintained
outside of California.
(c) An employer shall not enter into a contract with an
employee or prospective employee that includes a provision that is
void under this chapter.
(d) An employer that enters into a contract that is void under
this chapter or attempts to enforce a contract that is void under
this chapter commits a civil violation.
(e) (1) An employee, former employee, or prospective employee
may bring a private action to enforce this chapter for injunctive
relief or the recovery of actual damages, or both.
(2) In addition to the remedies described in paragraph (1), a
prevailing employee, former employee, or prospective employee in an
action based on a violation of this chapter shall be entitled to
recover reasonable attorney's fees and costs.
Subdivision (a) is tautological. After all, a void contract is
not legally binding and therefore unenforceable. Subdivisions (b)
and (c) are overbroad insofar as they purport to void employment
relationships entered into and maintained outside of California.
Subdivision (d) is curious insofar as it declares conduct to be a
"civil violation" without specifying what that means. The
Business & Professions Code does not define or elsewhere refer
to "civil violations". Subdivision (e) exemplifies
California's pervasive hostility toward employers by imposing a
unilateral right to attorney's fees in favor of the
employee.
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.
POPULAR ARTICLES ON: Corporate/Commercial Law from United States
SEC Attacks Non-Disclosure Agreements
Littler Mendelson
The SEC recently issued imposed significant and costly sanctions against companies that require employees to sign non-disclosure agreements containing certain language either limiting...
The 'State' Of Delaware
Cooley LLP
During a panel at the October 2023 Berkeley Fall Forum on Corporate Governance, Delaware Court of Chancery Chancellor Kathaleen St. J. McCormick and Vice Chancellor Paul Fioravanti...