Love is in the air, but not for non-compete agreements in California where important updates to California's law barring non-compete provisions in employment agreements require action. By February 14, 2024, California employers and those located elsewhere with operations in the state must provide written notification to their current and former employees who were employed after January 1, 2022, that any post-employment non-compete clause contained in an employment agreement is void under California law.
Background and New Provisions
For decades, California's Business and Professions Code Section 16600 has held 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.” Although this law has long been interpreted to prohibit enforcement of non-compete provisions in California, loopholes remained, allowing, for example, enforcement of non-compete provisions as between companies, or against employees who signed non-compete provisions while working in another state, but then moved to California during a non-competition period. The legislature noted 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 atempting to prevent the hiring of former employees.”
Thus, effective January 1, 2024, Section 16600 expressly prohibits non-compete provisions in agreements that affect an employee, but to which the employee was not a party. The law also prohibits enforcement of noncompete provisions even if an agreement was signed in another state, or if an employee previously worked in another state and has since moved to California. Businesses outside the state are also prohibited from enforcing non-compete provisions against current or former employees in the state. As referenced above, employers are also required to provide writen notification that existing non-compete agreements are void.
Importantly for businesses, Section 16600 now includes a private right of action for affected employees to sue their employers for damages.
Notification Requirements and Considerations
When notifying employees by the February 14, 2024 notification date that non-compete provisions are void, the notification must be in writing and specifically addressed to each affected person at their last known address and email address. A mass email to affected employees will not suffice.
However, employers may emphasize in the notification that other post-employment obligations contained in any employment agreement, including but not limited to confidentiality provisions, remain valid and enforceable under California law.
Statutory exceptions have not been impacted. Therefore, non-compete provisions contained in contracts governing the sale or dissolution of corporations, partnerships, and LLCs continue to be enforceable and are not subject to the notification requirements.
What Employers Need to Know
The February 14, 2024 notification requirement is coming up fast. Employers who employ or have employed employees in California since January 1, 2022 should determine whether they have utilized non-compete agreements and prepare and send the written notification.
The modifications to Section 16600 come with stiff penalties for violations, including civil fines of $2,500 per violation, actual damages to the employee, and attorney's fees. Therefore, compliance is critical.
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.
