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California Doubles Down with Yet Another Law on Employee Non-Competes

On the heels of approving SB 699, which heightened the protections and reach of California’s prohibition of employee non-competes under California Bus. & Prof. Code Section 16600 (“Section 16600”) (see our blog post here), Governor Gavin Newsom has now signed AB 1076. AB 1076 further increases the litigation risk for employers that use employee non-competes and, most notably, requires employers to provide notice of any non-competes to current and former employees by early next year. Together, these two new laws, which take effect on January 1, 2024, reinforce California’s strong public policy against employee non-competes and specify new consequences for employers who seek to enforce or enter into such agreements.

As a reminder, SB 699 adds new Bus. & Prof. Code Section 16600.5 to: (1) prohibit an employer or former employer from attempting to enforce a contract (e.g., a non-compete) that is void under Section 16600; (2) grant current, former, and even prospective employees a private right of action for damages and injunctive relief, and to recover attorney’s fees and costs; and (3) expand the territorial reach of California’s prohibition of employee non-competes to apply “regardless of where and when the contract was signed.”

AB 1076 builds on these protections in a number of ways. First, the law expressly confirms California Supreme Court precedent[1] providing that Section 16600 is to be read broadly to void any non-compete agreement in an employment context or non-compete clause in an employment agreement, no matter how narrowly tailored, save for the few enumerated exceptions (for example, the sale of business exception under Section 16601). Second, it clarifies that the scope of Section 16600 is not limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract. Third, the law adds new Section 16600.1 to declare it unlawful for employers to include an impermissible non-compete clause in an employment contract or require an employee to enter into an impermissible non-compete, and further provides that a violation of Section 16600.1 constitutes an act of unfair competition. 

Finally, AB 1076 requires employers to provide a written notice by February 14, 2024 to employees and former employees (employed after January 1, 2022) who have entered into a non-compete clause or agreement that is void under California law. The notice must inform such individuals that the clause or agreement is void and be delivered to the individual’s last known address and email address as an individualized communication.

SB 699 and AB 1076 have the potential to drastically reshape the state of employee non-compete law in California. While there is much uncertainty in how courts will interpret these new laws, it is clear that employers face additional risk of litigation if they use impermissible non-competes, including under the new private right of action created by SB 699 and California’s Unfair Competition Law. Employees may also have a clearer path to use California’s Private Attorneys General Act to sue for civil penalties in connection with an employer’s use of an unlawful non-compete provision. Furthermore, it remains to be seen whether and how SB 699 and AB 1076 can be used to bring lawsuits against employers outside California who enter into lawful non-competes with employees who later move to California.

Given these developments, employers should consider taking the following actions:

  • Assess notice obligations as soon as possible given the February 14, 2024 deadline, and begin preparing draft notices and identifying which current and former employees should receive them;
  • Review existing agreement forms or templates to determine whether there are any provisions that should be revised or removed; and  
  • Train managers and staff involved in the hiring and onboarding process regarding these new laws.

Employers with questions about how to comply with these new laws are urged to consult experienced counsel.