As discussed in a prior alert, newly-enacted California laws governing noncompete agreements require employer action by February 14, 2024. This alert explains the purpose of the new laws, what the notification requirement entails, and the risks of failing to comply.BackgroundIt is well known that employee noncompete agreements are unenforceable in California. This rule is based on California Business & Professions Code section 16600 (“Section 16600”), which says 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.” Section 16600 has long been recognized to broadly prohibit noncompete clauses or agreements in any employment context, unless very limited exceptions relating to the sale of a business apply. In 2008, in Edwards v. Arthur Andersen, the California Supreme Court applied Section 16600 to an agreement prohibiting a former employee from soliciting clients with whom he had worked at the employer. The Court concluded this agreement was “invalid because it restrained [the employee’s] ability to practice his profession.” In a 2018 case, AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., the California Court of Appeal held that Section 16600 extended to an employee nonsolicitation provision. AMN Healthcare conflicts with a 1985 decision, Loral Corp. v. Moyes, which upheld as lawful an agreement by a departing employee

California recently enacted two bills — SB 699 and AB 1076 — amending and adding to Section 16600 of the California Business and Professions Code to broaden the scope of California’s already expansive prohibitions on post-employment non-compete agreements and to add consequences for violations. The new bills took effect on January 1, 2024.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 whether the employee executed the agreement in another state or worked in another state when executing the agreement. AB 1076 in turn requires employers to notify current and former employees about non-compete covenants in their employment agreements that are void under Section 16600.BackgroundCalifornia’s strong public policy against non-competes and other contractual restraints on an individual’s ability to practice their trade or profession is well known. Codified in Business & Professions Code Section 16600, the simple (but expansive) prohibition has remained

f whether the former employment was outside of California and the agreement was signed outside of the state. The bill also provides that an employer commits a civil violation by having an employee sign a prohibited non-compete agreement, or by trying to enforce one, and allows a lawsuit against the employer. Even more, AB 1076 requires employers to notify current and former employees by February 14 of any void non-compete clause or agreement. Employers must act now to comply with this impending deadline.A Broad Prohibition, With Few ExceptionsSince 1872, California has restricted employee non-compete agreements. Since the 1940s, Business and Professions Code section 16600 generally has provided that covenants not to compete are invalid in the state, unless an exception within that part of the code applies. Before and now, the statute provides 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(a). This broad prohibition has a few, limited exceptions in the law: For the sale of a business (Cal. Bus. & Prof. Code § 16601), dissolution of a partnership or the disassociation of a partner from a partnership (Cal. Bus. & Prof. Code § 16602), and the dissolution of a limited liability corporation or a member’s departure from it. (Cal. Bus. & Prof. Code § 16602.5.)In Edwards v. Arthur Andersen LLP 44 Cal.4th 937 (2008), the California Supreme Court held that, unless one of these statutory exceptions applies, the state’s prohibition on non-compete agreements is absolute. Under the law’s “plain meaning,” the court held that “an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule.” It rejected the argument that a non-compete would be permissible as long as it was “reasonably based” or a “narrow restraint,” such as for a limited time or geographic area, as some

solicitation agreements.For decades, employers have relied on aCalifornia state appeals court decision from 1985 to implement post-termination restrictions on employees attempting to steal proprietary information from their former employers' workforces.In 2018, however, another California state appeals court decision seemingly called the viability of these provisions into question.While theCalifornia Supreme Courthas yet to definitively weigh in, federal district and unpublished appeals court decisions suggest the days of employee nonsolicitation provisions may be numbered.Loral v. Moyes and Decades that FollowedIn November 1985, a California state appeals courtissued its decision in Loral Corp. v. Moyes.[1]In that case, the Sixth Appellate Districtheld that an agreement between an employer and one of its former employees that precluded the employee from "disrupting, damaging, impairing or interfering with his former employer's business by 'raiding' its employees" did not run afoul of California Business and Professions Code Section 16600 — i.e., the statute that generally prohibits restraints on trade.Reversing a judgment in favor of the former employee, the court in Loral noted that while an agreement could not lawfully preclude a departing employee from hiring his former employer's employees, a restriction on soliciting a former employee's workers was permissible under Section 16600.In the years following Loral, it was generally accepted that employee nonsolicitation provisions were enforceable in California, notwithstanding the state's long-standing aversion to most post-termination restrictive covenants.Despite the practical difficulty in proving breach, these provisions became commonplace in employment agreements, and were viewed by many employers as one of the few valuable post-termination restrictions that could be used to prevent departing employees from disrupting operations after they were gone.The Shift Following AMN v. AyaMore than 30 years after Loral, the Fourth Appellate District seemingly upended the l

Key Takeaways:California clarified its prohibition against noncompete covenants for California-based employees to void any such covenants that were signed outside of California, even if the parties agreed that another state’s law governs the enforceability of the covenant.California law requires employers to provide notice by February 14, 2024 to current and former employees who were or are subject to void noncompete covenants that those covenants are void and of no further force or effect.Despite California’s broad prohibition against noncompete covenants, employers may still enjoin an employee’s tortious use of the employer’s trade secrets.California recently passed two laws amending its longstanding prohibition of employee noncompete agreements, both of which became effective this month. Section 16600 of the California Business and Professions Code voids contractual provisions restraining a CA-based person from engaging in a lawful profession, trade, or business of any kind, except under limited statutory exceptions. The amendments passed in late 2023 clarify that such provisions are void notwithstanding where those agreements were signed or the parties’ choice of law designating a forum other than California. The amendments also codify existing caselaw broadly defining noncompete covenants and impose a notification requirement on employers who previously maintained unlawful noncompete covenants.Senate Bill 699 (otherwise known as SB 699), effective January 1, 2024, amended Section 16600 to add a new Section 16600.5, which provides that “[a]ny contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.” The amendment codifies existing California caselaw prohibiting employers from attempting to enforce a noncompete against any employee based in California, even if the employee s

Many companies have ceased using noncompete clauses for employees working in California. At best the clauses have become unenforceable, at worst, a liability for the company.If you thought this issue was behind you, think again…A change to California Business and Professions Code Section 16600, enacted as Section 16600.1 and effective January 1, 2024, requires employers to notify current and certain former employees who are signatories to any noncompete clause or agreement that the restriction is void. Employers must do this by February 14, 2024, or risk liability for an act of unfair competition under Section 17200, which provides remedies such as injunctions and restitution.Specifically, Section 16600.1(b)(1) requires that employers provide notice to the following individuals:Current employees whose contracts include a noncompete clause or who were required to enter a noncompete agreement; andFormer employees employed after January 1, 2022, whose contracts include a noncompete clause or who were required to enter a noncompete agreement.The notice to employees must:Be in writing;Be an individualized communication to the employee;Be mailed or hand delivered to the last known address of the employee;Be emailed to the employee;State that the employee’s noncompete clause or no

For some time now, California law has generally prohibited employers from entering into post-employment noncompete agreements with employees unless an exception applies. The basis for this prohibition is found in Section 16600 of the California Business and Professions Code, which is usually read to ban contracts that preclude employees from engaging in their chosen lawful profession, trade, or business.On October 13, 2023, California enacted Assembly Bill 1076, which amended California Business and Professions Code Section 16600 and added Section 16600.1. AB 1076 went into effect on January 1, 2024, and codifies existing case law by making it expressly unlawful for employers to utilize any noncompete agreement with employees that does not satisfy an exception to Section 16600.AB 1076 follows the enactment of California Senate Bill 699, which also took effect on January 1, 2024. SB 699 prevents employers from enforcing contracts that are void under Section 16600, regardless of where the contracts were signed or the state in which the employee worked. SB 699 also creates a private right of action and authorizes employees to sue for injunctive relief, actual damages, and attorneys’ fees for violations.To further reinforce the public policy against such agr

It’s that time of year again. The weather gets cold and rainy, the calendar turns from December to January, and new employment laws go into effect that could shake up your workplace.The California legislature is always forward-thinking when it comes to employment laws, and 2023 was no different. As numerous key bills cleared Governor Gavin Newsom’s desk to take effect as early as January 1, employers should make New Year’s resolutions to familiarize themselves with these new laws to ensure compliance.SB 699 and AB 1076 – Employment Noncompete AgreementsTook effect Jan. 1, 2024With this pair of laws, California expands its longstanding prohibition on noncompete agreements. SB 699 prohibits employers from enforcing noncompete agreements considered void and unenforceable under California Business & Professions Code Section 16600. Under SB 699, any contract that is void under Section 16600 is unenforceable regardless of where or whenthe contract was signed, thus restricting the ability of out-of-state employers to enforce noncompetition agreements in California.Additionally, AB 1076 amends Section 16600 to codify precedent from Edwards v. Arthur Andersen LLP that noncompetition agreements in the employment context are void, even if the agreements are narrowly tailored. Once AB 1076 takes effect, Section 16600 must be applied broadly to void all noncompete clauses in an employment context, unless they fall under one of the existing statutory exceptions, i.e. associated with the sale of a partnership; dissolution of a partnership; or dissolution of limited liability interests. Furthermore, the revised law states that it is unlawfulfor employers to include noncompete clauses in an employment contract. AB 1076 applies retroactively from January 1, 2022, and any individuals who were employed after this date with a

hem, even if the non-compete was entered in another state where it would have otherwise been enforceable. An employee who wins such a case can also recover reasonable attorneys’ fees and costs. The law became effective January 1, 2024.These amendments also require employers to provide individualized, written notice to current and former employees (who were employed at any time after January 1, 2022, and have signed agreements containing non-compete clauses) by February 14, 2024, that any prior non-compete covenants or non-solicitation covenants violating the law are void. The notice must be delivered to the last known address and the email address of the employee or former employee. An employer who fails to comply may be subject to a penalty of $2,500 per violation.General Prohibition on Non-Competes and Restrictive CovenantsCalifornia has long prohibited employers from entering agreements to prevent their employees from leaving to compete against them. Even prior to these amendments, section 16600 of the California Business and Professions Code broadly provides that, with a few narrow exceptions, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” California’s strong stance against contractual restraints on post-employment non-competes is deeply rooted in the public policy of promoting employee mobility, innovation, and economic growth.In California, non-compete agreements in the employment context are generally void (Cal. Bus. and Prof. Code §§ 16600, 16601, and 16602.5). The only exceptions are non-compete or restrictive covenants that fall within one of the narrow exemptions authorized by statute, all of which relate to the sale of the goodwill of a business, or of a substantial ownership stake in the business. Courts interpret these statutory exceptions very narrowly.The recent amendments to the law explicitly adopt the holding of a 2008 California Supreme Court decision specifically holding that any employment non-compete agreement o

ial returns, possibly causing BlackRock to lose business from investors focused on those returns.” The Tennessee attorney general also alleged BlackRock made misleading claims about countries’ participation in net zero targeting because net zero commitments included “non-binding pledges and mere policy documents.”These actions demonstrate the continuation of certain state attorneys general challenges to ESG-related activities, putting businesses who are advancing their ESG compliance in a dilemma situation.5. California expands the scope of its prohibition on noncompete agreementsAt the close of 2023, California passed two new laws expanding the scope of the state’s prohibition on noncompete agreements. Each of the new laws went into effect as of January 1, 2024. AB 1076 voids all noncompete agreements in employment contracts and requires employers to notify current and former employes with such provisions in their contracts that the provisions have been voided. Senate Bill 699 amends California Business & Professions Code 16600 and prohibits employers from entering into or enforcing noncompete agreements even with respect to contracts signed outside California.AB 1076 codified Edwards v. Arthur Andersen LLP, a California Supreme Court decision that held that noncompete agreements are invalid even if they are narrowly drawn. AB 1076 also provides for a notice requirement, which requires employers to individually inform current and former employees who have or had noncompete agreements in their contracts that those provisions are no longer valid. This applies to all employees located in California, employed by companies after January 1, 2022, and whose employment agreements contain noncompete clauses. The statute requires notice to be completed by February 14, 2024.Senate Bill 699, codified as Section 16600.5 of the Business and Professions Code, prohibits employers from entering into or enforcing noncompete agreements, regardless of whether the contracts were entered into in California. Senate Bill 699 adds t