By February 14, 2024, California employers with current and former employees subject to a non-compete agreement must provide individualized notice, both by paper and electronic mail, that their non-compete agreement is void.
California codified its distaste for non-compete agreements, previously stated in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, by amending Section 16600 and enacting Section 16600.1 to the Business and Professions Code (AB 1076). Now, the combined sections 16600 and 16600.1 render non-compete agreements in an employment context both void and unlawful, unless it falls within the narrow statutory exceptions related to the sale or dissolution of a business or its goodwill.
Section 16600 plainly states contracts that restrain an individual from engaging in a lawful profession are void, regardless of the employee’s hire date, unless it falls within a statutory exception. The legislature stated that the section is “to be broadly construed to void the application of any non-compete agreement in an employment context … no matter how narrowly tailored.”
Despite the sweeping invalidation of non-compete clauses and agreements, Section 16600.1 places an affirmative obligation on employers that issued non-compete agreements or employment contracts with non-compete clauses after January 1, 2022. Specifically, employers must notify both current and former California employees, if employed after January 1, 2022, that any non-compete agreement or non-compete clause in their employment contract is void. The notice should include that the clause or agreement is void and that the employer will not attempt to enforce any agreement or contract provision that violates Section 16600.
These employees must receive individualized notice, in writing to their last known physical address and by email, by Wednesday, February 14, 2024. Failure to provide statutory notice as described will amount to a violation of California’s unfair competition laws, which can be up to $2,500 per violation.
Additionally, Business and Professions Code section 1600.5 (SB 699), which took effect on January 1, 2024, states that an employer shall not enter into a contract that is void under the chapter. While aggrieved employees were previously limited to injunctive relief with respect to an offending non-compete agreement, actual damages are recoverable as well under this section, along with reasonable attorneys’ fees and costs. The combined effect of AB 1076 and SB 699 mandates that employers, under threat of unnecessary litigation costs and penalties, take active steps to amend their employment processes to comport with the legislature’s hostility toward non-compete agreements.
What Should Employers Do Next?
- Audit employee handbooks, policy guidelines, and compensation agreements applicable on and after January 1, 2022 for void non-compete agreements, policies, or clauses.
- Review template California employment contracts, or employment contracts for out-of-state employees who now live in California, for illegal non-compete clauses or policies.
- If there was a non-compete agreement or clause used in employment contracts or onboarding documents after January 1, 2022, notify all California-resident employees who were hired thereafter, regardless of their current employment status, in accordance with the guidelines above, to avoid penalties under Bus. & Prof. Code § 16600.1.
- If there remains a non-compete agreement or clause used in employment contracts or onboarding documents for California-resident employees, amend those documents to omit the offending clauses to avoid liability under Bus. & Prof. Code § 16600.5.
If you have any questions about this legal development, please contact the authors or GRSM's Employment Law team for more information.