New Law Comes in, Non-Compete Agreements Go out
A couple of months ago on this blog we reported on the recent passage of California Senate Bill 699, which amended the Business and Professions Code regarding covenants not to compete, also called non-compete agreements (see The Far-Reaching Impact of California’s SB 699 on Non-Compete Agreements, posted October 20, 2023). California has never much cared for non-compete agreements, and SB 699 took aim at such agreements when they are made in other states and attempted to be enforced here. Now comes AB 1076, in which California says not only do we not like non-compete agreements, we really, really, don’t like them.
Read on to learn about the current state of the law regarding non-compete agreements in California after the passage of AB 1076. If you are a San Francisco employee or employer needing help navigating this shifting legal landscape, contact Bay Area employment law attorney Richard Koss for advice, representation, and technical assistance in all your California employment law legal matters.
History of Non-Compete Agreements in California
A non-compete agreement is an agreement between employer and employee that restricts an employee from leaving a workplace and going to work for a competitor or starting their own business to go into competition with their former employer. The idea behind these agreements is that it is unfair to an employer who hires, trains and shares trade secrets with a worker for that worker to turn around and use all of that knowledge about the business to compete with the employer, especially if the worker tries to poach the former employer’s clients or other employees.
On the other hand, is it fair to keep a person forever tethered to the same employer and prohibit them from ever taking a job with a competitor or striking out on their own? Most lawmakers and courts say no, and in states that allow non-compete agreements, they must be narrowly tailored to a specific geographic scope and a limited duration in order to be upheld.
In California, non-compete agreements have long been generally disfavored and are limited to only a few allowable situations. Section 16600 of the California Business and Professions Code states clearly that “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Other sections in the law go on to list the few instances when a non-compete agreement, or “contract in restraint of trade,” may lawfully be used.
What SB 669 did was apply the limitations on non-compete agreements to any contract regardless of where and when it was signed. A new section of the law, BCP 16600.5, was added to that effect. Under the new law, if an employee had signed a non-compete agreement while living and working outside of California for an out-of-state employer, that agreement is unenforceable in California if it would be unenforceable under California law. SB 669 also created a legal cause of action allowing an aggrieved employee to sue for damages if an employer tries to unlawfully enforce a non-compete covenant against them. This bill was signed into law on September 1.
Enter AB 1076
AB 1076, signed by the Governor on October 13, codified existing case law to make the state’s attitude toward non-compete agreements abundantly clear. BCP 16600, as amended, highlights that the statutory provision voiding noncompete contracts is to be broadly construed to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, if it does not satisfy one of the exceptions listed in the law. The law now specifies that it is unlawful to include a noncompete clause in an employment contract or to require an employee to enter a noncompete agreement that does not satisfy one of the specified exceptions where non-compete agreements are allowed.
The statute reiterates what the California Supreme Court held in Edwards v. Arthur Andersen LLP (2008), that BCP 16000 must be broadly construed to prohibit non-compete agreements. It doesn’t matter how narrowly tailored the agreement is in relation to duration or geographic scope; unless it falls within a specific statutory exception allowing such an agreement, it is void. This is not a new declaration of law, but merely a codification of the rule established by the court in the above-mentioned case.
To make sure all impacted parties are aware of the law as it now stands, AB 1076 requires employers to notify current and former employees in writing by February 14, 2024, that their noncompete clause or agreement is void, unless it satisfies an exception in the law.
Contact Bay Area Employment Lawyer Richard Koss for Help With Employment Contracts and Non-Compete Agreements in California
If you are an employer looking to implement or enforce an existing non-compete agreement, or an employee being asked to sign a new agreement or abide by an existing one, it’s crucial to recognize when such agreements are and are not allowed and to understand the legal ramifications of an agreement that violates the law. For specific guidance in your particular situation in a San Franciso workplace, contact the Bay Area employment law attorney Richard Koss at 650-722-7046 on the San Francisco Peninsula, or 925-757-1700 in the East Bay.
