The Far-Reaching Impact of California’s SB 699 on Non-Compete Agreements

California has long been a state that values employee mobility and innovation. The Golden State’s stance against non-compete agreements is well-known, thanks to California Business and Professions Code section 16600. However, a new bill, SB 699, has recently been signed into law, extending the state’s reach on this matter. Read on to learn more about the implications of the new law, and reach out to the offices of employment law attorney Richard Koss on the San Francisco Peninsula or East Bay if you are an employer or employee needing help with an employment law matter in the Bay Area.

What Does SB 699 Mean for Employers and Employees?

SB 699 adds a new section to the Business and Professions Code, B&P Section 16600.5, which implements the following:

1. Unenforceable Contracts: Any contract void under B&P Section 16600 is unenforceable, irrespective of where it was signed.

2. No Enforcement Outside California: Employers cannot enforce a void contract even if it was signed and maintained outside of California.

3. Civil Violation: Employers attempting to enforce a void contract commit a civil violation, and employees have the right to take legal action.

Why Is This a California Problem?

According to a report from the state Assembly Judiciary Committee, nearly 20% of workers nationwide are affected by non-compete agreements. So why is this a concern for California? The answer lies in the state’s economy, which thrives on attracting top talent from across the country, especially in sectors like technology and biomedicine. The California Assembly argues that non-compete clauses stifle economic development and innovation, making SB 699 essential for California’s competitive business interests.

Can California Nullify Out-of-State Contracts?

Imagine a scenario where a California company wants to hire an employee who previously worked in Texas and signed a non-compete agreement there. If the Texas company sends a cease and desist letter, the California company can now counter by citing SB 699, effectively nullifying the Texas contract. But is this legal?

Extraterritorial Application of State Law

California generally avoids applying its laws to events occurring in other states. However, SB 699’s language and legislative intent appear to rebut this presumption. The statute explicitly states that it applies to contracts signed in other states, and its purpose is to foster economic development.

Constitutional Concerns

Applying one state’s laws to another state’s events can raise constitutional issues, particularly the “dormant commerce clause,” which restricts states from burdening interstate commerce. However, it can be argued that SB 699 does not restrain commerce but rather promotes it by allowing employees greater freedom. The “full faith and credit clause” is yet another constitutional issue possibly implicated by the new law, not to mention the Constitution’s “contract clause.” The law could also have implications for employment contracts beyond just non-compete provisions.

Legal Implications for Employers

SB 699 not only expands the scope of unenforceable non-compete agreements but also introduces serious liabilities for employers. It creates a private right of action for employees and even prospective employees, allowing them to sue for injunctive relief, damages, and attorney fees.

What Should Employers and Employees Do?

Given the shifting legal landscape, employers are advised to consult with legal counsel when considering enforcing or opposing a non-compete agreement in California. It’s crucial to update contracts to align with the new law to avoid potential legal pitfalls. Employees, for their part, might want to consult with legal counsel when presented with a non-compete they are being asked to sign or that is being enforced against them.

Contact Bay Area Employment Lawyer Richard Koss for Help With Employment Contracts in California

SB 699 is a game-changer in the realm of employment law in California. While it aims to foster innovation and economic growth, it also raises complex legal questions that are bound to lead to litigation battles. Employers and employees alike should be aware of these changes and act accordingly.

If you are a San Francisco employee or employer in need of advice or representation concerning employment contracts, non-compete agreements, or other California labor law issues, 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.