Beginning January 1, 2024, two new California laws will impose additional limits on restrictive covenants in state employment agreements.
Technology companies are no strangers to strict employee covenants and ask workers to sign such agreements regularly. When used properly, such covenants protect trade secrets and protect client relationships. California technology companies are also no strangers to California’s strong position against restrictive covenant agreements. California law voids contracts that restrict an employee from engaging in a legal profession, trade, or business of any kind.
California Business and Professions Code Section 16600, on the books since 1872, states, “(E)very contract by which any person is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent useless.” Courts have long interpreted Section 16600 to prohibit post-employment non-competition, non-solicitation of customers, and non-solicitation of employee agreements, with some exceptions.
With two new laws effective January 1, 2024, California will double down on its long-standing position. Therefore, California employers, including those in the technology industry, should consider revisiting any current or future use of restrictive covenants.
Senate Bill (SB) 699
SB 699 creates Business and Professions Code § 16600.5 and repeats existing law and continues. Under SB 699, any contract void under Section 16600 is also unenforceable, regardless of where and when the contract is signed. Additionally, an employer or former employer may not attempt to enforce a contract that restricts an employee’s ability to engage in a legal profession, trade, or business, even if the contract was signed outside of California. and work is carried on outside of California.
Additionally, SB 699 prohibits an employer from entering into a contract with a current or prospective employee that includes non-compete clauses and other restrictive covenants that are void under Section 16600. Employers who violated SB 699 may be liable for civil violations.
Most importantly, SB 699 added clear enforcement of rights for employees regarding restrictive contracts, including recovery of attorney’s fees.
Assembly Bill (AB) 1076
AB 1076 creates a new Business and Professions Code Section 16600.1 and continues SB 699. AB 1076 makes it illegal to impose non-compete clauses on employees. It codifies existing case law that renders non-compete provisions void under Section 16600 and renders non-compete provisions not only void, but against the law.
Importantly, the new law also includes mandatory notice requirements. It requires employers to notify current and former employees (employed after January 1, 2022) that any non-compete agreement or non-compete clause contained in an agreement that the current or former employee signed is void, unless the agreement or clause is within one of the exceptions of the law. Such notices must be given by the next Valentine’s Day, February 14, 2024.
What This Means for Tech Companies
As tech companies wrestle with balancing California laws with the need to protect technological innovation, SB 699 and AB 1076 could mean this balancing act extends beyond California’s borders. Clearly there are new tools for employees to challenge restrictive covenants in their agreements.
While waiting for specific interpretations of these laws to emerge, tech companies should consider inventorying their current restrictive covenants, identifying any current and former ones. employees that they must provide the notice required by AB 1076, revise agreements as necessary, and evaluate any potential enforcement. of the existing restrictive covenants.