New California restriction on non-compete agreements goes into effect January 1, 2024

Employers will be thinking “Here we go again,” as California rolls out yet another restriction on non-compete agreements effective January 1, 2024. This time the California legislature is incentivizing employees to file lawsuits in California to invalidate non-compete agreements by making employees eligible to have their attorney fees covered if they are successful in a court action. Going a step further, this new statute even applies to agreements signed while the employee worked or resided in another state. Any employer could be subject to litigation if an employee or former employee who is subject to a non-compete moves to California. This is truly far reaching legislation.

Currently in California, any contract that restrains someone from engaging in a lawful profession, trade, or business, is void absent compliance with limited statutory exceptions. The California legislature has found that California employers continue to attempt to use and enforce void non-compete provisions. And due to increased levels of remote work, the California legislature has seen a steady rise in the number of out-of-state employers using and attempting to enforce non-competition provisions with their employees in California. As a result, California Gov. Gavin Newsom signed Senate Bill 699 into law. Effective January 1, 2024:

1. Non-compete provisions void under Business and Professions Code section 16600 are unenforceable regardless of where and when the employee signed the provision.
2. Employers cannot attempt to enforce a void non-compete provision even where the employment is outside of California.
3. Employers cannot enter into a contract with an employee or prospective employee that includes a void non-compete provision.
4. “An employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation.”

In the event an employer violates these restrictions (which are designated as California Business and Professions Code section 16600.5), employees, former employees, and prospective employees, can instigate legal proceedings against the employer and seek injunctive relief, actual damages, and attorney’s fees and costs.

It is clear that California intends to crack down on out-of-state employers who attempt to place post-employment restrictions on California workers. Employers nationwide – not just in California – should review their employment policies, handbooks, and contracts to limit their exposure to legal action, and significant damages, in California and elsewhere.

There is no indication the tidal wave of legislation against restrictive covenants and the protection of employer’s business assets will abate any time soon. McDonald Hopkins’ attorneys are available to guide employers through the changing legal landscape to protect their business.