California has the strictest non-compete ban in the country, and the legislature keeps making it broader. If your employment agreements, offer letters, or contractor contracts include non-compete language, or if you hired someone who signed one in another state, this is worth your attention now.
The Basic Rule: Non-Competes Are Void
California Business and Professions Code § 16600 voids any contract that restrains someone from engaging in a lawful profession, trade, or business. In plain English: a clause telling your employee they cannot work for a competitor after leaving your company is unenforceable. Period.
Courts read § 16600 broadly. It covers the classic "no working for a competitor for two years" provision, but it also reaches overly broad non-solicitation clauses and any other restriction that functionally limits an employee’s ability to work in their field.
New Laws That Took Effect January 1, 2024
Two laws made the landscape considerably more dangerous for employers at the start of 2024.
SB 699 made it unlawful for any employer to enter into or attempt to enforce a non-compete that is void under California law, even if the contract was signed in another state, and even if the employer is based outside California. If your employee works in California, California law controls. A clause that would be enforceable in Texas becomes void the moment the employee starts working here.
AB 1076 codified the broad reading of § 16600 from California Supreme Court precedent and required employers to send written notice to current and former employees hired after January 1, 2022 that any non-compete they signed is void. That notice deadline has passed, but the underlying compliance obligation is permanent.
Both laws also created a private right of action. An employee can sue an employer for requiring them to sign an unenforceable non-compete, and remedies include injunctive relief, actual damages, and attorneys’ fees. The fee-shifting piece matters: it means the employee’s lawyer gets paid even when the damages are small.
What About Protecting Legitimate Business Interests?
Non-competes are off the table, but California still gives you tools to protect your business:
- Trade secret protection under the California Uniform Trade Secrets Act is robust. Confidential business information, customer lists developed through real effort, and proprietary processes can all qualify, and they can be protected by injunction.
- Non-disclosure agreements are enforceable and appropriate for protecting confidential business information, so long as they are limited to genuinely confidential information and do not function as a disguised non-compete.
- Non-solicitation of clients is a gray area. Provisions barring an employee from actively soliciting specific clients they personally serviced may hold up in narrow circumstances, but sweeping client non-solicitation clauses usually fail the § 16600 analysis.
- Notice periods and garden leave are uncommon in California but can sometimes provide transition protection where carefully structured.
What Employers Should Do Now
If your business has used non-compete clauses in employment agreements, including agreements signed before you were operating in California, your documents are due for a review. Operating on the assumption that the clause is unenforceable is not enough. Having one in a signed agreement can itself trigger liability under SB 699.
At minimum, have an attorney review your standard offer letters, employment agreements, and contractor agreements for any post-employment restrictions, and revise the provisions that do not comply with current California law.
Bayside Counsel works with San Diego employers on employment contract compliance and trade secret protection. Contact us for a review of your agreements.