Non-Competes Are Not Only Void in California But Can Now Subject Employers to Liability

By Brian J. Mills and Ashley McLachlan

The California Business and Professions Code Section 16600 renders “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind” as void, subject to narrowly tailored exceptions. See Cal. Bus. & Prof. Code §§ 16600 et seq.  

But to what extent does the Statute bar current or former non-California employers from enforcing non-competes executed outside of California? Taking direct aim at these non-California employers, the California Legislature passed SB 699. Approved by Governor Newsom on September 1, 2023, SB 699 adds section 16600.5 to California’s Business and Professions Code which reads in part: 

(a) Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.

(b) An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed, and the employment was maintained outside of California.

The new law comes roughly one year after California Attorney General Rob Bonta issued a press release “reminding employers and workers” that “California law prohibits employers, including those who operate out of the state but employ California residents, from enforcing non-compete agreement.” Thus, it may be no surprise to California employers that clearer authority on the enforceability of non-compete agreements executed outside of California was forthcoming. What may be surprising, however, is that SB 699 has teeth. It is now a civil violation for an employer to enter into, or attempt to enforce, a contract void under the chapter. The Statute also sets forth a path for current, former, or prospective employees to bring a civil suit for injunctive relief, actual damages, or both, and, if successful, attorneys’ fees and costs. This law is set to go into effect on January 1, 2024. 

But wait, this may not be all. The California legislature is currently considering AB 1076 which would impose a notification requirement on employers whose contracts include a void non-compete clause. If enacted, employers would have until February 14, 2024, to notify current and former employees that a prior non-compete agreement is void. 

Employers both in California and outside should monitor these developments and seek counsel to evaluate the risks associated with incorporating non-compete provisions in their employment agreements.