It has been a longstanding rule that California will not enforce non-compete agreements. Specifically, California's Business and Professions Code Section 16600 invalidates "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind," with limited exceptions for restrictions related to the sale of business, dissolution of a partnership or dissolution of, or termination of an interest in a limited liability company ("CBPC"). While Californian employers may not have embraced California's stance, they understood it and honored it. So when the California Senate and its Assembly recently enacted their own legislative bills, California employers advocated against them. Most employers may not be concerned, particularly if their companies do not operate in California. What employers may not realize is that if the Courts uphold the recent California laws, then California has the ability to invalidate any non-compete agreement that an employer signs with an employee.

To understand, let us review the major impact of the rules:

First, effective Oct. 13, 2023, the California Assembly Bill 1076, signed by Governor Newson, amends the CBPC to codify that noncompete agreements in an employment context or noncompete clauses in an employment contract are void no matter how narrowly tailored. Additionally, the amendment requires that as of Feb. 14, 2024, employers must notify any current or former employees whom they employed after Jan. 1, 2022, and have contracts containing a noncompete clause that the CBPC prohibits, that such noncompete clause is void in writing and delivered to the employee's last known address and email address. If an employer fails to provide the notice, then the amendment deems this failure a violation of California's Unfair Competition Law and subjects the employer to potential civil penalties, which may be up to $2,500 per violation.