New Law in 2024 Allows California to Refuse to Recognize ANY Non-Compete Agreements - Even Those That are Perfectly Legal in Other States.
California says it loud and clear:
No Non-Compete Clauses Allowed!
Non-compete agreements have been prohibited in California for some time now, but California recently enacted a new law that now expands its prohibition of non-compete agreements to even those that are signed out of state. This new law took effect on January 1, 2024.
It has been well-established for many years that California prohibits non-compete agreements. Nevertheless, many out-of-state employers still use agreements that contain at least one clause that will be void under California law. That is because Business and Professions Code section 16600 is very broad and states in pertinent part that “[e]very contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” However, California law doesn’t stop there: employers using such clauses may be held liable for unfair business practices.
In addition, California courts have routinely interpreted both sections 16600 and 17200 broadly to apply to any and all “employment in California” which included employees living in California, employees living outside of California but hired by California employers, and employees living outside of California but performing services in California. The new law (SB699) explains California’s longstanding public policy:
“California’s public policy provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except under limited statutory exceptions. California has benefitted significantly from this law, fueling competition, entrepreneurship, innovation, job and wage growth, equality, and economic development.”
In other words, California wants to be able to attract the best workers in all sectors and industries and refuses to restrain anyone from working in California.
California’s new controversial law (SB 699) codified in California Business and Professions Code section 16600.5 now extends California’s restriction on non-compete agreements to even those contracts not signed in California and for employment that occurred outside of California. In other words, California wants to attract the best workers in the nation and now will refuse to enforce even non-compete agreements that are perfectly legal outside of California. For example, if an employee signed a non-compete agreement in another state, worked in the other state, and the non-compete agreement was perfectly legal in the other state, the employee can still move to California and work for a California company in violation of the non-compete clause. The non-compete clause, which was perfectly legal in the other state will not be enforced in California. The first employer essentially gets their perfectly lawful non-compete agreement deemed null and void by California.
The new law even gives employees, former employees, and (shockingly) prospective employees a right to sue for injunctive relief or the recovery of damages and gives the employees the right to recover reasonable attorney’s fees and costs. Clearly, this ups the ante for California employers who should take steps now to ensure that their agreements do not have any restrictive covenants that may trigger liability under the new rules.