Non-compete agreements, once hailed as tools to protect an employer's trade secrets and competitive edge, have found themselves under a growing cloud of controversy and unpopularity. In an era where employee mobility and the pursuit of professional growth have taken center stage, the once widely accepted practice of restricting individuals from seeking new opportunities in their chosen fields is facing increasing scrutiny. Several states, such as Minnesota and New York, have taken steps to tighten restrictions on these agreements. Furthermore, federal agencies like the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) are contemplating nationwide regulations to address these contentious contracts.
In alignment with the national movement against non-compete agreements, California has recently implemented two new laws reinforcing its stance against the use of non-compete restrictions between employers and employees. These changes arise from Senate Bill 699 (SB 699) and Assembly Bill 1076 (AB 1076).
Under SB 699, non-compete agreements conflicting with Business and Professions Code Section 16600 (B&P § 16600) are now invalid, irrespective of when or where they were entered into. Additionally, employers are now forbidden from initiating or enforcing agreements that run afoul of B&P § 16600. Such violations are treated as civil offenses, potentially resulting in legal repercussions for employers.
AB 1076 further refines these laws, explicitly prohibiting employers from including non-compete clauses in employment contracts or compelling employees to sign non-compete agreements that do not meet the exceptions defined in B&P § 16600. Employers must also provide written notices to current employees and certain former employees hired after January 2022. These notices inform employees that any non-compete clauses in their employment agreements are no longer valid. Further, violations of AB 1076 are considered acts of unfair competition under Business and Professions Code Section 17200, potentially leading to additional legal repercussions for employers.
To prepare for these changes, employers should thoroughly examine their current employment agreements with employees hired after January 2022 to ensure they comply with the new rules and do not contain restrictive covenants that violate the law. If employers identify potentially illegal non-compete provisions in existing agreements, they should also consider amending these agreements with current employees to align them with the updated legal requirements. Lastly, if AB 1076 applies to their workforce, employers need to send individualized, written notices to employees' last known addresses and email addresses by February 14, 2024. These notices should inform employees that their non-compete agreements are no longer enforceable.
SB 699 and AB 1076 reflect a broader national trend aimed at eliminating the use of non-compete agreements. Employers should adapt to California's evolving non-compete laws by staying informed and taking proactive steps to ensure compliance with the law.