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Non-Compete Agreements in California Now Have Additional Restrictions

08 Nov


Update Applicable to:

All employers operating in California and out-of-state employers who want to enforce an agreement with a worker hired by a California employer.

What happened?

Governor Newsom Signed SB 699 into Law on September 1, 2023, Expanding Restrictions on Employer’s Use of Non-compete Agreements and Other Restrictive Covenants.           

What do employers need to do?

Employers should review the above law as well as the opinions and recommendations from the above law firms. In the process of drafting any non-compete agreements or enforcing any existing contracts, employers should seek legal counsel from their trusted employment attorney to ensure compliance with the new law.

What are the details?

The current law, found in California’s Business and Professions Code section 16600, declares that any contract restricting an individual from engaging in lawful professional activities is partially void. This has been broadly interpreted by California courts, typically prohibiting post-employment noncompetition, non-solicitation of customers, and non-solicitation of employees, with certain exceptions for the sale or dissolution of certain business entities.

SB 699 reinforces this existing law and introduces new provisions. Under SB 699, any contract invalidated by section 16600 is unenforceable, regardless of where or when it was executed. Furthermore, employers or former employers cannot enforce contracts that limit an employee’s lawful professional pursuits, even if these contracts were signed outside of California and the employment occurred outside of California.

Additionally, SB 699 prevents employers from including noncompete clauses and other void restrictive covenants in contracts with employees or prospective employees. Employers who violate the law may face civil penalties.

A momentous change introduced by SB 699 is the explicit granting of enforcement rights to employees concerning restrictive contracts. This law will go into effect on January 1, 2024, regarding the new enforcement rights it establishes.

For more information, please see the links below:

SB 699

Bus. & Prof. Code § 16600.5

Law Firm Articles: Article 1, Article 2, Article 3, Article 4, Article 5, Article 6

Need help understanding how changes to employment laws will affect your business?

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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