A new California law requires employers to notify all current and former employees if any signed employment agreement (e.g., offer letter, non-disclosure agreement, employment contract), contains an invalid post-employment covenant not to compete (a “non-compete provision”). Assembly Bill 1076, signed last month by Gov. Newsom, requires employers to give written notice to all affected current and former employees that the non-compete provision is void by February 14, 2024.
This law follows September’s Senate Bill 699, which authorized lawsuits against employers who include unlawful non-compete provisions in their employment contracts or attempt to enforce such provisions. The new law expands on SB 699 by seeking to ensure that no employees mistakenly believe that an unenforceable non-compete provision restricts their mobility.
Since 1872, California law has prohibited most post-employment non-compete agreements. California credits its prohibition of post-employment non-compete agreements for its dramatic economic development, including the dynamic innovations of Silicon Valley.
The new law provides:
(a) It shall be unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter.
(b) (1) For current employees, and for former employees who were employed after January 1, 2022, whose contracts include a noncompete clause, or who were required to enter a noncompete agreement, that does not satisfy an exception to this chapter, the employer shall, by February 14, 2024, notify the employee that the noncompete clause or noncompete agreement is void.
(2) Notice made under this subdivision shall be in the form of a written individualized communication to the employee or former employee, and shall be delivered to the last known address and the email address of the employee or former employee.
(c) A violation of this section constitutes an act of unfair competition within the meaning of Chapter 5 (commencing with Section 17200).
What does this mean for California employers?
California employers must notify current employees and former employees (employed after January 1, 2022) in writing that any non-compete agreement or non-compete clause contained in an agreement the current or former employee signed is void unless the agreement or clause falls within one of the (narrow) statutory exceptions set forth in Business and Professions Code section 16601, et seq. for sale of business goodwill and dissolution of partnerships.
What are the exceptions to Section 16600?
Sections 16601, 16602 and 16602.5 of the California Business and Professional Code provide exceptions to Section 16600’s ban on non-compete agreements for the sale of “goodwill” of a business, partnership agreements and limited liability companies, respectively.
What should be included in the notices to current and former employees?
The notices should be in the form of an individualized communication to the affected current or former employee, delivered to the last known address and email address of the employee no later than Valentine’s Day 2024. Prudent employers will notify affected current and former employees well before the statutory deadline, as the statute suggests that affected employees must receive the written notice by February 14, 2024.
What are the penalties for a failure to comply?
A current or former employee may seek equitable remedies under California’s unfair competition law, which includes restitution related to the failure to provide notice and injunctive relief, as well as statutory prevailing party attorney’s fees under new SB 699.
Is my business affected?
This new law affects businesses registered to conduct business in California or with California employees, depending on whether any employees have signed agreements that include void non-compete provisions. California employers should consult counsel to identify any void non-compete provisions, including void non-solicitation provisions, and send written notification to the affected current and former employees, to be received by February 14, 2024.