By Nathanel Ghinghis, Esq.
California has long protected workers’ trade and mobility rights and has been generally hostile to employee noncompete agreements. Those restraints have recently expanded, with the passage of two new laws: Senate Bill 699 (SB 699) and Assembly Bill 1076 (AB 1076).
SB 699
Effective January 1, 2024, SB 699 (codified as Section 16600.5 of the California Business and Professions Code (“BPC”)) prevents employers from enforcing or even entering into employee noncompete agreements that are not enforceable under state law.
What does this mean? The new rule not only prohibits the enforcement of violative noncompete agreements under California law but also, and rather controversially, it extends California’s jurisdiction to agreements created outside the state. This means that people who were previously subject to noncompete agreements they entered while working in other states may find those agreements are now unenforceable in California – regardless of where they were signed or where the employee worked. Accordingly, this law not only affects California-based workers, but may also impact remote and interstate employees of California companies.
While noncompete agreements remain legal in many states, there has been an uptick against enforcing such agreements on the national level. This trend is made apparent by the Biden administration’s support for the Federal Trade Commission’s (FTC) proposal of a federal rule banning most noncompete agreements.
Despite this new move against noncompete agreements, it is foreseeable that SB 699 will be challenged in federal courts as an overreach by California’s legislature and that the FTC’s proposed rule will also be opposed for being constitutionally infirm.
AB 1076
Effective January 1, 2024, AB 1076 (codified as BPC § 16600.1) makes it unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, unless a limited exception applies. This portion of the law overlaps with SB 699. However, AB 1076 also requires employers to provide individualized and written notice by February 14, 2024 to certain employees that any noncompete agreement entered into is void. This notice requirement only applies to current or prospective employees, or former employees who were employed after January 1, 2022, and who had entered into a noncompete agreement that does not satisfy any narrow exception.
Failure to Comply Exposes Employers to Costly Litigation
These enactments allow workers to sue their employers for injunctive relief, the recovery of actual damages, or both. Currently, there are only projections for determining actual damages. Factors such as lost income, back pay, and other damages for affected workers may be considered.
Violation of AB 1076 also constitutes an act of unfair competition within the meaning of BPC § 17200. This means that an employee can seek cumulative damages, thereby entitling him or her to recover double for their damages received under AB 1076.
A prevailing employee will also be entitled to recover reasonable attorneys’ fees and costs for violation of the new laws. The Attorney General’s office may also fine businesses and/or negotiate minimal penalties with offenders.
Compliance Tips and Advice
California employers should become familiar with these changes to California law and evaluate how to comply with SB 699 and AB 1076. At this time, it is also unclear how these new California laws will be applied to non-solicitation agreements that prevent the recruitment of employees. In addition to reviewing existing noncompete agreements, employers should carefully review any non-solicitations as well to determine if those run afoul of these new laws.
Nathanel Ghinghis is an associate attorney with the law firm of Dunn DeSantis Walt & Kendrick. Nathanel focuses his practice on civil litigation, with an emphasis on labor and employment, commercial and business disputes, and product regulatory compliance.
Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies. DDWK’s real estate development and construction practice includes representing all segments of the development and construction industries on both private and public projects.
You can find additional information and resources related to helping business owners and their businesses on the DDWK website.
