We Are Never Ever Getting Back Together: California Declares Non-Competes Void and Requires Employers to Tell Employees About the Breakup by Valentine’s Day
It’s time to officially break up with your non-compete agreements and tell impacted employees that the relationship status has changed. Recent California laws, Assembly Bill 1076 (“AB 1076”) and Senate Bill 699 (“SB 699”), which revised and added Business and Professions Code sections 16600, 16600.1, and 16600.5, have declared that such agreements are void and that employers clinging to these clauses will be penalized and could be sued by their employees.
By February 14, 2024, California employers must individually notify any current or former employee who was employed at any time after January 1, 2022 to the present that their non-compete employment agreement is now void.
Remember When Non-Competes Broke up the First Time?
California and non-compete agreements have had enough for decades. California has a long public policy history of prohibiting practices that restrict an employee’s ability to engage in a lawful profession, trade, or business. In 2008, the California Supreme Court clarified that non-compete agreements, except for a few narrow exceptions, are unenforceable in California.
This Is It. California’s Had Enough.
And now, the California Legislature has added teeth to this case law. Effective January 1, 2024, Sections 16600, 16600.1, and 16600.5 of the Business and Professions Code clarify that not only are non-compete agreements in an employment context or contract void (absent specific exemptions) but also that continued use is unlawful and has litigation and financial consequences. The new law gives impacted current, former, or prospective employees a private right of action to sue for injunctive relief, actual damages, and attorneys’ fees.
Additionally, the law extends to both non-competes entered in California and out-of-state. For example, if an employee signed a non-compete agreement with an employer while living and working in Texas, and then they relocate to California, that non-compete agreement signed in Texas is void in California under this new law.
What Does This Mean for Employers?
It’s crucial to review existing employment agreements (including severance agreements) and policies to ensure that they comply with the new legislation. This review should include out-of-state contracts for employees who have relocated to California. Any non-compete clauses lingering in agreements should be promptly removed or amended. Failure to do so may lead to legal repercussions and headaches down the line. This includes lawsuits from current and former employees fueled by plaintiff’s counsel expecting statutory attorneys’ fees.
Important Notification Deadline
Equally important is the obligation to notify employees about the changes by February 14, 2024. This isn’t a suggestion—it’s a legal requirement. Employers must end their love affair with non-compete agreements by notifying all current and former employees employed at any time after January 1, 2022 to the present that their non-compete clauses are void. The notice must go out via email and to the employee’s last known mailing address. Failure to comply could potentially result in penalties of up to $2,500 per violation.
In short, non-competes and California employees? They are never, ever getting back together. Like ever. Employers must act “swiftly” to align their policies and agreements with the new law and ensure that employees are informed about the changes.
If you have questions or would like guidance from Medina McKelvey’s Advice and Counsel team on drafting a notification to impacted employees, please contact us.
