California Strengthens Prohibitions on Noncompete Agreements for 2024

By Thomas G. Thornton – November 2023

Employers should be aware of significant new restrictions governing employment related noncompete agreements and clauses that go into effect in January 2024.  As a result of the enactment of AB 1076, not only are noncompete clauses in the employment context void and unenforceable in California under Business and Professions Code section 16000, but the new Business & Professions Code section 16600.1 makes it unlawful to “include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement” (with very limited statutory exceptions). (Bus. & Prof. Code, § 16600.1, subd. (a).)

In addition, the new law includes a notice obligation that requires employers to notify current employees (and 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” by February 14, 2024, that the noncompete clause or noncompete agreement is void.  (Bus. & Prof. Code, § 16600.1, subd. (b)(1).)  The notifications to current or former employees must be in writing.  (Bus. & Prof. Code, § 16600.1, subd. (b)(2).)

Violations of the requirements Section 16600.1 will constitute an act of unfair competition under Business and Professions Code section 17200 et seq.  (Bus. & Prof. Code, § 16600.1, subd. (c).)  The new laws do not describe what constitutes a noncompete clause or agreement, but Section 16600 states it “shall be read broadly” to void any noncompete agreement “no matter how narrowly tailored” unless the agreement satisfies an exception. (Bus. & Prof. Code, § 16600, subd. (b)(1).) Section 16600 codifies the holding of Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, therefore the new enactments will also implicate certain nonsolicitation provisions in the employment context. The primary exceptions to the foregoing prohibitions on noncompete agreements concern noncompete provisions in the context of sales and dissolutions of business interests.  (Bus. & Prof. Code., §§ 16601, 16602, 16602.5.)

Furthermore, under recently enacted SB 699, from January 1, 2024, an employer “that enters into a contract that is void under this chapter [which includes employment related noncompete agreements prohibited by Sections 16600 & 16600.1] or attempts to enforce a contract that is void under this chapter commits a civil violation.”  (Bus. & Prof. Code, § 16600.5, subd. (d).)  The enactment provides a private right of action to employees, former employees, and prospective employees to enforce its provisions, and also provides for the award of attorney’s fees to prevailing employees.  (Bus. & Prof. Code, § 16600.5, subd. (e)(1)-(2).)

As 2024 approaches, it is important to review the statutes described above, as well as any employment agreements that may include unlawful noncompete or nonsolicitation provisions, to ensure timely compliance with the new enactments.

Author: Thomas G. Thornton