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Practice

Important Changes to California Non-Compete Laws to Take

Effect in January 2024

California recently passed two laws amending Section 16600 of the California Business and Professions

Code — SB 699 and AB 1076

— which will impact non-compete and possibly other restrictive covenant

Section 16600 to prohibit post-employment non-compete agreements, as well as post-employment

customer non-solicitation agreements. More recently, one California appellate court and a few federal

courts have interpreted Section 16600 to also prohibit post-employment employee non-solicitation

agreements.

Against this backdrop, historically, California courts might have enforced restrictive covenants that would

otherwise be void under Section 16600 if, for example, the agreement was entered into by an employee

who worked out of state and the agreement was governed by, and enforceable under, another state’s

law. The two new California laws change that landscape.

Section 16600 “regardless of whether the contract was signed and the employment was maintained

outside of California” (emphasis added).

Court’s decision in Edwards v. Arthur Andersen LLP,

noncompete agreements in an employment context and noncompete clauses within employment

contracts, even if that agreement is narrowly tailored, unless a [statutory] exception applies.” The

amendment instructs that the law “shall be read broadly” in accordance with the Edwards decision, but

“does not constitute a change in, but is declaratory of, existing law.”

Second, the amendment imposes on employers certain notification requirements with respect to

after January 1, 2022, who were parties to unlawful non-compete clauses or agreements that the

noncompete clause or agreement is void. The notice must be provided no later than February 14,

2024.

address and the email address of the current or former employee.

of the California Business and Professions Code, which could result in a penalty of $2,500 per

or dissolution of corporations, partnerships, and limited liability companies are enforceable.

who are “in fact individually represented by legal counsel in negotiating the terms of an agreement

to designate the choice of law to be applied,” i.e., to enter into agreements governed by another

state’s law that may be more permissive towards restrictive covenants. Whether the exception

under Section 925 will be applicable to “noncompete” agreements or clauses in light of the

amendments to Section 16600 is unclear.

notification requirements apply to covenants not to solicit customers or employees. Notably, AB 1076

references “noncompete” agreements — not agreements “void under this chapter”— though it also

states that “[t]his section shall be read broadly.”

and trigger notification. It remains to be seen how broadly the laws will apply in practice, and whether

jurisdictional challenges may limit their effect within and outside of California. This determination may

come down to which state’s court is asked to interpret an agreement in conjunction with the new laws,

which could lead to a race to the courthouse.

outside of California, particularly a remote employee tied to a California location, to sign a non-

compete.

or other restrictive covenants in California, regardless of whether they have a current presence in

California.

determine whether existing non-compete or other restrictive covenant agreements may trigger

If you have questions about this Client Alert, please contact one of the authors listed below or the Latham

lawyer with whom you normally consult: