Non-compete agreements working in California

[salezguru]

Jurisdiction

California

I live in California and have been speaking with a company whose headquarters are located out of the state. I was surprised when they told me that in addition to a non-disclosure agreement that they wanted me to sign as a condition of employment, they also wanted me to sign a non-compete. This is because I would be in a sales job and they didn't want me to leave and work for a competitor, have some of their leads in my memory or possibly on a separate list, etc. While I understand part of their concern, I am also worried about what I'd do if this didn't work out and be unable to find another job nearby near my industry. I also heard that non-compete agreements may not be allowed if the employee is in the state of California? What if they wanted to make me an independent contractor - would that change anything? I appreciate any help you can provide!

 

[army judge]

I am also worried about what I'd do if this didn't work out and be unable to find another job nearby near my industry. I also heard that non-compete agreements may not be allowed if the employee is in the state of California?

If you have or develop DOUBTS, don't do the deal.

Politely decline the offer, and wish the potential employer much continued success.

You need not explain, cry, pout, whine, carp, or even explain.

You simply, politely say, "Sorry, I have concerns relative to my future, should my employment with you be terminated. Therefore, I thank you for your judicious consideration given to my application, but my concerns are relative to signing the documents.

The new CA laws regarding NDAs and no competes.

4 Things Employers Need to Know About the New Noncompete Laws in California

Insights
10.15.23
Everyone knows that noncompete agreements are generally unenforceable in California and there's not much more to be said, right? California lawmakers think differently and thus have taken steps to equip employees with new ways to challenge them. On September 1, Governor Newsom signed a bill into law that prohibits employers from entering into noncompetes with California employees that are void under state law, and also prohibits employers from attempting to enforce such noncompetes against California employees – regardless of whether the employee executed the agreement in another state or worked in another state when executing the agreement. Separately, the governor signed another bill on October 13 that will implement a new burdensome notice requirement for employers, requiring them to notify current and former employees about unlawful noncompete covenants in their employment agreements. Here are four things you should know about these new noncompete laws in California.

1. What Conduct Does SB 699 Prohibit and How Can Employers Violate the New Law?
California has a long history of disfavoring noncompetes. Under California Business and Professions Code section 16600, every contractual covenant that restrains anyone from engaging in a lawful profession, trade, or business of any kind is void, except under limited statutory exceptions. Those narrow exceptions include the sale of a business, the dissolution of a partnership, or upon the dissolution or termination of interests in a limited liability company. Ultimately, most noncompetes with California employees are void.
When passing SB 699, the legislature explained that many employers still use noncompete agreements for their deterrent effect, which has a chilling effect on employee mobility. As such, the law prohibits employers from entering into noncompete agreements that are void under California law. In fact, an employer that enters into or seeks to enforce an unlawful noncompete will commit a civil violation once the new law takes effect on January 1, 2024.
Further, the new law impacts noncompete agreements signed by employees working outside of the state. The legislature explained that "California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees" although "California's public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer."
Based on this context, the terms the new law prohibit employers from attempting to enforce a noncompete that is unlawful in California, regardless of whether the contract was initially signed and the employment was initially maintained outside of California but the employee subsequently moves to California. This presumably applies to any current or former employer, regardless of location, that attempts to enforce a noncompete in this state.
This raises the question as to whether SB 699 invalidates noncompetes that were signed by employees working in states that allow such agreements but then the employee moves to California to take a job in California. It appears so. Here is an example of how this might happen:

• A California company seeks to hire an employee to work in California.
• The employee previously lived and worked in Utah, a state that allows some noncompetes.
• While previously working for the Utah company, the employee entered into a noncompete that satisfied the requirements to be valid under Utah law.
• After the California company hired the employee, the Utah company takes action to enforce the noncompete against the employee and prevent him from taking the job.
• The employee can now rely on SB 699 to prevent enforcement of that noncompete.

2. Employees Can Sue for Violation of SB 699

Before the adoption of SB 699, lawsuits in California to invalidate noncompetes have focused on declaratory relief. Under the new law, however, employees are entitled to new remedies when suing employers who attempt to implement or enforce unlawful noncompete agreements. Specifically, employees can seek damages, injunctive relief, and even reasonable attorneys' fees and costs. Significantly, there is no counterpart attorneys' fee provision for employers who prevail in litigation over SB 699.

One open question is what effect SB 699 has on noncompetes between a business and its independent contractors, as those provisions could be void under section 16600 (but are not referenced in the penalties provision of

3. What is AB 1076 and How Does it Change Existing Law?

AB 1076 expressly codifies existing caselaw that explained that any noncompete in the employment context, no matter how narrowly tailored, is void. This new law further clarifies that California's invalidation of noncompete agreements is not limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.

Additionally, AB 1076 creates a new notice requirement for employers. Once the law takes effect, employers will need to notify current and former employees whose contracts included an unlawful noncompete that such noncompetes are void. The notice would need to be contained in a written individualized communication to the employee or former employee, and delivered to their last known address and email address. A failure to send these notices would be a violation of California Unfair Competition Law, which can carry civil penalties.

Employers will only have a few months to comply with this new notice requirement, which requires notice by February 14, 2024. Of note, this new law is retroactive, meaning all existing agreements, for current employees and former employees who were employed after January 1, 2022, are subject to its requirements. So, even if employers enter into compliant agreements with their current employees, employers will still need to satisfy this new notice requirement for non-compliant agreements with former employees.

4. What Should Employers Do Next?

With the enactment of SB 699, you should consider reviewing your template California employment contracts to ensure they do not contain an unlawful noncompete that may run afoul of the new law. Also, you may not be able to rely on noncompete agreements signed by employees working outside of California once the employee begins working in this state. As such, employers should avoid solely relying on noncompete agreements – in states where they are valid – to protect confidential and trade secret information. Instead, a multifaceted approach to protecting confidential and trade secret information will help ensure that an employer is not left exposed if a noncompete is challenged as unenforceable under SB 699.

Further, employers both inside and outside California should review and identify potentially non-compliant agreements with current and former employees who are residents of California. This includes but is not limited to those employees who signed valid non-competes when they were residents of other states but now reside in California. You should then correct non-compliant agreements with current employees and notify former employees. Such a notice should include a representation that your company will not attempt to enforce any agreement or provision of any agreement to the extent deemed unenforceable under section 16600.

Conclusion

Fisher Phillips will continue to monitor this situation and provide updates as warranted, so make sure that you are subscribed to Fisher Phillips' Insights to get the most up-to-date information direct to your inbox. If you have any questions, contact your Fisher Phillips attorney, the authors of this Insight, any attorney in any of our California offices, or any attorney in our Employee Defection and Trade Secrets Practice Group.

Law Clerk Alexandra Volpicelli co-authored this Insight.

4 Things Employers Need to Know About the New Noncompete Laws in California

Everyone knows that noncompete agreements are generally unenforceable in California and there’s not much more to be said, right? California lawmakers think differently and thus have taken steps to…

www.fisherphillips.com

New California laws intended to strengthen the state's long-standing ban on non-competition agreements are set to create immediate headaches for employers in the state that have, or plan to, impose non-compete or non-solicit clauses on their employees in the Golden State. The new amendments — S.B. 699 and A.B. 1076 — not only codify existing case law banning nearly all non-compete agreements, but go a step further by empowering employees to sue their employer for imposing or trying to enforce a non-compete against them, even if the non-compete was entered in another state where it would have otherwise been enforceable. An employee who wins such a case can also recover reasonable attorneys' fees and costs. The law became effective January 1, 2024.

These amendments also require employers to provide individualized, written notice to current and former employees (who were employed at any time after January 1, 2022, and have signed agreements containing non-compete clauses) by February 14, 2024, that any prior non-compete covenants or non-solicitation covenants violating the law are void. The notice must be delivered to the last known address and the email address of the employee or former employee. An employer who fails to comply may be subject to a penalty of $2,500 per violation.

General Prohibition on Non-Competes and Restrictive Covenants

California has long prohibited employers from entering agreements to prevent their employees from leaving to compete against them. Even prior to these amendments, section 16600 of the California Business and Professions Code broadly provides that, with a few narrow exceptions, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." California's strong stance against contractual restraints on post-employment non-competes is deeply rooted in the public policy of promoting employee mobility, innovation, and economic growth.

In California, non-compete agreements in the employment context are generally void (Cal. Bus. and Prof. Code §§ 16600, 16601, and 16602.5). The only exceptions are non-compete or restrictive covenants that fall within one of the narrow exemptions authorized by statute, all of which relate to the sale of the goodwill of a business, or of a substantial ownership stake in the business. Courts interpret these statutory exceptions very narrowly.

The recent amendments to the law explicitly adopt the holding of a 2008 California Supreme Court decision specifically holding that any employment non-compete agreement or clause, no matter how narrowly tailored, that does not meet the statutory requirements is unenforceable (Cal. Bus. & Prof. Code § 16600(b)).

While the statute does not define "non-compete clause" or "non-compete agreement," California courts have defined them broadly to include customer non-solicitation clauses that are not tied to the protection of trade secrets and, on occasion, employee non-solicitation clauses. These covenants should be the subject of notice, even if not an explicit non-compete.

What Do the New Laws Specifically Provide?

Put simply, the new amendments further tighten California's restrictions against non-compete agreements to impose consequences on employers who seek to impose them on their employees. Previously, the worst an employer could typically expect from entering into a non-compete would be a court's refusal to enforce it. Under the new law, however, employers can now be held liable for their non-compete provisions.

The amendments make it expressly unlawful for employers to include post-employment non-compete clauses in employment contracts or require employees to enter post-employment non-compete agreements, and impose tangible consequences for doing so. Employers attempting to enter into a new employee non-compete or enforce an existing one will be subject to injunctive relief or the recovery of actual damages, or both, and reasonable attorneys' fees and costs if the employee prevails.

Employers who have entered into non-compete agreements with California employees after January 1, 2022, need to take further action by notifying those employees that those agreements are void under California law. The notice requirement applies to any non-compete clause in any employment contract or any non-compete agreement that would apply to an individual performing employment in California regardless of where and when the contract was signed. The notice must be: (1) made by February 14, 2024; (2) a written individualized communication to the employee or former employee; and (3) delivered to the last known address and email address of the employee or former employee. A failure to provide proper notice constitutes unfair competition and can result in a penalty of $2,500 per violation. The amendment does not specify exactly how the penalty is calculated, such as whether it is $2,500 for each employee or per clause or agreement. A violation of this requirement may also lead to the recovery of attorney's fees and costs.

While employers who have entered direct non-compete agreements with California employees should take action to comply with the new law immediately, the law also creates significant uncertainty for employers who have attempted to enter into other forms of restrictive covenants, such as non-competition agreements tied to trade secret protections or narrow employee non-solicit provisions, that have previously existed in a legal gray area under California law.

Non-Compete Clarity: California Employers Must Provide Notice of Non-Competes to Employees By February 14, 2024 | JD Supra

New California laws intended to strengthen the state’s long-standing ban on non-competition agreements are set to create immediate headaches for...

www.jdsupra.com

 

[zddoodah]

"Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." Cal. Bus. & Prof. Code section 16600(a). The exceptions generally apply only to the sale of business interests.

Codes Display Text

leginfo.legislature.ca.gov

 

[adjusterjack]

What if they wanted to make me an independent contractor - would that change anything?

No.

16600 starts by applying to "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.

Codes Display Text

leginfo.legislature.ca.gov

Provide a copy of the statute to your prospective employer.