Effective January 1, 2024, California will further restrict the use of post-employment covenants
not to compete by authorizing lawsuits against employers who include or seek to enforce void
non-compete provisions. In its statement of legislative purpose, the legislature found:
“California’s public policy provides that every contract that restrains anyone from engaging in a
lawful profession, trade, or business of any kind is, to that extent, void, except under limited
statutory exceptions. California has benefited significantly from this law, fueling competition,
entrepreneurship, innovation, job and wage growth, equality, and economic development.” The
legislature found that California employers continue to include such non-compete clauses,
which has a chilling effect on employee mobility. The legislature also found that due to the trend
toward remote work and national efforts to recruit talent, out-of-state employers continue to
include and seek to enforce non-compete provisions.

In response to these issues, the legislature passed and Governor Newsom signed into law
Senate Bill 699, which adds new California Business and Professions Code Section 16600.5:

1. Any contract that is void under California Business and Professions Code Section 16600
   is unenforceable regardless of where and when the contract was signed.
2. An employer or former employer “shall not attempt to enforce” a contract that is void
   regardless of whether the contract was signed and the employment was maintained
   outside of California.
3. An employer shall not enter into a contract with an employee or prospective employee
   that includes a provision that is void under this chapter.
4. An employer that enters into a contract that is void or attempts to enforce a contract that
   is void commits a civil violation. An employee, former employee, or prospective
   employee may bring a private action to enforce this chapter for injunctive relief or the
   recovery of actual damages and is entitled to recover reasonable attorney’s fees and
   costs.

See https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB699

California Business and Professions Code Section 16600.5 expands an employer’s potential
liability for merely including and for seeking to enforce non-compete and non-solicitation
provisions. California Business and Professions Code Section 16600.5 also precludes
employers outside of California from enforcing non-compete provisions for employees who
work in California. We anticipate more litigation under California Business and Professions
Code Section 16600.5 challenging non-compete provisions and seeking injunctive relief and
attorney’s fees and costs.

What does this mean for employers?

Prior to January 1, 2024, California employers should review their employment agreements,
offer letters, employee handbooks, and policies and consider removing all void non-compete
and non-solicitation restraints from such policies. Employers are advised to consult with
counsel when considering seeking to enforce or oppose any non-compete or non-solicitation
restraints.

For advice and representation in any employment law matter, contact Garcia & Gurney, A Law Corporation ALC online or by calling 925-468-0400.