California is one of the nation’s fiercest opponents of non-compete clauses in employment contracts. Business & Professions Code §16600, which harkens back to 1872, declares that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business” is void. Historically, the state recognized only a few narrow exceptions, such as the sale of a business or the dissolution of partnerships, where non-competes played a role in protecting the value of acquired assets or business goodwill. But in the vast majority of employment settings, non-competes have been unenforceable.

The addition of Business & Professions Code §16600.5 in 2024 has made the state’s ban even more absolute. This section extends the ban to “de facto” non-competes, such as confidentiality or non-solicitation clauses that would functionally bar an employee from working elsewhere. The law clarifies that these restrictions cannot be imposed on any worker, regardless of title, industry, or compensation level. The measure thus forecloses creative drafting that might otherwise have skirted the spirit the law. 

With the bar set higher than ever, California employers must take affirmative steps to comply. The most immediate and pressing obligation is to notify current employees and certain former employees that any non-compete clause — regardless of when or where signed — is void and unenforceable. This requirement applies not only to non-competes in offer letters and employment agreements but also to any language that could be interpreted as a de facto restraint on employment. Severance packages and other post-employment contracts are likewise subject to scrutiny.

Non-compliance carries significant risks. Employers face civil penalties, individual or class-action litigation by affected employees. They also are subject to reputational damage within California’s labor market and potentially increased oversight by the state Labor Commissioner. Furthermore, mishandling this issue can erode trust among staff and may impede recruiting and retention efforts.

To avoid these pitfalls, California employers should conduct a comprehensive audit of all employment-related contracts to identify and revise any problematic language. Confidentiality and trade secret agreements should be narrowed to protect business interests without amounting to a functional work ban. HR professionals, hiring managers and legal teams must be trained on compliant language and alternative retention strategies that do not rely on restrictive covenants. This may include fostering a positive workplace culture, offering competitive benefits and creating clear paths for advancement.

The intricacies of California’s non-compete ban demand expert guidance. Employers should seek out an experienced employment contracts attorney to assist with contract review, compliance planning and, if necessary, defense against litigation. 

Garcia & Gurney A Law Corporation ALC in Pleasanton represents businesses in negotiating, reviewing and drafting employment contracts and litigating contractual disputes. For capable legal assistance in Alameda and Contra Costa counties, call 925-468-0400 or contact us online.