Changes to Business & Professions Code in 2024 – California Tightens the Screws on Employee Noncompete and Nonsolicitation Clauses

12.27.2023

Two new California laws going into effect on January 1, 2024, will further strengthen the State’s prohibition against noncompete agreements and create new potential liability for employers who require their employees to sign noncompete agreements or attempt to enforce existing noncompete agreements against former employees.  While California has long observed a strong public policy in favor of employee mobility, the Legislature’s latest efforts go further than ever before.

Assembly Bill 1076, which will amend Section 16600 and add California Business & Professions Code Section 16600.1, strengthens California’s prohibition on noncompete and nonsolicitation provisions in an employment context and imposes a notice requirement on employers.  Senate Bill 699, which will add California Business & Professions Code 16600.5, makes it a civil violation for employers to even attempt to enforce a void noncompete or nonsolicitation provision regardless of where and when the contract was signed.

Although the new laws raise questions that the courts will likely be called upon to answer, a few things are relatively certain:

• Except for certain narrow statutory exceptions, employers cannot use noncompete agreements or similar restrictive covenants to prevent former employees from competing against or soliciting the employer’s customers, even for additional consideration.
• Except for certain narrow statutory exceptions, employers very likely cannot use noncompete agreements or similar restrictive covenants to prevent former employees from soliciting their current employees.
• By February 14, 2024, employers must notify current employees and former employees (employed after January 1, 2022), whom the employer required to sign noncompete or customer nonsolicitation provisions, that those provisions are void under California law.^[1]
• Entering into or even attempting to enforce a void noncompete or nonsolicitation provision in California may entitle affected employees to injunctive relief, actual damages, or both; and potentially attorney’s fees and costs if the employee prevails.

Over the coming weeks, AALRR’s Intellectual Property Team will post a series of client alerts explaining in more detail how these laws affect employee mobility and why employers need to lean on their intellectual property portfolios more than ever to remain competitive and protect valuable company assets and goodwill from unfair competition and former employee misconduct.  Our next post will discuss the limited statutory exceptions to the new laws and the uncertain status of prior judicial exceptions, such as the so-called trade secret exception.  If you are an employer, you should be asking yourself:

• Whether any of your onboarding documents contain unlawful restrictive covenants;
• Whether you are required to send personalized notices to current and former employees about void noncompete, customer nonsolicitation, and possibly employee nonsolicitation clauses by February 14, 2024, and if so, how to craft these notices so that they do not unnecessarily invite litigation;
• How these laws affect your operations outside California;
• Whether you can use a trade secret provision and lean on other company intellectual property rights to prevent former employees from unfairly competing for and soliciting your existing customers; and
• What measures you can take to prevent former employees from “raiding” your remaining employees?

If you have questions or are wondering whether you should update the restrictive covenants in your employment agreements or employee confidentiality and intellectual property agreements, please contact the authors of this Alert or your usual AALRR attorney and trusted advisor.  If you find yourself or your company in a dispute related to these new laws, our Intellectual Property Team is uniquely positioned to advocate on your behalf.  California’s strong policies in favor of employee mobility have significantly diminished the recourse employers can obtain against former employees.  Despite these changes, intellectual property remains a steadfast tool for keeping your company’s valuable assets and goodwill intact during times of high employee turnover.  AALRR's Intellectual Property Team consists of experts in trade secret, patent, copyright, trademark, and trade dress law supported by a robust employment law group that has served all types of companies and organizations in myriad industries in California for decades.    

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^[1] Subject to California’s narrow set of statutory exceptions, which generally do not apply in the typical employer-employee context.  See CA Bus. & Prof. Code §§ 16601, 16602, 16602.5.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR publication does not create an attorney-client relationship. AALRR is not responsible for inadvertent errors that may occur in the publishing process.   

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