818.501.4343October 11, 2024
California has always been a state in which non-compete agreements don’t have much power. The stringent restrictions on these agreements that were in place for years became even stricter in January 2024 with the passing of two amendments, S.B. 699 and A.B. 1076.
These amendments codify and clarify California’s stance on non-compete agreements and extend the ban to out-of-state contracts. At the same time, they require that employers notify employees by February 2024 if they’ve signed a contract that contained a non-compete provision.
Thanks to these changes, employees have rights of action if their employers don’t comply with the new laws. To protect your rights as an employer, it’s important to have a clear understanding of the risks and why you may need an employment defense attorney to help you navigate the new landscape of voided non-compete agreements.
Understanding the Changes S.B. 699 and A.B. 1076 Brought
These two amendments impact California Business & Professional Code (CBPC) Section 16600, which already held that any contract that would restrain someone from working in a trade or business is void except for a few exceptions. The amendments serve to expand the protections employees enjoy.
California Senate Bill 699 (S.B. 699)
S.B. 699 prohibits employers from enforcing or entering into any non-compete agreements that would be void under CBPC Section 16600, regardless of when or where the agreement took place. This includes out-of-state contracts.
Even if an employee works outside of California on behalf of a California company, the non-compete is voided if they move to the state — where they signed the contract makes no difference.
S.B. 699 clearly states that employers who attempt to enter into or enforce this kind of contract are committing civil violations. Employees have the right to sue their employers or former employers for these violations and receive remedies that include the coverage of attorney fees, injunctive relief, and monetary damages.
Although the amendment is meant to benefit the state’s economy by making it easier for California residents and remote workers to find work, it raises Constitutional issues regarding the impact it has on residents of other states. If you’re being sued for out-of-state contracts, it’s a good idea to hire an employment defense attorney.
Assembly Bill 1076 (A.B. 1076)
A.B. 1076 codifies California Supreme Court case law that voids non-compete agreements unless they meet clearly defined exceptions. These exceptions are all related to the sale of the goodwill or a significant ownership stake in the business. The majority of non-compete agreements don’t meet such exceptions.
The amendment also expands CBPC Section 16600 to cover third parties not included in the contract, a provision meant to avoid no-hiring agreements between companies.
A.B. 1076 requires that employers identify employees who worked with them after January 1, 2022, and who live in California and let them know that their employment agreement contained an invalid clause. Employers must let these employees know that the company won’t enforce that clause.
Companies that failed to comply with this amendment, which had a deadline of February 14, 2024, could face lawsuits for injunctive relief, as well as civil penalties.
Next Step for Employers
With the passing of these amendments, it’s become necessary for all employers to not only notify pertinent employees but also to rework contracts, including those for out-of state workers.
If you’ve been relying on non-compete agreements to protect trade secrets or confidential information, it’s time to find other ways of doing so. This could mean creating a multifaceted approach to protecting information that won’t leave you exposed.
Because these amendments allow employees to file lawsuits against you, one of the best things you can do for yourself is to consult an employment defense attorney.
How an Employment Defense Attorney Can Help
Employment defense attorneys represent company owners and management teams dealing with employment issues, including lawsuits regarding non-compete clauses in contracts. Here are some of the ways they can assist you:
Making Sure You Know Your Responsibilities and Options
A qualified lawyer can help you better understand your responsibilities under these new amendments. They can also educate you on your options for protecting trade secrets or confidential information now that non-compete clauses are no longer legal.
Drafting New Contracts
With guidance from an attorney, you can draft contracts that remove all wording that could prompt a lawsuit. It’s essential to review all of your employee contracts for individuals who were on the payroll at any point after January 1, 2022, and who reside in California.
Additionally, your lawyer can offer guidance on whether you can and should include non-compete clauses in your contracts with remote employees.
Advising You on Compliance Concerns
If you failed to meet the February 14, 2024, deadline and didn’t notify your employees that the non-compete clauses in their contracts are void and that your business won’t enforce them, you could face consequences ranging from financial penalties to lawsuits.
Providing late notification is better than providing none at all, but it’s essential that you do so under an attorney’s supervision.
By issuing these notifications correctly, you can maintain better employer-employee relationships, even if they’re late. It’s also less likely that the government will take action against you because you’ve made an attempt to comply.
Preparing Defenses for Lawsuits
If you’re facing lawsuits from employees as a result of unenforceable non-compete agreements, it’s critical to retain an employment defense attorney. Your employees could claim significant damages from these lawsuits, and having a strong defense from the start can protect your business interests.
Stay Current on All New California Employment Legislation
Employment laws are constantly changing, and that means maintaining compliance isn’t always simple. One of the most effective ways to prevent issues that could impact your business is to work with an employment defense lawyer. They can alert you to relevant changes and spot issues before they become potential lawsuits.
If you are a California employer and are trying to navigate the non-compete agreement laws after the changes to S.B. 699 and A.B. 1076, the wisest course of action is to turn to a reputable employment defense attorney as soon as possible.
Our employment defense attorneys at Pearlman, Brown & Wax, LLP can help you understand your rights, draft good contracts, and defend your business. Call us today to schedule a consultation and protect your business from the changing California employment laws.