With the new year, California employers face a changed legal landscape that impacts noncompete agreements with employees, with some new legal requirements having a short deadline for personalized communications to certain employees. These legislative changes, effectuated by the passage of SB 699 and AB 1076, reflect the state of California’s continuing opposition to noncompete agreements with employees.

A Ban With Limited Exceptions

While noncompete agreements for employees have generally been unenforceable in California for some time, as of January 1, 2024, SB 699 now makes it unlawful to require an employee to sign a post-employment noncompete agreement or to include a post-employment noncompete clause in any employment agreement (including severance agreements) in California with limited exceptions. Any attempt to enforce a noncompete agreement or provision, even if the contract was signed outside of California and the employment was maintained outside of California, will now be considered an unfair business practice.

The term “noncompete” includes any provision that restricts an employee’s ability to engage in a lawful profession, trade or business. It encompasses not only direct noncompete provisions but also provisions that prohibit solicitation of customers unless it is limited to proprietary or trade secret information and may include provisions which prohibit employees from soliciting other employees.

The limited exceptions when a noncompete agreement or provision is enforceable typically involve the sale of a business or dissolution of a partnership or limited liability company. Even in these cases, however, the noncompete provision must be narrowly defined.

Notice Required by February 14, 2024

If an employer has entered into an unenforceable noncompete provision (in any type of agreement) with any current employee or any employee who was employed after January, 1, 2022, employers must notify the employee in writing no later than February 14, 2024, as mandated by AB 1076, that the noncompete provision is unenforceable.

The written notice must be individualized for each employee, rather than sent as a mass mailing.  Employers are advised to consult with employment law counsel for guidance on whether these new laws impact their employment agreements, whether any exceptions apply, whether a notification is required, and the content, timing and method of making any required notification. 

California employment law is ever-changing, usually placing new burdens or obligations on employers. The latest change to state law related to noncompete agreements are just the latest example. It is advisable for employers and their in-house counsel to work with knowledgeable outside counsel focused on the latest changes in the law who can provide clarity and guidance.