California experienced a significant shift in its employment landscape on January 1st, 2024, as Senate Bill 699 (“SB 699”) and Assembly Bill 1076 (“AB 1076”) came into effect. These bills amended California’s Business and Professions Code (“BPC”) §16600, ushering in even more employee freedom and enhancing California’s stance surrounding noncompete agreements.
BPC §16600: The original BPC §16600 states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This broad language applied to a diverse range of individuals and entities, including employees, independent contractors, and business owners, establishing California as a jurisdiction with one of the most pro-employee and pro-competition statutes in the country.
Judicial Interpretation: California courts consistently interpret BPC §16600 broadly, emphasizing the significance of employee mobility and the freedom to pursue chosen professions. Landmark cases like Edwards v. Hollywood Fanfare Corp. (1979) reinforce the state’s commitment to upholding individual opportunities and fostering a dynamic and competitive marketplace.
Exceptions: Few exceptions in BPC §16600 exist, including restrictive covenants applicable to the sale or dissolution of corporations, partnerships, and limited liability companies (Cal. Bus. & Prof. Code §§ 16601, 16602, and 16602.5). Otherwise, any agreement that limits an individual from pursuing a lawful profession, trade, or business is considered void.
Recent Amendments: SB 699 and AB 1076: SB 699 and AB 1076 brought substantial amendments to BPC §16600, introducing new sections (BPC §§16600.5 and 16600.1) aimed at strengthening employee rights and penalizing companies enforcing noncompete agreements deemed void under the statute.
SB 699 and BPC §16600.5. This amendment broadens the geographical scope of California’s noncompete restrictions, encompassing agreements signed out of state with non-California companies. It introduces robust enforcement mechanisms, prohibiting companies from entering into such agreements and categorizing attempts to enforce them as a civil violation. Noncompliant employers may face financial penalties, injunctive relief, legal fees, and other sanctions.
AB 1076 and BPC §16600.1. AB 1076 complements SB 699 by codifying existing case law and deeming it unlawful to include noncompete clauses in employment contracts. It mandates companies to provide individualized notices to current and former employees by February 14, 2024, exposing noncompliant employers to civil penalties and reputational damage.
Implications for Employers: California-based employers are strongly advised to promptly review all agreements with current and former employees or independent contractors. While the February 14, 2024 deadline has passed, best practice takes the approach of delivering notice, even if late. Providing notice, even after the deadline, would likely moot a claim and discourage any allegations of willfully disregarding California law.
For more information regarding noncompete compliance and to find out whether you are subject to the requirements of California’s Business and Professions Code §16600, please contact Mason Goodman at Fonss & Estigarribia LLP at mng@fellplaw.com and (858) 746-6497.
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