No later than Valentine’s Day 2024, California employers will be required to send “candy grams” to former and existing employees with unenforceable non-competes informing them that those provisions are void. Complicating this new legal requirement is an expanded definition of what constitutes an unenforceable non-compete and the creation of a new legal claim that can be brought against an employer who pursues enforcement of an invalid non-compete.
California has long prohibited most non-compete agreements. Since 1941, California law has rendered them invalid except under very limited circumstances (mostly involving the sale of a business). California courts have issued a long series of rulings clarifying what constitutes an unenforceable non-compete and what limited exceptions to this prohibition entail.
Effective January 1, 2024, a new law, AB 1076, forbids California employers from entering into non-competes with any of their employees unless they expressly fall into one of the narrow exceptions allowed by California law.
Equally important, a California employer who attempts to enforce an invalid non-compete – even one that was signed outside of California and is otherwise governed by and fully enforceable under the laws of another state – will be at risk of being sued under a new legal claim. SB 699 creates for the first time a private cause of action permitting a former or existing employee to be awarded damages, injunctive relief and attorney’s fees and costs when challenging an invalid non-compete and exposes that same employer to liability based upon an unfair competition claim.
Finally, no later than February 14, 2024, employers must send individual notices to all current and former employees (if they were employed after January 1, 2022) informing them that their non-competes are void under California law.
In light of these new developments, the following open questions remain unanswered:
- Will a non-California employee who is subject to a valid non-compete be able to escape from that prohibition by moving to California?
- Are California employers actually prohibited from requiring their non-California employees from entering into non-competes that are otherwise fully enforceable in states where those employees live and work?
- Does this new law also prohibit agreements forbidding non-solicitation of customers and employees? As of now, consistent with prior court decisions, it certainly seems that customer non-solicits are prohibited as well.
- Can a California employer still try to rely upon Labor Code section 925 by entering into an employment agreement containing a non-compete with another state’s choice of law provision when that employee is separately represented by their own legal counsel?
What steps must employers take right now in order to comply with these new laws?
- Make sure your legal counsel reviews all existing non-competes to determine if they must be revised.
- Prepare a list of individuals who must be contacted by February 14th to inform them that their non-competes are void along with a letter meeting this notice requirement.
- Don’t automatically assume that every applicant with a non-compete will be prohibited from working for your company. Consult your lawyer to do an individual assessment as the need arises.
- Finally, given the open questions listed above, we strongly recommend that you consult with legal counsel to determine what, if any, circumstances going forward will your company have the legal right to require new employees to sign a non-compete particularly those employees working remotely outside of California.
For more information, contact Steve Hirschfeld or Greg Glazer. Steve can be reached at 415-835-9011 or firstname.lastname@example.org, and Greg can be reached at 310-255-1830 or email@example.com