New Employment Laws in California: non-competes and anti-solicitation
California has recently enacted new employment laws. One of which being three new statutes concerning non-competes and anti-solicitation.
Assembly Bill 1076 and Senate Bill 699.
California has expanded upon its already-strict prohibition on non-compete provisions. The following changes impact those of you based in California and those of you outside California working with employees, artists, clients, or crew based in California.
Notice to employees of non-enforcement of non-competes. Employers must notify all current employees and all former employees who were employed after January 1, 2022, and who are subject to a non-compete provision,* that such provision is void. The notice must be a written, individualized communication to the employee or former employee. It must be sent by mail and email using the last known contact information. The deadline to provide notice was February 14, 2024. Employers are advised to comply as soon as possible. Failure to comply is a violation of B&P Section 17200 and exposes the employer to injunctive relief, civil penalties, and restitution. * For these purposes, the statute defines a non-compete as any provision “by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind … .”
Possible invalidation of anti-raiding and non-solicitation agreements. The new laws appear to encompass anti-raiding and non-solicitation agreements. We expect future litigation to test the boundaries of the application of the laws. However, based on language that the statute “shall be read broadly,” we recommend that members revisit any NDAs, anti-raiding provisions, and agreements not to solicit employees OR clients. Members should discuss the provisions with their attorneys to assess their impact in restraining a lawful profession, trade, or business.
Possible invalidation of non-competes with non-employees. The new laws may extend to non-compete agreements with non-employee commercial or business partners, including without limitation independent contractors and vendors, based on language that the prohibition “shall not be limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.” We expect future litigation to test the boundaries of the application of the laws in this regard as well. However, notice of unenforceability is not required for non-employees.
Impact on non-California businesses. The new laws impact out-of-state businesses that conduct business in California. The new laws apply “regardless of whether the contract was signed and the employment was maintained outside of California.” The laws’ reach appears to extend to employment agreements applying another state’s laws, and to provisions that impact employees working in California or who move to California. We expect there to be legal challenges to the constitutionality of these laws. In the meantime, members should consult with their attorneys if they have any non-compete, anti-raiding, or non-solicitation provisions that cover or apply to California employees or business partners.
New potential damages and remedies. The new laws make it affirmatively unlawful to (i) include in any contract or (ii) attempt to enforce any provision that is void under the new laws. Under the new laws, an employee, former employee, or prospective employee may sue for injunctive relief and actual damages and recover attorneys’ fees and costs.
Below is language you could use in the body of your email when reaching out to employees and former employees. This language comes from our lawyer.
Dear [NAME]:
You are receiving this notice because you are a current or former employee of [COMPANY]. Pursuant to California Business and Professions Code Section 16600.1, this notice informs you that any non-compete or non-solicitation clauses you may have signed in connection with your employment with [COMPANY] are void and will not be enforced by the company. Should you have any questions, you may contact [NAME] at [INFO.]
