What California’s Latest Crackdown On Non-Compete Agreements Means For Employees
Around 40 percent of American workers face limitations in their career development and earning power due to an employer’s non-compete agreement.
Often under the guise of safeguarding a company’s protected information, these contracts restrict when and where employees can find work in their chosen industry, trapping workers in undesirable jobs and preventing them from making a competitive living wage.
Fortunately for workers in California, though, companies are forbidden from using non-compete agreements in the Golden State.
California’s labor law is one of the strictest in the nation when it comes to non-competes, which are generally considered invalid except in a few exceptional situations.
Despite the state’s long-standing ban, though, many California companies still use them, pressuring workers into entering into contracts and coercing them into compliance with the threat of legal action.
Now, new regulations approved by California lawmakers are cracking down on companies that use invalid non-compete agreements to manipulate and intimidate workers.
These two laws, scheduled to take effect in 2024, will strengthen California’s existing restrictions on non-compete agreements with expanded protections for workers and increased penalties for employers who flaunt the law.
In this blog post, we’ll define the current state of non-compete agreements under California labor, and explain the changes these two new bills bring.
We will also describe how workers who’ve faced an employer’s illegal non-compete agreement can get restitution with the help of an employment lawyer.
If you have questions about non-compete agreements, please contact the experienced California employment lawyers at Ottinger Employment Lawyers today.
What Does California Law Say About Non-Compete Agreements?
California’s labor law has taken a clear stance on non-compete agreements for over 100 years.
According to the California Business and Professions Code (Section 16600), any contract that restricts an individual from “engaging in a lawful profession, trade, or business” is void and invalid.
Since restricting employees from competing against a former employer is precisely what non-compete agreements do, they can’t be enforced under state law.
Non-compete agreements are usually included as part of employment contracts, but they can also be drafted as standalone documents.
A non-compete agreement can include a variety of different types of restrictions on an employee’s professional path. This can include prohibiting someone from taking a new job:
- For a certain period of time: e.g. 6-9 months after leaving their prior employer.
- In certain areas: e.g. working with companies within 50 miles of the city where a former employer operates is off-limits.
- With certain companies: e.g. a ban on working in overlapping roles with other businesses in the same industry as the former employer.
Historically, non-compete agreements were a tool for businesses to protect sensitive proprietary information, such as confidential intellectual property or trade secrets.
But today, non-compete agreements have increasingly become a tool for getting a leg up on competitors — despite the negative consequences that these agreements have for employees and the economy.
That’s why, apart from a few very limited exceptions, California refuses to enforce employer non-compete agreements.
The state labor code does carve out a few exceptional situations when these agreements can be used: for instance, between the parties involved in the sale of a business or a commercial partnership.
But these cases are limited and largely only apply to the owners or major stakeholders in a business — not rank-and-file employees.
New Rules For Non-Compete Agreements In California: Sb 699 And Ab 1076
Even though California places some of the nation’s strictest limitations on non-compete agreements, many companies still illegally pressure employees to sign them. And, unfortunately, many workers do — whether because they’re unfamiliar with state law or are afraid of retaliation at the hands of their employer.
It’s for that reason that lawmakers passed two new pieces of legislation aiming to curb the spread of illegal and invalid non-compete agreements in the state.
Let’s take a look at each of these laws, both of which will go into effect at the start of 2024, and what they mean for working Californians.
Sb 699: Ca Employees Protected From Out-Of-State Ncas
First, Senate Bill 699 expands California’s standing ban on non-compete agreements to include agreements signed by employees working outside of the Golden State.
This law specifically applies to workers who moved to California from another state, one where non-compete agreements are legally enforceable.
According to SB 699, no employer — whether they’re located within or outside of California — can require an employee currently working in the state to abide by a past non-compete agreement, even if it was legally enforceable when the worker signed it.
For example, consider the case of a dentist who moves from Nevada to take a new position in San Diego. While in Nevada, the dentist had signed a non-compete agreement as part of the employment contract required by her clinic.
When the Nevada employer learns that she’s taken a new job for a competing San Diego clinic, they threaten legal action, claiming that the dentist has violated her non-compete agreement.
Even if the dentist has technically broken the terms of the non-compete she signed in Nevada, now that she lives and works in San Diego, she is protected by California law.
Under SB 699, her Nevada employer’s non-compete agreement is considered invalid, and she can continue in her new role without legal repercussions.
Ab 1076: Companies Must Notify Workers Of Invalid Ncas
The next law, Assembly Bill 1076, is aimed at raising workers’ awareness about unlawful non-competes and combating deceptive practices companies use to keep them under the radar.
AB 1076 requires all employers to notify past and present employees who had illegal non-compete clauses included in their employment contracts, informing them that this portion of the contract is void under California law.
Since non-compete agreements are often hidden in fine print, it’s easy for employees to overlook them entirely. Many employers exploit this ignorance, and too often, workers don’t know what they’ve signed until it’s too late.
Even if an employer’s threats of legal action are empty, many workers don’t want to take the risk and simply comply out of fear.
AB 1076 offers a way of breaking this cycle of coercion. Under the new law, all California employers are required to disclose the use of illegal non-compete agreements to current and former employees in writing, both electronically and by mail.
And, once the law officially goes into effect at the start of 2024, they have only until February 14, 2024, to do so, or else risk legal penalties.
What To Do If You’re A California Worker Facing A Non-Compete Agreement
First and foremost: understand that if you work in California, your employer can’t enforce a non-compete agreement against you. This is the case whether you’ve signed the agreement — even if your employer threatens legal action.
Next, know your options. According to a 2019 report by the Economic Policy Institute, 45% of California businesses surveyed still ask employees to sign invalid non-compete agreements.
If your boss pressures you to sign a non-compete, you can report them to the California Attorney General’s office, who can issue fines and legal penalties for the unlawful use of non-compete agreements.
Importantly, starting in 2024, California employees will also be able to sue their employers for the improper use of non-compete agreements.
Before the adoption of SB 699, California Labor Code only considered employee non-compete agreements “void”: your employer might ask you to sign one, but the terms of the contract wouldn’t be enforced by a court if you chose not to follow them.
Now, SB 699 makes it illegal for employers to present workers with a non-compete in the first place. If a company does so anyway, they’re committing a civil violation and can be hit with additional legal penalties — including employee lawsuits.
Under this new law, California workers have the right to sue employers for the illegal use of non-compete agreements, with the potential to win financial recovery for damages and court fees.
Despite California’s strong workplace legal protections, employees are often hesitant to confront their employers about illegal non-compete agreements. That’s why in these situations, it’s best to consult an employment lawyer.
Connect with a California Employment Attorney Now
An experienced attorney can be a valuable asset and support when you’re navigating a dispute with an employer.
They can help you understand the specific state laws that apply in your case, advise you on the best course of action, and even represent you in court.
Ottinger Employment Lawyers has been helping employees in California and beyond fight unfair and invalid non-compete agreements since 1999.
If you’re facing a non-compete agreement, contact our team of experienced attorneys to discuss the details of your case today.
Robert Ottinger, Esq.
Robert Ottinger is an employment attorney who focuses on representing executives and employees in employment disputes. Before starting his firm, Robert slugged it out in courtrooms trying cases for the government. Robert served as a Deputy Attorney General for the California Department of Justice in Los Angeles and then as Assistant Attorney General for the New York Attorney General’s Office in Manhattan.
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