Introduction

California strictly prohibits non-compete agreements.  Most other states allow them, but California has banned them since 1872.

What Is A Non-Compete Agreement?

A non-compete agreement is a contractual provision that prohibits an employee from working for a competitor after their employment ends.  For example, if you work for baking company, a non-compete agreement would prohibit you from working for another baking company for a year after leaving your current employer.  

California Prohibits Non-Compete Agreements

California has banned non-compete agreements and employers that try to use them can be sued for damages, penalties and legal fees.  Non-compete agreements are strictly prohibited in California even if they are entered into in other states or governed by another state’s law.   For example, if you work in California for a New York based company with a non-compete clause contract governed by New York law, that provision is void and unenforceable.  If you live in California, your employer cannot subject to the laws of another state.   See California Labor Code Section 925.  Key points of California law include:

  • General Prohibition: Under California Business and Professions Code Section 16600, any contract that restrains someone from engaging in a lawful profession, trade, or business of any kind is void.
  • Penalties and Liability:  Not only are non-compete agreements void in California, companies that use them are liable for damages and penalties. 
  • Exceptions: The only notable exceptions to this prohibition are non-compete agreements made in the context of the sale of a business or the dissolution of a partnership. Even these are subject to strict scrutiny to ensure they do not unfairly limit competition.
  • Employee Mobility: California prioritizes employee mobility, allowing workers to freely move between jobs and engage in competitive employment.
  • Non–Compete Agreements under Other State Law:  Even non-compete agreements entered in other states are void if the employee is in California.
  • Notice to Employees:   Companies that have non-compete agreements in place are required to notify employees that the agreements are void.   Notice must have been by February 14, 2024 and failure to do so subjects the company to a $2,500 fine for each employee. 

Recent Developments And Law Changes

The legal landscape surrounding non-compete clauses has seen several significant developments. These changes highlight a trend toward limiting the enforceability of non-compete agreements to promote worker mobility and fair competition in the state of California.

  • Expansion of Restrictions: Effective January 1, 2024, SB 699 reinforces that non-compete agreements are unenforceable in California, regardless of where and when they were signed. This bill prevents employers from enforcing such agreements even if the employment was maintained outside of California and the employee later moves to California​
  • Broad Interpretation of Section 16600: Effective January 1, 2024, AB 1076 clarifies that any non-compete clause in employment contracts is unlawful unless it fits within very narrow statutory exceptions. This codifies the California Supreme Court’s decision in Edwards v. Arthur Andersen LLP​.
    • Notice Requirements: By February 14, 2024, employers must notify current and former employees (employed after January 1, 2022) if their agreements contain void non-compete clauses. This notice must be in writing and sent to the employee’s last known physical and email addresses​ 

California Case Law

Recent court decisions in California have reinforced the state’s strong stance against non-compete clauses:

  • Edwards V. Arthur Anderson: In this landmark 2008 case, the California Supreme Court reaffirmed the state’s prohibition on non-compete clauses. The court ruled that non-compete agreements are generally void in California, even if they are reasonable and limited in scope. This decision has had a lasting impact, solidifying the unenforceability of non-compete agreements in the state.
  • Golden V. California Emergency Physicians Medical Group: In this 2015 case, the Ninth Circuit Court of Appeals held that even a waiver of the right to work for competitors, which was part of a settlement agreement, was void under California law. This case extended the prohibition to various forms of agreements that could indirectly restrict an individual’s employment opportunities.

We Can Help You With Your California Non-Compete Agreeemnt

Our firm has been helping executives with non-compete agreements since 1999.  If you have a question about a non-compete agreement, we can help you understand your rights and options.   In California, the law is on your side because state law prohibits them.  

Conclusion

California’s prohibition of non-compete clauses reflects its commitment to promoting a competitive and dynamic job market. While the state’s approach is unique, it is influencing broader discussions and potential reforms across the United States. Employers and employees alike must stay informed about these developments to navigate the complexities of non-compete agreements effectively.