New Laws in California Strengthen and Amend Restraint of Trade and Enforceability of Non-Competition Agreements

On January 1, 2024, several new laws took effect in California that will strengthen and amend California’s Bus. & Prof. Code 16600 regarding restraint of trade and the enforceability of non-competition agreements. As discussed in a prior Client Alert, the new statutory law will make it unlawful to include a noncompete provision in an employment agreement or require an employee to enter into a noncompete agreement that does not satisfy specified exceptions.

The new California enactments go beyond making non-competition agreements generally unenforceable. The enactments permit current and former employees, including prospective employees, to commence litigation seeking injunctive relief and damages, as well as reasonable attorneys’ fees and costs, if their employer proffers to them a proposed contract, or attempts to enforce a contract, that includes impermissible provisions limiting or prohibiting competition. 

To avoid law suits and liability, employers would be advised to:

• Refrain from including post-contract restrictions to deter employees from competing.
• Examine their use of non-competition restrictions with employees who have ties to California, regardless of whether the initial employment and agreement governing that employment occurred outside of California.
• Review and consider updating employment offer letters and agreements containing restrictive covenants, to properly address updated California law in order to avoid potential liability.  
• Send formal, express notice to current and former California-based employees hired as of or following January 1, 2022 who have existing non-competition agreements limiting their post-employment activities, informing them that the restrictions contained in their agreements are now void and no longer valid. Notice must be sent to an employee’s last known address and email address on or before February 14, 2024.

Our Labor & Employment and Executive Compensation & Employee Benefits teams can assist in reviewing proposed offer letters, restrictive covenants agreements and other contracts, identifying provisions that might contain impermissible language, revising those agreements and preparing compliant notification to employees, as may be required, under California law or other jurisdictions.

For more details regarding this new legislation, read our Client Alert below.