New legislation coming into effect in 2024 could have CA employers facing greater risks when it comes to using and enforcing non-compete agreements. Ryan Abernethy and Nikki Mahmoudi discuss the enforceability of non-compete agreements in this installment of California Employment News.
Watch this episode on the Weintraub YouTube channel here.
Show Notes:
Ryan:
Hi, everyone. Thank you for joining us for this installment of California Employment News, an informative video resource offered by the Labor and Employment Group here at Weintraub Tobin. My name is Ryan Abernethy, a senior attorney here in the group. And I’m joined today by Nikki Mahmoudi, an associate in the group. And today we’re going to be discussing non-compete agreements in California. Nikki, can you tell me a bit about non-compete agreements here in the state?
Nikki:
Of course. So, first I’ll start explaining what a non-compete agreement is. So, in the employment context, a non-compete agreement is a contract where an employee agrees not to compete with their employer, for instance, for working for a competitor for a specified period of time if the employee quits or is terminated. So, in California, under Business and Professions Code Section 16 600, noncompete agreements are not generally enforceable. But there are some limited statutory exceptions, and those include against existing employees or against the seller of a business. So it’s nothing new that non-compete agreements are generally not enforceable in California. But in September of this year, Governor Newsom signed SB 699 into law, which will bolster California’s prohibition of non-compete agreements. Ryan, can you tell me a little bit about SB 699?
Ryan:
Sure. So, SB 699 is brand new law. It’s going to go into effect on January 1, 2024. It’s going to be codified into the business and professionals code section. And essentially, what it does, it codifies some existing law and also extends the reach of California’s restriction on non-compete agreements in several substantial ways. So, first, the new law provides that any contract that would be void under Business and Professions Code 1600, which is the old law that that is unenforceable even if the agreement was signed out of state under SB 699. In addition, it also prohibits employers and former employers from attempting to enforce a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California. In addition, SB 699 prohibits employers from entering into a contract with a job applicant or employee that includes a provision that is unenforceable under section 16 600. And finally, and perhaps most significantly, in addition to the fact this is now reaching out of state, SB 699 creates a private right of action for employees, former employees, prospective employees, to sue their employers and any employer who violates the statute.
And should they prevail, they can recover their actual damages, they can obtain injunctive relief, they can obtain attorney’s fees. So while employers primary risk used to be that their non competes wouldn’t be enforceable under SB 699, this creates the additional liability for employers for merely entering into the unenforceable non-compete agreement in the first place. So, Nikki, are there any other takeaways that employers should be aware of?
Nikki:
Yeah. So with SB 699 coming into effect in 2024, California employers face greater risks when having employees sign these non-compete agreements or seeking to enforce such agreements. So employers should really make sure to review their employee contracts and practices and ensure they comply with this business and profession. Code section 1616 600.5. Of course, if faced with any questions, it’s always a good idea to contact Council.
Ryan:
Thanks so much, Nikki. And thank you all joining us today. That does it for this presentation. And you can continue to find California employment news on our blog at thelelawblog.com and wherever you listen to your favorite podcasts. And we’ll see you next time. Thank you.
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