California’s Laws on Non-Compete Clauses: What Employers and Employees Need to Know:
Written by Rosabel Kamali - January 15, 2025
Non-compete clauses are a common feature in many employment contracts, typically designed to prevent employees from joining competing businesses or starting their own ventures after leaving the company. However, in California, these clauses are subject to strict legal limitations, with recent updates further reinforcing employees’ rights. Below is an overview of California’s laws regarding non-compete clauses, including the latest changes that both employers and employees should be aware of.
Definition and Purpose:
- Non-Compete Clauses in California: Under California law, particularly Business & Professions Code § 16600, any contract that restricts an individual from engaging in a lawful profession, trade, or business is considered void. This means that employers cannot enforce non-compete clauses that prevent employees from taking jobs with competitors or starting their own businesses after leaving the company. The primary purpose of this law is to protect workers’ right to pursue their careers without unnecessary restrictions, promoting free competition and innovation.
- SB 699: This legislation extends California’s non-compete protections beyond the state’s borders. SB 699 prohibits employers and former employees from attempting to enforce non-compete clauses in contracts, regardless of where the contracts were signed—whether within California or outside the state. The bill solidifies California’s position on non-compete clauses, ensuring that they are unenforceable if the employee is working within California.
Recent Legal Updates:
- New Notification Requirement (2024): Starting January 1, 2024, California law adds an important requirement for employers with Business & Professions Code § 16600.1(b)(1). Employers must notify current or former employees who were employed after January 1, 2022, if their contracts contain a non-compete clause. If the non-compete clause does not meet specific exceptions, employers must inform employees that the clause is void. This notice must be delivered to the employee by February 14, 2024, in writing—both via the employee’s last known address and email.
- This new requirement is designed to protect employees who may not be aware that their non-compete agreements are unenforceable under California law. It provides a clear communication to employees that their rights are being respected and helps prevent future legal disputes over non-compete clauses.
Enforceability and Exceptions:
- Enforceability of Non-Compete Clauses: California’s strict stance on non-compete clauses means that, in most cases, these clauses are unenforceable. The law prioritizes the ability of individuals to change jobs or start new businesses without facing restrictive legal barriers. However, there are some exceptions, including clauses related to the sale of a business or certain situations involving the protection of trade secrets.
- Employer Responsibilities: Employers are required to comply with the latest notification laws, informing employees about the unenforceability of non-compete clauses. If they fail to do so, they may face legal consequences for attempting to enforce void contracts.
Impact on Employers and Employees:
- For Employers: Companies need to be aware of California’s strong legal position on non-compete clauses. Employers should ensure that their employment contracts are in line with state law, particularly as it relates to non-compete clauses, and make necessary updates to prevent future complications. Additionally, employers must comply with the new notification requirements for any employees whose contracts include non-compete clauses.
- For Employees: Employees should be aware of their rights under California law. If they are bound by a non-compete clause that was signed after 2022, they may be entitled to a notification that the clause is void. Understanding these legal protections empowers employees to seek new job opportunities or start their own businesses without fear of legal repercussions.
Conclusion:
California’s approach to non-compete clauses is clear: they are generally unenforceable. Recent legislative updates, including SB 699 and the new notification requirement effective in 2024, further strengthen employees’ rights and provide clearer guidance to employers. Whether you’re an employer or an employee, understanding these laws is essential to navigating California’s competitive job market. Employers should review their employment contracts, while employees should be aware that they are not restricted from pursuing new professional opportunities within the state.
Contact Our Employment Law Experts Today If you’re an employer or employee in California and need guidance on non-compete clauses or employment contracts, our team of experienced employment law attorneys is here to help. Contact us today for a free consultation to ensure your rights are protected and your business is compliant with California’s employment laws.