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California Alert: New Prohibitions and Penalties Concerning Noncompetition Clauses
Effective January 1, 2024, California Business & Professions Code Section 16600.5 (via Senate Bill 699) was added to prohibit an employer from entering into or attempting to enforce a noncompete agreement regardless of whether the contract was signed outside of California. Please note that nonsolicitation of clients and customers clauses have frequently been used by employers but, in fact, those types of provisions may be found to be disguised noncompetes (unless they are narrowly tailored for protection of the employer’s trade secrets).
In addition to the expanded scope of California’s prohibition on noncompetition agreements / clauses, new legislation requires employers to provide affirmative notice to current or former employees concerning any applicable agreements or provisions which violate the noncompetition law. Specifically, in another piece of new legislation effective January 1, 2024, Business and Professions Code Section 16600.1 (via Assembly Bill 1076) provides that, by or before February 14, 2024 (yes, you read this right, Valentine’s Day!) written notices must be sent to current employees and former employees who were employed after January 1, 2022, that any noncompete clauses or agreements previously entered into are void.
The downside ramifications of failing to comply with these laws are several including (1) a finding of unfair competition; (2) violation of Labor Code Section 432.5, which in turn could open the employer to a Private Attorney General Act (PAGA) action; and (3) prevailing employee attorney’s fees and costs (Cal. Bus. & Prof. Code Section 16600.5(e)).
Scherer Smith & Kenny LLP would welcome the opportunity to assist you in reviewing your employment agreements and contracts in light of California’s recent legislation concerning noncompetition restrictive covenants, including the potential need for and preparation of AB 1076 notices. For additional information, please contact Denis Kenny at denis@sfcounsel.com, Ryan Stahl at rws@sfcounsel.com, John Lough, Jr. at jbl@sfcounsel.com, or Jaclyn Tran at jaclyn@sfcounsel.com.
