For companies with employees in California, it has long been accepted practice that noncompete
provisions in employment agreements are unenforceable. California courts have ruled that such
provisions are invalid under California’s general prohibition against restraints of trade (Ca. Bus. and
Prof. Code Sec. 16600). California has now adopted a law that codifies this general understanding and
goes two steps further — it makes such provisions illegal, and provides employees a cause of action
to sue if they are subject to such provision (new Ca. Bus. and Prof. Code Sec. 16600.1 and 16600.5).
Under the new law, which went into effect on
January 1, 2024, an employer is prohibited from
entering into a contract with an employee or prospective employee that includes a noncompete provision, which may also include provisions prohibiting solicitation of clients, vendors and/or employees. If an employer does so, it is a civil violation, subject to fines and penalties. Also, an employee who is subject to a prohibited noncompete provision (unless notified that the provision is void, as explained below), may sue their employer (or prior employer) for injuctive relief or for damages, if the
employee has suffered losses due to such provision. An employee who prevails in such a lawsuit shall also be entitled to recover legal fees and costs.
In addition, under the new law, any employer who
has a current employee in California, or a former
employee in California employed after January 1,
2022, whose employment contract includes a noncompete provision, or who was required to enter
into a noncompete agreement, must send notice
to the employee that such provision is void.
Specifically, the new statutory provisions require
that the notice:
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- Be in writing;
- Be an individualized communication to the employee;
- Be mailed or hand delivered to the last known address of the employee;
- Be e-mailed to the employee;
- State that the employee’s noncompete clause or noncompete agreement is void; and
- Be given by February 14, 2024.
Note that the new law applies to noncompete provisions in any contract with a California
employee, no matter whether such contract was signed in the state of California, so employees who
have relocated to California are also protected under this new law, and have the ability to sue their
employers (or ex-employers) if they are subject to a noncompete provision and have not received the
above notice.
For any company with employees living in California who has been including noncompetes
in their employment agreements or who has been using noncompete agreements in their onboarding
materials, it is time to update your agreements, and provide notice as quickly as you can.
This advisory is for information purposes only, and does not constitute legal advice. If you would like to
discuss the impact of the new California law, please contact Jeremy Cohen at (617) 350-6800, or email
him at jeremy.cohen@gesmer.com.
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