California recently enacted a statute codifying the state’s long-standing resistance to non-competition agreements in employment relationships. The legislature imposed an affirmative obligation on the employer who issued the non-compete provision in any employment-related agreement to notify current and former employees (if those employees were hired after January 1, 2022) that any non-compete agreement or clause in their employment contract is void, and this notice must be sent by February 14, 2024.
The legislature did this by amending Business and Professions Code Section 16600 and added Section 16600.1, which together render non-compete agreements in the employment context void and unlawful (with a few very narrow exceptions related to the sale of a business or its goodwill).
Section 16600 voids any employment agreement that attempts to restrict an individual’s ability to engage in a lawful profession. The legislature also articulated that this provision is “to be broadly interpreted to void the application of any non-compete agreement in an employment context…no matter how narrowly tailored.”
The notice should include both (a) that the clause or agreement is void, and (b) that the employer will not make any attempt to enforce any agreement or contract clause that falls under Section 16600.
The notices must be individualized to each employee that falls under the provisions (hired after January 1, 2022 and has a non-compete agreement/clause in his or her contract or severance agreement), and must be sent in writing to both the employees’ last known physical address and by e-mail, by Wednesday, February 14, 2024. Failure to send these notices will amount to a violation of California’s unfair competition laws and could result in a fine of up to $2,500 per violation.
In order to avoid these potential fines, it is critical that employers review all of their employment agreements, including Non-Disclosure and Confidentiality agreements, and severance agreements, to determine if they contain non-competition language, and if so, send out notices by February 14, 2024.
If employers have questions as to whether they have a non-compete agreement that may violate Section 16600, thus require notice to be sent, they should consult with counsel.