On January 1, 2024, California’s two new statutes governing the enforceability of out-of-state non-compete agreements went into effect. The new laws add another layer to the Golden State’s already rigid non-compete rules and impose additional requirements and potential penalties against employers. Employers must be aware that they are expressly prohibited from entering into non-compete agreements with employees who work in California and almost all forms of out-of-state non-compete agreements and clauses are now void.

First, California Business & Professions Code §16600.1 mandates that employers must send individualized notices to every employee subject to a non-compete since January 1, 2022, to inform them that the agreement/clause is now void. Employers must send the notices to current and former employees at their last known physical address and email address by Valentine’s Day (February 14, 2024). Employers who fail to do so may be liable for unfair business practices and face a $2,500 fine per violation, which will likely be interpreted to mean per agreement.

Second, California Business & Professions Code §16600.5 states that non-competes are unenforceable regardless of (1) where and when the contract was signed, (2) whether the contract was actually signed and (3) whether the employment was maintained outside of California. It also bars enforcement of non-compete agreements even in situations when an employee relocates to California after executing an agreement. The law also gives employees, former employees and even prospective employees a right to seek private action, an injunction, and recover damages, including attorney’s fees and costs if they are presented with such an unenforceable agreement.

Notably, §16600.5 does not apply to California’s standing exceptions for non-competes for individuals who sell a business and the business’s goodwill.  However, questions remain as to what connection the employer must have to California, from a jurisdictional standpoint, to trigger the notice requirement and void an agreement. This question, and the other underlying questions regarding the new laws, will likely be answered by guidance from the California Labor Commissioner. We anticipate that the guidance will be published soon.

Employers doing business in California are strongly encouraged to closely review their non-compete agreements with current and former employees to determine which, if any, remain in effect and issue the notices described above by February 14, 2024. If you have questions about these changes or need any assistance, please contact Masallay Komrabai-Kanu, Paul Bittner or any other attorney in our Workplace Solutions Practice Group. And you can always call Paul to talk about college football or NHL hockey.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.