California Enacts Additional Restrictions on Employer Noncompete Agreements
California Enacts Additional Restrictions on Employer Noncompete Agreements

          The California Legislature has sought in recent years to expand the rights of employees in nearly every facet of business in California.  Employer restrictions on an employee’s ability to work in the same industry after employment ends have been no exception.  As a result of the 2023 legislative term, two bills limiting post-employment restrictions on employees. In addition to Senate Bill 699, which voids noncompete agreements of out-of-state employee seeking work in California, Assembly Bill 1076 was signed into law. 

            AB 1076 amends Business Code Section 16600 and creates Business and Professions Code Section 16600.1 in an effort to codify a 15-year old California Supreme Court decision.  Specifically, Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, eliminated the “narrow restraint” exception that was applied at the time to evaluate the validity of such agreements.  AB 1076 clarifies that, as a result of the Edwards decision, noncompete agreements or noncompete clauses in employment agreements, no matter how narrowly tailored, are void in California, with limited exceptions pertaining to the sale of a person’s ownership interests. 

            Although not defined by statute, the amendment to 16000 states that the terms “noncompete agreements” and “noncompete clauses in employment agreements” are to be interpreted “broadly” in accordance with the Edwards decision.  Of particular importance to employers is the Edwards’ decision’s application to non-solicitation agreements and clauses, which have been more prevalent in recent years.  Specifically, the court in Edwards distinguished between generally prohibiting the solicitation of an employer’s customers or clients (which is impermissible) and prohibiting the solicitation of an employer’s customers or clients by using confidential information or trade secrets (which is permissible). 

            In addition, under the newly created Business and Professions Code Section 16600.1, employers must notify in writing current and former employees who were employed after January 1, 2022, that any noncompete clauses or noncompete agreements previously signed by the employees are void.  Each written notice must be individualized to the employee or former employee and delivered to the person’s last known address and email address.  The deadline for sending this notice is February 14, 2024.  A violation of 16000.1 constitutes an act of unfair competition, which can give rise to actions for injunctive relief and restitution damages.

            While it is likely that the limits of AB 1076 will be tested in the coming years, employers may take a measure of solace that, for now, trade secrets and confidential information remain protected, but only if such a properly worded agreement to keep the information confidential exists between the employer and employee.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.


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