UNDERSTANDING NON-COMPETE CLAUSES IN CALIFORNIA

A non-compete clause is a contract stating that you won’t work for your employer’s competitors for a set period of time. These agreements can harm your career and prevent you from achieving your full potential. 

Historically, California non-compete law has generally favored the worker. If you’ve been asked to sign a non-compete agreement, there’s a good chance it won’t hold up in court. Amid a recent push for stronger labor protections, the California state assembly passed new legislation at the beginning of 2024 that makes most non-compete clauses illegal. 

Let’s take a closer look at non-compete clauses in California and why they are unenforceable in most cases. 

What Is a Non-Compete Agreement in California, and How Do They Work? 

A non-compete agreement or clause states that an employee will not work for a competitor organization after completing their work with their current employer. Most of these contracts also prohibit employees from starting competing businesses in the same industry and geographic area. Most non-competes have a set term of six months to one year, although they can last longer. 

In the past, if an employee signed a non-compete clause and went on to work for a competitor directly afterward, they could be subject to legal action. However, current California laws make the vast majority of non-compete agreements unenforceable. 

Common Industries and Jobs Affected by Non-Compete Clauses 

Non-compete clauses are more prevalent in certain industries. Sales, technology, finance, and healthcare roles are historically the most likely to be subject to non-competes. 

These non-compete clauses have had negative effects on both employees and small businesses. When an employee is working under a non-compete clause, it could prevent them from leaving a job they aren’t happy with or make it next to impossible to continue working in their field if they do leave. 

Non-compete clauses also make it difficult for small businesses in these industries to hire top talent. This can harm local economies and the community as a whole, particularly in the healthcare industry, where a lack of local talent could limit care options for local patients. 

The Rationale Behind Non-Compete Clauses 

Employers who use non-compete clauses usually do so to protect their business from competition. For example, employees working for the organization might be exposed to trade secrets and proprietary information as part of their jobs. Non-compete clauses are meant to prevent former employees from taking these trade secrets to their new employers. 

Non-compete clauses are also intended to preserve client relationships for businesses that rely heavily on them. With a non-compete clause, a former employee cannot take a client directly to a competitor. 

While the rationale behind these clauses is not inherently malicious, the reality is that the harm they cause outweighs their potential benefits. 

California’s Stance on Non-Compete Clauses 

California non-compete law in 2024 renders most non-compete clauses illegal and unenforceable. 

At the beginning of 2024, California S.B. 699 and A.B. 1076 went into effect. These laws created California Business and Professions Code § 16600. This new law voids non-compete agreements and many other restrictive employment agreements. There are a few exceptions in very limited circumstances. 

Employers who previously had non-compete agreements in place were required to notify employees by February 14th, 2024, that existing agreements were void from that point forward. 

Key Legal Precedents and Cases 

New California law A.B. 1076 codifies Edwards vs. Arthur Andersen LLP, a very important non-compete legal precedent from 2008. This ruling stated that all non-competes in California are void unless they are expressly permitted by a specific statute, regardless of how specific or narrow the language in the non-compete. 

Exceptions to California Non-Compete Clauses

There are a few exceptions to the ban on non-compete clauses. The most notable exception is an agreement for the sale of a business. If a business owner sells their company to someone else, the contract can include a non-compete clause stating that the former owner cannot set up a competing business in the same area immediately following the sale.

There are also laws in place to prevent former employees from sharing trade secrets with their new employers. However, these laws do not prevent former employees from taking jobs with competitors. 

The Impact of Non-Compete Clauses on Employees and Small Businesses 

Non-compete clauses can be very detrimental to both employees and small businesses. By prohibiting most non-compete clauses, California’s new laws protect employees’ rights while maintaining a fair and equitable talent market for local businesses. 

Employee Rights and Protections 

So, are non-compete clauses legal in California? The general answer is no, most non-competes are illegal and unenforceable. 

If you’ve been offered an employment contract that includes a non-compete clause, don’t sign it. Instead, consult with a lawyer first — chances are, the contract is not legal. You should also contact a lawyer immediately if you’ve faced a lawsuit related to a non-compete agreement. Chances are the lawsuit will be thrown out, and your former employer could be the one to face legal consequences. 

How Small Businesses Can Navigate Non-Compete Challenges 

As a small business, you might struggle to hire new talent if you are in an industry where non-compete clauses are common. If you are interested in hiring a potential employee but they are subject to a non-compete clause, talk to an employment lawyer. Likely, the clause is no longer legally binding. 

You have options if you want to prevent your current employees from sharing proprietary information when they leave your organization. Consider having them sign a non-disclosure or non-solicitation agreement that protects your business without limiting their career options. 

Recent Developments and What They Mean for You 

As noted above, California recently expanded its non-compete protections, leaving most non-compete clauses unenforceable. So, what are the developments that have come from this change, and what could they mean for you?

Legislative Updates and Future Outlook 

Since these non-compete laws are so new, exactly how the legislation will evolve is unclear. However, some organizations are already challenging California’s non-compete law. 

For example, DraftKings has already been involved in a lawsuit involving a former New Jersey employee with a non-compete agreement. This employee wanted to work for a competitor based in California and challenged the non-compete agreement. 

However, DraftKings challenged the lawsuit because it is not headquartered in California. It is unclear exactly how courts will rule on this challenge. 

Steps to Take If You’re Affected by a Non-Compete Agreement in California 

If you’ve been affected by a non-compete agreement in California, it’s important to be aware of your rights. Chances are, the agreement is no longer valid under California’s new laws. 

Gather as much evidence as possible, including any current and former contracts, emails, and text messages from your former employer. Then, seek out a California employment lawyer to help you build a case. 

Protecting Your Rights in California’s Evolving Employment Landscape 

Don’t let a non-compete agreement hold you back from career success. Audet & Partners can help you challenge unenforceable non-compete clauses in California. If you’ve been asked to sign one, want to hire an employee with one, or are facing legal action, Audet & Partners may be able to help. Request a free consultation today to get started. 

Non-Compete Clauses in California FAQs 

Have more questions about non-compete clauses in California? We have answers.

Are Non-Competes Enforceable in California? 

In general, non-compete clauses are not enforceable in California. This is due to new state legislation that took effect at the beginning of 2024. 

Are Non-Compete Clauses Legal in California? 

Under new state employment law, non-competes are not legal in most cases in California. However, there are a few exceptions regarding the sale of a business. 

How Long Are Non-Competes Good For? 

Non-competes usually last from six months to a year. However, most non-competes are no longer enforceable in California.