Non-Compete Agreements in California: What Employers & Employees Should Know

Non-compete agreements are among the most controversial clauses in employment contracts, often buried in hiring paperwork. Learn more about California NCA legal specifics in our guide.

If you’re an employer or employee in California, you likely know the state takes a tougher stance on non-compete agreements (NCAs) than anywhere else in the country.

That stance dates back more than a century, when lawmakers adopted Section 16600 of the Business and Professions Code, declaring subject to a few narrow exceptions : “Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” In effect, non-competes have long been illegal and unenforceable in California.

If you’re unaware, non-compete agreements are among the most controversial clauses in employment contracts — often buried in hiring paperwork to prevent employees from accepting job offers from their current employers’ direct competitors or using their hard-earned skills to launch similar businesses for a period of time, either during or after employment.

Employers argue that NCAs are necessary to protect investments in staff training, client relationships, and sensitive business information such as trade secrets. For employees, however, non-competes feel like shackles, limiting career opportunities and creating fear of litigation when considering a job change.

Yet despite Section 16600, many employers continued to insert NCAs into employment contracts — sometimes out of ignorance, sometimes betting that workers wouldn’t challenge them.

That gamble ended on January 1, 2024, when two new laws, SB 699 and AB 1076, took effect. Both impose real consequences on employers who attempt to enforce or even include non-compete agreements, underscoring that non-competes simply don’t belong in California.

An Overview of California’s New Non-Compete Rules

• SB 699: Expanding the Non-Compete Ban

SB 699 makes it explicitly unlawful for companies to include post-employment non-compete clauses in contracts or ask employees to sign them, and establishes penalties for violations.

The law also amends Section 16600 by adding Section 16600.5, which provides that “any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.” 

This directly addresses a major concern for mobile professionals thinking of moving to California: the fear that restrictive employment agreements signed in another U.S. state could still limit their career options once they relocate.

Example of how the law applies: Imagine you’re a software engineer in Texas or Illinois who signed a contract containing a two-year non-compete clause. You move to Silicon Valley, California, and accept a position with a competing company.  Shortly after, your old employer sends you a threatening letter, insisting that the non-compete remains enforceable under Texas or Illinois law and warning that they intend to uphold it.

However, under SB 699, it is illegal for any employer to apply a non-compete against someone working in California — regardless of where the agreement was originally drafted or signed. In other words, your NCA from Texas or Illinois is worthless and cannot legally follow you into Silicon Valley.

This expansion of California’s non-compete law means that employers with California-based employees, no matter where the company is headquartered, must review and revise existing employment contracts to remove non-compete provisions and ensure compliance with California’s non-compete ban.

SB 699 also reinforces employee rights in California. Current and former employees can take legal action in California courts if an employer threatens or attempts to enforce a non-compete agreement. If successful, the employee may recover damages as well as attorney’s fees.

If you’re facing legal threats tied to NCAs, consult experienced employment attorneys such as Gallagher Krich, APC, to protect your rights and secure the best possible outcome.

• AB 1076:  Notice Requirements for Employers

The key provision of this law is that it requires employers to notify current and former employees hired after January 1, 2022, that any non-compete agreements they signed, whether in California or elsewhere, are void.

The notice must be a written, individualized communication sent to the last known email and physical address of the current or former employee.

This represents a major shift. In the past, California employees had to recognize when their rights were being violated by a non-compete. Now, the responsibility lies squarely with employers to affirm those rights and eliminate any ambiguity. The deadline to comply with AB 1076’s notice requirements was February 14, 2024.

Before this requirement, the biggest consequence an employer faced for using a non-compete was that a court would strike it down, leaving them unable to restrict a worker. With this new law, employers can be held liable if they fail to comply. Those who don’t provide the required notices face fines of up to $2,500 per violation and potential class action lawsuits. 

Beyond the financial penalties, non-compliance with AB 1076 can damage an employer’s reputation and weaken trust among employees, which can hinder long-term business success.

For this reason, it is essential that employers review all employment agreements signed since January 1, 2022, identify any that include non-compete clauses, and ensure timely notification is sent to affected employees.

Questions about your company’s compliance with California’s new non-compete laws? Contact Gallagher Krich, APC, employment attorneys for a free consultation.

Without non-compete agreements, employers must rely on other legal protections, such as well-drafted non-disclosure agreements (NDAs) or confidentiality clauses that safeguard sensitive information, trade secrets, and business strategies.

Check out our post on What’s a Non-Disclosure Agreement? to learn how this tool can help protect sensitive business assets while keeping your company compliant with California law.

Do You Need Advice on Non-Competes in California?

Whether you’re an employee facing an illegal restriction on your professional advancement or a business owner amending employment agreements, Gallagher Krich, APC offers straightforward, doable advice to protect your company — or your career.

With expertise on California employment contracts, our lawyers can assist you in challenging unjust non-competes, complying with SB 699 and AB 1076, and  drafting employment agreements that safeguard your company’s interests without exposing you to expensive fines or legal action.

Your initial consultation is free of charge. Contact us by phone at (858) 926-5797 or via our online contact form to start the conversation.