California passed new laws reiterating its prohibition on employment-related non-competition obligations. Assembly Bill 1076, effective January 1, 2024, provides that it is unlawful to include noncompete clauses in employment contracts, or to require an employee to enter into a noncompete agreement, that does not satisfy an exception under California law—and notes that this "does not constitute a change in, but is declaratory of, existing law." AB 1076 also states that this prohibition should be read broadly—and, in this regard, we note that California courts have generally applied California's prohibition on non-competition obligations also to prohibit customer non-solicitation provisions, unless they are limited to prohibiting the use of confidential information or trade secrets for such solicitation.
AB 1076 also requires employers of California employees to provide written notice, no later than February 14, 2024, to current employees, and former employees employed at any time after January 1, 2022, who are based in California if they are subject to non-competition agreements that are unenforceable under California law. The notice must be "individualized" and inform the employee that the noncompete clause or agreement is void. The notice must be sent to the last known address of the employee or former employee and to their email address. Failure to provide such notice constitutes an act of unfair competition and is subject to a penalty of $2,500 for each violation.
Although AB 1076 speaks in terms of employment contracts, employers should consider whether AB 1076 notice may be required for incentive equity agreements (containing non-compete obligations) granted to employees in connection with their employment, even if granted by an affiliate of the employer and even if governed by non-California law. Indeed, there is no guidance as to the interplay between AB 1076 and Labor Code 925, which permits the possible use of non-California law (and non-California forum for disputes) for employment-related agreements entered into on or after January 1, 2017, if the employee is individually-represented by legal counsel in connection with negotiating such agreement.
Senate Bill 699, also effective January 1, 2024, goes even further and provides that any non-compete that is void under California law is unenforceable "regardless of where and when the contract was signed." SB 699 also states that employers may not seek to enforce a prohibited non-compete "regardless of whether the contract was signed and the employment was maintained outside of California". Lastly, an employer that enters into a prohibited non-compete commits a civil violation, as to which employees, former employees and prospective employees have a private right of action for injunctive relief, actual damages or both, plus attorney's fees and costs.
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