California Noncompete, Nonsolicitation Ban Impacts Businesses Outside State

On Sept. 1, 2023, California Gov. Gavin Newsom signed Senate Bill (SB) 699, which expands existing protections from contracts prohibiting individuals from engaging in a lawful profession, trade or business.

SB 699 Highlights

• Noncompete and nonsolicitation agreements are void and unenforceable, regardless of whether the contract was signed and the employment was maintained outside of California.
• An employer that attempts to enforce a void noncompete or nonsolicitation agreement commits a civil violation.
• When an employer attempts to enforce a void agreement, an employee may bring a civil action for injunctive relief, damages and attorneys’ fees.

Existing Law and SB 699

Under section 16600 of California’s Business and Professions Code, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” California courts have interpreted this statute broadly and have found noncompete, nonsolicitation of employee, and nonsolicitation of customer agreements void and unenforceable. Generally, this prohibition was only enforced against contracts signed by employees in California. There are some statutory exceptions to this prohibition, including noncompete provisions related to the sale of a business and dissolution of a partnership. 

SB 699 expands section 16600 and prohibits contracts in restraint of trade “regardless of where and when the contract was signed.” In other words, any contract that is void under section 16600 is unenforceable regardless of whether the contract was initially signed by an individual outside of California. It also provides “[a]n employee, former employee, or prospective employee” with the ability to bring a private right of action for injunctive relief, money damages and attorneys’ fees for a violation of the new law.

The new law was enacted in response to what the Legislature viewed as the growing market for “national and remote work” and the increasing challenges California employers face when attempting to hire employees outside of California. It also follows a wave of other recently implemented noncompete and nonsolicitation regulations around the country.

Next Steps

Employers with multi-state operations, even those without a California presence, should consider reviewing their existing agreements if there is a possibility employees may relocate to the Golden State. Even though California banned noncompete and nonsolicitation agreements, the state still prohibits employees from absconding with a former employer’s intellectual property and trade secrets, provided the former employer took steps to protect the information.

Armstrong Teasdale’s Employment and Labor team will continue to share updates as new legislation is brought forth. Please contact your regular AT lawyer or the author for further guidance.