Since 1941, California Business & Professions Code §16600 has outlawed non-compete clauses: Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

The limited exceptions to that rule are the sale of a business (Business & Professions Code §16601), partnership dissolution or a partner disassociation (Business & Professions Code §16602), or limited liability company dissolution or a member disassociation (Business & Professions Code §16602.5).

This year, California added Business & Professions Code §§16600.1 & 16600.5 to the laws that prohibit non-compete clauses. Consequently, if a business fails to limit non-compete clauses to situations covered by exceptions to the rule, California has dramatically increased the penalties for having non-compete clauses in employment-related agreements.

Business & Professions Code §16600.1 states:

It shall be unlawful to include a noncompete clause in an employment contract or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter.

Further, section 16600.1 requires an employer to send a written notice to all employees who were subject to a non-compete clause or agreement and who worked at any time after January 1, 2022. That notice must say that the non-compete clause is void, and the employer had to send the notice by February 14, 2024. The employer must send that notice by mail and email. An employee may sue any employer who does not properly send the required notice.

Additionally, Business & Professions Code §16600.5 provides specific limitations and remedies related to non-compete clauses:

1. An employer may not enforce a void non-compete agreement or clause.

2. California employers may not try to enforce a void non-compete agreement or clause, even if the employee signed the agreement in another state and works in another state.

3. An employer may not even enter into an agreement with an employee when that agreement contains a non-compete clause. 

4. An employer who attempts to enforce such a voided agreement has committed a civil violation. 

5. For a violation of the code sections cited in this article, a former, prospective, or present employee may sue an employer for injunctive relief and damages, and a court can award attorney’s fees and costs to a prevailing employee.
Clearly, California has sent a message to all employers: Do not have non-compete agreements or clauses with your employees!

Even when an employer has a non-solicitation clause, rather than a non-compete clause, that prevents former employees from soliciting clients, courts often invalidate those clauses and rule that they are non-compete clauses. If a court finds that a non-solicitation clause is a non-compete clause, then, arguably, Business & Professions Code §§16600.1 & 16600.5 apply to those non-solicitation clauses too.

Again, employers beware of any contract provision that could be considered a non-compete clause. Lawsuits based on those provisions could have dire consequences.

Employment Law Office of Ward Heinrichs
4565 Ruffner Street, Suite 207
San Diego, CA 92111
858-292-0792
(858)408-7543 (fax)