As of January 1, 2024, two new laws that address employment-based restrictive covenants went into effect in California. These laws took a 2008 California Supreme Court decision, which banned the enforcement of post-employment non-competition agreements, officially made it a law, and added in some extra protections. Importantly for multi-state employers, these new laws require employers who use a non‑competition agreement to send a notice to their current and former employees who reside in California.
These laws clarify how non-competition agreements are interpreted in California and provide serious protections for California-based employees. These laws also go above and beyond merely making a non-competition agreement unenforceable; they implement fines for employers who require a California employee to enter into a non-competition agreement or who try to enforce an existing agreement against a California employee.
What do Employers Need to Do if They Have Employees or Former Employees in California?
No later than February 14, 2024, employers will have to send out notices to employees and former employees (if they were employed after January 1, 2022) who reside in California and who entered into an agreement that includes a restriction on competition. The notice must actively tell those employees that the provision is now void. The written notice must be mailed or emailed to the employee’s last known address by February 14, 2024.
Employers who have any employees in California should also carefully review their standard employment related documents such as offer letters, employment agreements, handbooks, confidentiality agreements etc., to make sure that they do not include non-competition clauses within them.
What Do the New Laws Accomplish?
Aside from the required notice, these new non-competition laws make it unlawful to require an employee to enter into an agreement that contains a non-competition provision, and subject the employer to penalties of up to $2,500 per violation.
These new laws also prevent employers from enforcing any non-competition provision against California residents, regardless of whether the agreement was signed in connection with employment maintained in a state other than California. Meaning, if an employee signed a non-competition agreement and moves to California to work remotely, or leaves employment from Vermont and wants to work for a California company, then that non-competition agreement cannot be enforced.
Are There Exceptions?
There are certain instances where non-competition agreements are still valid in California. These exceptions arise when a company’s owner sells their business, business interest, or assets. If an employer feels as though their non-competition provision falls under this narrow exception, they should still carefully review the provision and seek legal counsel’s review.
Here at Gravel & Shea, we are well versed in multi-state issues that arise and can help guide and draft these notices for employers with employees or former employees in California.
Please contact Heather Hammond (hhammond@gravelshea.com) at Gravel & Shea PC if you have questions or would like assistance.
