A Law Has Been Passed in California That Supports the Prohibition of Employee Restrictive Covenants

Like many other things in life, employment often does not last for a lifetime. An employee may quit their job or get fired or laid off. When this happens, it may be necessary to look for another job. However, if an employee quits their job or gets fired or laid off, they may face challenges if their employment contract contains provisions restricting them from engaging in certain activities after leaving their employer. Specifically, if there is a restrictive covenant clause in an employment contract, it may make it challenging for an individual to get another job for some time after leaving an employer. A restrictive covenant prohibits an individual from competing with their former employer for a particular time after leaving the employer. Such a covenant prevents ex-employees from soliciting or dealing with business customers using knowledge gained during their previous employment. A restrictive covenant may provide that an employee cannot solicit employees from their former employers.

The good news is that California law generally does not permit employers to enforce restrictive covenants against their former employees. According to Section 16600 of the California Business and Professions Code, any contract restraining an individual from engaging in a legal trade, profession, or business is, to that extent, invalid. For long, this section has been interpreted as prohibiting post-employment non-competition, non-solicitation of employees, and non-solicitation of customer agreements. According to California law, such restrictive covenants are only allowed in cases involving the sale or dissolution of partnerships, LLCs., and corporations.

Recently, California even passed a new law that supports the prohibition of employee restrictive covenants. At the beginning of September 2023, Governor Gavin Newsom signed into law Senate Bill 699. This new law reiterates Section 16600 of the California Business and Professions Code. According to SB 1699, employers are barred from entering into contracts with employees or ex-employees if those contracts include non-compete clauses and other restrictive covenants that are invalid under Section 16600 of the California Business and Professions Code. The new law goes a step further and adds that a contract that is invalid under Section 16600 of the California Business and Professions Code is unenforceable, irrespective of when and where it was signed. Additionally, according to Senate Bill 699, employers and former employers are prohibited from trying to enforce contracts prohibiting employees from engaging in legal trades, professions, or businesses, even if a contract was signed in another state and employment was maintained in another state.

Assembly Bill 699 Will Go Into Effect at the Beginning of 2024

Another bill, which, if signed into law by the Governor of California, could significantly impact how employers and their attorneys use restrictive covenants in California is Assembly Bill (AB) 747. However, this Bill was ordered to the inactive file on June 1, 2023. One of the provisions under AB 747 is that a non-compete covenant would constitute a violation resulting in actual damages and an additional penalty of $5,000 per employee or prospective employee harmed by the violation.

Contact a California Employment Lawyer

Contact a California employment lawyer if you need more information on Senate Bill 699.