California Strengthens Noncompete Ban and Employee Mobility with SB 699
September 27, 2023
California Governor Gavin Newsom signed SB 699 on September 1, prohibiting employers from entering into or enforcing noncompete agreements, regardless of where the employment agreement was signed and whether the employee worked outside of California.
SB 699, which goes into effect on January 1, 2024, contributes to the state’s history of promoting public policy in favor of employee mobility and competition.
California’s Business and Professions Code Section 16600 has been the cornerstone of this policy, rendering void any contractual provisions restricting individuals from engaging in lawful professions, trades, or businesses, with limited statutory exceptions. SB 699, codified as Section 16600.5 of the Business and Professions Code, broadens Section 16600’s restrictions on post-employment restrictive covenants by applying the ban “regardless of whether the contract was signed and the employment was maintained outside of California.”
The expanded restriction of noncompetes reflects the California legislature’s findings on the detrimental impact of noncompetes on economic growth, wages, diversity, entrepreneurship, and innovation. Despite being unenforceable in California, noncompete clauses continue to be widespread in the U.S., with the threat of noncompete litigation producing a chilling effect on employee mobility.
In response to challenges posed by out-of-state employers attempting to prevent the hiring of former employees by California employers, SB 699 declares that agreements restraining trade under Section 16600 are void and unenforceable, regardless of when and where they were signed and whether employment was maintained outside of California.
The legislation reflects a growing nationwide trend of noncompete bans. Several states have banned noncompetes, including North Dakota, Oklahoma, and Minnesota. As of June 2023, New York is poised to join these states after the state legislature passed a bill prohibiting nearly all noncompete agreements, pending Governor Kathy Hochul’s signature. At the federal level, President Biden’s 2021 Executive Order on Promoting Competition in the American Economy encouraged the Federal Trade Commission to curtail unfair use of noncompete clauses. In response, the FTC in January proposed a comprehensive ban on non-compete clauses in employment contracts, including the elimination of all existing non-competes.
The expansion of Section 16600 provides substantial legal recourse to anyone California employers wish to employ to provide services in California. SB 699 empowers employees, former employees, and prospective employees to enforce their rights through private legal action seeking injunctive relief and actual damages, with successful plaintiffs entitled to recover reasonable attorney fees and costs.
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