New California Laws Expand Restrictions on Noncompete Agreements

The state is advising employers to review their existing agreements to ensure they’re in compliance with the new law.
New California Laws Expand Restrictions on Noncompete Agreements
People sign employment forms in a file photo. (Justin Sullivan/Getty Images)
Brad Jones

California lawmakers have made noncompete agreements not only void in the state, but now unlawful.

Such contractual agreements or clauses used by employers restrict former employees from competing with their businesses and prohibit them from revealing proprietary information or secrets to any other parties during or after employment.

Some contracts specify the length of time the employee is barred from working for a competitor after their employment period ends. Employers often require employees, contractors, and consultants, for example, to sign noncompete agreements to protect their interests and market share.

Gov. Gavin Newsom signed Assembly Bill 1076 into law Oct. 13. Set to take effect on Jan. 1, it prohibits employers from entering into or attempting to enforce such agreements, deemed void under Senate Bill 699, which he also signed into law in September.

The state is advising employers to review their existing agreements to ensure they’re in compliance with the new law.

AB 1076, authored by Rebecca Bauer-Kahan (D-Orinda), also requires employers by Feb. 14, 2024, to provide written notices to all current and former employees employed after Jan. 1, 2022 that any noncompete clauses they signed are “void.”

SB 699, introduced by Sen. Anna Caballero (D-Merced) bans noncompete agreements signed in other states, and stipulates that employers cannot restrict former employees from seeking jobs in California even if the employee had signed a noncompete agreement while living in another state or had worked for an out-of-state employer.

Last April, California Attorney General Rob Bonta co-led a 17-state coalition which sent a letter to the Federal Trade Commission supporting its proposed rule to ban noncompete clauses in employment contracts. The FTC is not expected to vote on the rule until April 2024.

“Although frequently found in high paying, highly technical jobs, these provisions are also found in lower-paying, less technical jobs and can have an adverse impact on labor market mobility and worker compensation,” according to a March 2022 statement by Mr. Bonta on the issue, which cites a 2019 study estimating 53 percent of noncompete workers are non-salaried, hourly wage employees, 14 percent of whom earn less than $40,000 a year.

Mr. Bonta, at the time, said “noncompete agreements have no place in California” and urged job seekers and employees who are wrongfully presented with one to know their rights.

“Despite being prohibited in California, noncompete provisions are routinely included in employee contracts, including contracts for lower-wage workers. This can have a tremendous effect of deterring workers from pursuing new, and oftentimes better job opportunities,” Mr. Bonta said. “As our economy recovers, it is more important than ever for employers and workers in our state to have a system that protects competition in the labor market.”