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SB 699: New California Law Further Restricting The Use of Non-Competes


Labor & Employment Update

SB 699: New California Law Further Restricting The Use of Non-Competes

September 12, 2023

By Elissa L. Gysi and Shelby Y. Meskin

Governor Gavin Newsom recently signed Senate Bill (SB) 699 into law which further restricts the use of non-compete clauses in employment agreements in California.  The law goes into effect on January 1, 2024.

Most non-compete agreements have long been unenforceable in California under Section 16600 of the California Business and Professions Code (“every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void”).[1]  Generally, this prohibition on non-competes has only been applied to contracts signed by employees in California.  Some California employers still include such non-compete clauses in their employment or separation agreements, even though they are unenforceable, which has chilling effect on employee mobility.

SB 699 adds new California Business and Professions Code section 16600.5, which implements several additional restrictions on the use of non-compete provisions.  First, under the new law, non-compete provisions that are void under section 16600 are unenforceable “regardless of where and when” the contract containing the provision was signed.  This means that any contract that is void under California law is unenforceable regardless of whether the contract was initially signed by an individual outside of California.  Second, an employer or former employer may not attempt to enforce a void non-compete provision even where the employment is outside of California.  This applies to employers located outside of California that attempt to enforce a non-compete in California.  Third, an employer may not enter a contract with an employee or prospective employee that includes a void non-compete provision.  Lastly, employees, former employees, and prospective employees have the right to bring a private action to enforce the law and sue for injunctive relief, actual damages, and reasonable attorneys’ fees and costs.

SB 699 is significant for employers because it expands an employer’s potential liability for merely including non-compete provisions in employment agreements, and for seeking to enforce non-compete provisions.  The new law also precludes employers outside of California from enforcing non-compete provisions for employees who work in California.  The law makes it a civil violation to attempt to enforce a void non-compete agreement, for which an employee can now bring a civil action and seek damages.

As such, employers based both in and out of California should review their existing employment agreements, offer letters, employee handbooks, and policies to remove any void non-compete provisions.

Contact Hill Farrer for Further Information

Please contact your Hill Farrer attorney or any member of our Labor and Employment department at (213) 620-0460 with any questions about the most up-to-date law on non-compete agreements or the effect of the new law going forward.

[1] The three narrow exceptions to the prohibition on non-compete agreements include the sale of a business, the dissolution of a partnership, or upon the dissolution or termination of interests in a limited liability company.