Non-compete clauses are contractual terms that prevent workers from seeking or accepting employment with a competitor, or starting a competing business, after leaving their current employer. These clauses are common in many industries and professions, but they can have negative effects on workers’ mobility, wages, innovation, and entrepreneurship.
California has long been a leader in protecting workers’ rights and limiting the enforceability of non-compete clauses. Under Business and Professions Code section 16600, every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is void, subject to limited exceptions. However, some employers have tried to circumvent this law by requiring workers to sign non-compete clauses that are governed by the laws of other states, where such clauses are more enforceable.
To address this issue, California recently enacted SB699, which extends the reach of California’s restriction on non-compete clauses to contracts signed out of state. SB699 also creates a private right of action for employees whose agreements include restrictive covenants and provides for attorney fees for any current, former, or even prospective employee who successfully brings suit against an employer’s use of those restrictive covenants. SB699 also states that an employer whose contracts include restrictive covenants has committed a “civil violation.”
What does SB699 mean for employers?
Employers who use non-compete clauses in their contracts with workers should be aware of the following implications of SB699:
- Any contract that is void under section 16600 is unenforceable regardless of where and when the contract was signed.
- An employer or former employer “shall not attempt to enforce” a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California.
- An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter.
- An employer that enters into a contract that is void or attempts to enforce a contract that is void commits a civil violation.
- An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages and is entitled to recover reasonable attorney fees and costs.
Employers who violate SB699 may face legal challenges from their workers, as well as potential enforcement actions from the Federal Trade Commission (FTC), which has proposed a rule to ban non-compete clauses nationwide as an unfair method of competition.
What does SB699 mean for employees?
Employees who are subject to non-compete clauses in their contracts with employers should be aware of the following implications of SB699:
- They have the right to seek or accept employment with any person or operate any business after the conclusion of their employment with their current or former employer, regardless of where and when they signed their contract.
- They have the right to challenge any attempt by their current or former employer to enforce a contract that is void under section 16600, regardless of whether the contract was signed and the employment was maintained outside of California.
- They have the right to sue their current or former employer for injunctive relief or actual damages if their contract includes a provision that is void under this chapter, and they are entitled to recover reasonable attorney fees and costs.
- They have the right to report any violation of SB699 by their current or former employer to the FTC, which may take action against the employer for engaging in an unfair method of competition.
Employees who are unsure about the validity or enforceability of their non-compete clauses should consult with an experienced employment law attorney who can advise them on their rights and options.
SB699 is a significant development in California’s law on non-compete clauses, which aims to protect workers’ freedom and mobility in the labor market. Employees should be aware of the new law and its implications for their contracts and conduct. If you have any questions or concerns about non-compete clauses and SB699, please contact us at Sanford A. Kassel, A Professional Law Corporation. We are a team of skilled and dedicated attorneys who can help you with any employment law matter. Call us today at (909) 884-6451.
