California Further Bolsters its Prohibitions on Noncompete Agreements

On the heels of the enactment of Senate Bill 699, which fortified California’s restrictions on noncompete agreements and other restrictive covenants and provided additional employee protections, California has once more strengthened its prohibitions on noncompetes with the October 13, 2023 enactment of Assembly Bill (AB) 1076. AB 1076 imposes notice requirements, compliance deadlines, and amendments to California’s Business and Professions Code, among other updates.

For more information on Senate Bill 699, see our September 20 LawFlash.

WHAT DOES AB 1076 DO?

AB 1076, effective January 1, 2024, expressly “codifies” existing case law in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 and amends Section 16600 of California’s Business and Professions Code to “be read broadly” and “void the application of any noncompete agreement in an employment context, or any noncompete in any employment contract, no matter how narrowly tailored,” unless a specific exemption applied.

In Edwards, the noncompetition agreement prohibited Edwards from “soliciting” any client of Andersen’s Los Angeles office for one year following termination. The California Supreme Court rejected Andersen’s contention that it should adopt a narrow-restraint exception to Section 16600 and concluded that Andersen’s noncompetition agreement (nonsolicitation of customer provision) was invalid. 

AB 1076 also amends Section 16600 to expressly state that these provisions are applicable to contracts where the person being restrained from engaging in a lawful profession, trade, or business is not a party to the contract.

AB 1076 also adds a new Section 16600.1, which makes it unlawful to include a noncompete clause in an employment contract, or require an employee to enter into one, that does not satisfy an exception to Section 16600. 

It also imposes the following notification requirements on employers:

• By February 14, 2024, employers must notify in writing current and former employees who were employed after January 1, 2022 that any noncompete clauses or noncompete agreements previously signed by the employees are void.
• Each written notice must be individualized to the employee or former employee and delivered to the person’s last known address and email address.

“Noncompete agreement” is not defined in the statute. Some may argue that it is broad enough to include nonsolicitation of customer and nonsolicitation of employee provisions.

A violation of Sections 16600 and 16600.1—i.e., an employer’s failure to provide such notice, the inclusion of noncompete provisions in an employment contract, or a requirement that an employee enter into a noncompete provision that does not satisfy a statutory exception—is per se an act of unfair competition under California’s Unfair Competition Law (UCL), California Business and Professions Code §§ 17200 et seq.

Violators of the UCL may be subject to an injunction, an award of restitution, or enforcement actions by the attorney general.

CONCLUSION

AB 1076 arrives at the heels of SB 699 and further strengthens California’s established public policy against noncompete agreements. Both laws go into effect on January 1, 2024. Whereas SB 699 expanded the ways in which employees can challenge noncompete agreements by private right of action, AB 1076 imposes notice requirements and a February 14, 2024 deadline for compliance.