New legislation recently was proposed in the California State Assembly that, if adopted and signed into law by Gov. Gavin Newsom, could have a significant impact on employers and their attorneys providing advice regarding the use of restrictive covenants in California.

Assembly Bill 747, introduced by California Assembly Member Kevin McCarty (D-06), provides, among other things:

• The use or attempted use of a "covenant not to compete" would constitute a violation resulting in actual damages and an additional penalty of $5,000 per employee or prospective employee who is harmed by the violation.
  
• Attorneys could face suspension, disbarment, or other discipline by the State Bar of California for presenting an employee or prospective employee with a covenant not to compete or attempting to enforce such a covenant not to compete.
• The broadly worded definition of "covenant not to compete" includes "any provision of any contract or other agreement that restrains anyone from engaging in a lawful profession, trade, or business of any kind."

While the bill was just recently proposed and has not yet been voted on by a committee—much less been approved by the full assembly, senate, or governor—if adopted, it could have a significant impact on employers and legal practitioners providing advice in California on restrictive covenants, particularly for employers operating across state lines.

Ban on Noncompete Clauses

Under section 16600 of the California Business and Professions Code,...

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