September 20, 2023
Starting January 1, 2024, California will be broadening its already expansive prohibitions on employee non-compete agreements. Senate Bill (SB) 699, signed into law on September 1, 2023, added Section 16600.5 to the Business & Professions Code, which expands California’s existing restrictions on non-competes to agreements created out-of-state and creates new enforcement rights for employees to challenge non-compete clauses.
California’s Business and Professions Code section 16600 currently voids contracts that restrain an employee from engaging in a lawful profession, trade, or business of any kind. State courts have historically applied Section 16600 to bar agreements made in California restricting post-employment competition, with limited exceptions.[1]
Section 16600.5 will prohibit enforcement of any contract previously forbidden under Section 16600 “regardless of where and when the contract was signed.” Plaintiffs may capitalize on this broad phrasing to argue that the new law should apply retroactively to any contract with non-compete provisions, and courts will likely have to clarify whether California’s presumption against retroactivity applies.[2] The new law will further bar “an employer or former employer from attempting to enforce a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California.”[3] Employers that enter into a contract that is void or attempt to...
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