California recently passed SB 699 to expand the existing prohibition on non-compete agreements to agreements with out of state employers and to provide a private right of action to employees that are subject to an attempted enforcement of a non-compete agreement.
SB 699 adds Business and Profession Code Section 16600.5 that states any contract that is void under the Contracts in Restraint of Trade chapter of the code[1] is unenforceable regardless of where and when the contract was signed. While California courts have regularly found non-compete agreements signed out of state to be unenforceable in California, the legislature has now acted to codify the prohibition into law.
Further, SB 699 creates a private right of action for employees by stating that an employer that attempts to enforce a contract that is void under the chapter commits a civil violation. An employee, former employee, or prospective employee may bring a private action to enforce the chapter for injunctive relief or the recovery of actual damages, or both. A prevailing employee, former employee, or prospective employee that succeeds in such an action is also entitled to attorney’s fees and costs.
Employers continue to include non-compete provisions in employment agreements even though they were void and unenforceable because it still served to restrict employee mobility. The legislature intends for this law to reduce the number of employers who violate this prohibition by increasing the risk of litigation and making it possible for employees to recover damages and attorney’s fees.
This law is set to go into effect on January 1, 2024.
[1] The chapter generally prohibits and voids any contracts that restrict anyone from engaging in a lawful profession, trade or business of any kind. It also sets forth specific exceptions to this prohibition.