There’s been a trend nationwide in recent years of limiting the use of non-compete agreements and clauses in employment agreements to industries where they’re necessary for fair competition. Those clauses can’t be more broad or restrictive than necessary.
California has been a leader in this area. Unfortunately, not all employers have refrained from including non-compete provisions where they weren’t needed. Now, a law signed by Gov. Gavin Newsom that took effect on Jan. 1 makes it even more difficult to hold employees to a non-compete agreement. It should, however, help employers bring on talented employees.
What’s in the new law?
The law reiterates that “every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except under limited statutory exceptions.
The law prohibits an employer “from entering into a contract with an employee or prospective employee that includes a provision that is void under the law….” It also states that “an employer who violates that law commits a civil violation. The bill would authorize an employee, former employee, or prospective employee to bring an action to enforce that law for injunctive relief or the recovery of actual damages, or both….” It also essentially voids any previously signed agreements unless they are valid under current law.
What does it mean for non-compete agreements signed in other states?
California employers cannot “enforce a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California.” That means if an employee signed a non-compete agreement in a state with fewer restrictions, it can’t be enforced here unless the terms are enforceable under California law.
This will make it easier for California employers to hire people from other parts of the country they would otherwise have been unable to because of non-compete agreements they signed in other states.
It can be a challenge for employers to keep up with the many changes in California employment-related laws. Whether you’re drafting an employee agreement, have questions about an existing agreement or are being challenged by another business regarding their non-compete clause, it’s crucial to have experienced legal guidance on your side.