Key Updates and Case Studies on California's Revised Non-Compete Law
In 2023, the California legislature made significant amendments to the state's non-compete laws, adding Section 16600.5 to the California Business and Professions Code. This new section, effective January 1, 2024, has profound implications for employers and employees alike. Here's a closer look at what these changes entail and some notable cases that have emerged since the law took effect.
Key Provisions of Section 16600.5
The amendment to Cal. Bus. & Prof. Code § 16600 introduced several critical provisions:
- Unenforceability of Void Contracts: Any contract that is void under this chapter is unenforceable, regardless of where and when it was signed.
- Prohibition on Enforcement: Employers or former employers cannot attempt to enforce a void contract, even if the contract was signed and the employment was maintained outside of California.
- Restrictions on New Contracts: Employers are prohibited from entering into contracts with employees or prospective employees that include void provisions.
- Civil Violations: Employers that enter into or attempt to enforce void contracts commit a civil violation.
- Private Right of Action: Employees, former employees, or prospective employees can bring a private action for injunctive relief or the recovery of actual damages, and prevailing parties are entitled to reasonable attorney’s fees and costs.
Notable Cases Since the Amendment
Since the implementation of these changes, several cases have tested the new provisions of Section 16600. Here are some key examples:
- Girn v. Barney (2024): In this case, the Orange County Superior Court struck down a non-compete clause that restricted an employee from soliciting other employees or posting job offers for two years after termination. The court ruled that such a clause constituted an invalid restraint on employment, as it limited the employee's ability to engage in their chosen profession.
- BBBB Bonding Corp. v. Pilling-Miller: The Court of Appeal found that an employment contract containing a non-compete clause, regardless of how narrowly tailored, was void and unenforceable. Additionally, the court ruled that confidentiality provisions that effectively operate as non-compete clauses must also be declared void under Section 16600.
- NFP Prop. & Cas. Servs. v. Alliant Ins. Servs. (2024): The United States District Court for the Central District of California addressed whether a cause of action for tortious interference with contract could be dismissed at the outset of a case involving restrictive covenants. The court denied the motion to dismiss, emphasizing that evaluating whether these clauses unlawfully restrain trade requires detailed factual analysis.
Implications for Employers and Employees
The amendments to Section 16600 underscore California's strong stance against non-compete agreements, promoting employee mobility and innovation. Employers must carefully review their contracts to ensure compliance with the new law, while employees now have greater protections and the ability to seek legal recourse if they are subject to void non-compete clauses.
As these cases demonstrate, the courts are actively enforcing the new provisions, providing a clear message that non-compete agreements that do not meet statutory exceptions will not be tolerated in California.
