On September 1, 2023, Governor Newsom signed Senate Bill 699 (“SB 699”) into law. Effective January 1, 2024, SB 699 prohibits employers from including or seeking to enforce post-employment covenants not to compete in any employment contracts, regardless of where and when the agreements were signed and even if the employment at issue was performed outside California’s borders. Although non-compete agreements have long been void in California, SB 699 targets employers nationwide as it expands the scope of California’s restriction by rendering any non-compete agreement void and unenforceable. The new law also expressly creates a private right of action providing for injunctive relief, the recovery of actual damages, or both, as well as attorney’s fees and costs to a prevailing employee, former employee or prospective employee.
SB 699 adds a new section to the California Business and Professions Code, Section 16600.5, which provides:
1. Any contract that is void under Business and Professions Code Section 16600 is unenforceable regardless of where and when the contract was signed.
2. An employer or former employer shall not attempt to enforce a contract that is void under Business and Professions Code Section 16600 regardless of whether the contract was signed and the employment was maintained outside of California.
3. An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under Business and Professions Code Section 16600.
4. An employer that enters into a contract that is void under Business and Professions Code Section 16600 or attempts to enforce a contract that is void under Business and Professions Code Section 16600 commits a civil violation.
5. An employee, former employee, or prospective employee may bring a private action to enforce Business and Professions Code Section 16600 for injunctive relief or the recovery of actual damages, or both, and is entitled to recover reasonable attorney’s fees and costs.
The impact of SB 699 is uncertain at this time as many practitioners predict employers will vigorously challenge the law under various constitutional theories. It is certain, however, that the new law is part of a much broader push to ban or reform non-compete laws in many states, as well as under federal law. Indeed, the Federal Trade Commission has proposed a nationwide ban on non-competes, and its proposed rule is currently in the notice and comment period. Given this trend and the potential damages and civil liability envisioned by SB 699, employers would be wise to carefully review any restrictive covenants they have historically used.
The full text of SB 699 can be found here.