Noncompete Agreements Aren’t Just Unenforceable: They’ll Soon be Illegal

It has long been the law in California, that noncompete agreements are not enforceable. That means that employees are free to work where they want, when they want, when their current employment ends, no matter how it ends.

The limited exceptions are in the sales of businesses, where a buyer can require a seller of a business not to compete with the buyer.

But as of September 2023, a new law has been signed that strengthens the prohibition on compete agreements.

The Restrictions are Broadened

There was often dispute over whether a noncompete agreement could be enforceable, if it wasn’t actually signed in California, but rather, in a state where such agreements are enforceable. This is a problem that arose from the pandemic, when many workers went remote, and many worked remotely in different states, some of which had laws that allowed noncompete agreements.

But now, it no longer matters where the agreement was signed, or where the employee works or resides—these contracts are unenforceable.

No Enforcement- And Civil Penalties

The law also specifically prohibits an employer from trying to enforce the noncompete agreement. Many times, employers would try to not only prevent the employee from working, but would threaten legal action against the new employer. Now, not only is a noncompete agreement void, but it is illegal to even try to enforce the noncompete agreement in this way.

Most importantly, and most relevant to California employees, is that former employees, or their new, prospective employers, can both bring a lawsuit against a former employee that is seeking to enforce an unenforceable noncompete agreement.

The employee (or former employee) can get not only damages, but an injunction on the enforcement of the agreement, as well as attorneys fees, making it easier for an aggrieved former employee to fight back against employers seeking to enforce illegal noncompete agreements.

The law goes into effect in January of 2024.

Open Issues and Questions

There are still some legal issues to be decided—such as, for example, what happens when a noncompete agreement specifically chooses another state’s laws to govern the contract. Whether that other state’s laws will apply or not, is an open question.

Out of state companies, in states where noncompete agreements are legal, may also fight to prohibit employees from going to work for competitors located in California. They may want their noncompete agreement upheld, given they are in a different state, and whether a California court would so that is an open question.

In some cases, companies from other states have already gotten judgments, enforcing their noncompete agreements. Whether those judgements will now be enforceable in California remains to be seen as well.

Courts are also divided on how to treat non-solicitation agreements—basically, agreements where a former employee agrees that he or she will not contact or solicit for business, the former employer’s clients.

Is your employer trying to keep you from working somewhere else? Contact the San Jose employment lawyers at the Costanzo Law Firm today.

Sources:

natlawreview.com/article/new-california-law-makes-non-compete-agreements-unlawful-not-just-void

jdsupra.com/legalnews/golden-state-crackdown-on-non-competes-4213239/