California’s recent legislative move, a statute that invalidates non-compete agreements, has been stirring up controversial discussions amongst legal professionals. The question at the forefront is: Will this new statute survive any potential constitutional challenges that may arise?
As JD Supra reports, Article I, Section 10 of the United States Constitution prohibits a state from passing any law that impairs the obligation of contracts. This clause finds its echo in the California Constitution with Article 1, Section 9. Uniquely, these prohibitions reach into the realm of employment contracts as well.
The case of Cal Fire Loc. 2881 v. California Pub. Employees’ Ret. Sys., 6 Cal. 5th 965, 977, 435 P.3d 433, 441 (2019) is especially pertinent here. The implications of the case seem to weigh heavily on the fate of California’s new statute regarding non-compete agreements.
The challenge for legal practitioners, both within corporation law departments and law firms, is considering the ripples this potential constitutional challenge may create. How will ongoing and new employment contracts be impacted? What modifications, if any, need to be made to existing or drafting non-compete agreements within the state boundaries of California?
Given the nature of the US Constitution and its weight, this could potentially be a landmark case. Whether the statute can navigate the turbulent waters of constitutional scrutiny remains to be seen. Legal professionals, both within and beyond California, are waiting eagerly to see how the law evolves to accommodate or reject this disruptive statutory move.