On September 1, 2023, California Governor Gavin Newsom signed a new law that will profoundly change how companies in the state can use non-compete agreements. Known as Senate Bill 699, the law amends the California Business & Professions Code Section 16600. It will prohibit employers from entering into or even trying to enforce a non-compete agreement under any circumstances. What makes this law even more significant is that this prohibition applies even if the contract was signed outside of California. The law is not immediate and is set to become effective on January 1, 2024. This information was provided by JDSupra, an authoritative online source delivering legal news.
Non-compete agreements, also known as covenants not to compete (CNC), are fairly common in business. They are provisions that a company inserts in contractual relations with its employees, partners or contractors, preventing them from engaging in similar professional activities in a defined geographic area for a particular period after the end of that contractual relationship. Although they are meant to protect business secrets and firm-specific human capital, these agreements have been under increasing scrutiny due to their potential misuse.
The prohibition ingrained in Senate Bill 699 dramatically expands on the current legislation that already limits non-compete agreements. Before this amendment, such agreements were unenforceable in certain situations, such as in employment contracts, unless they were necessary to protect the company’s trade secrets. However, the new law completely eliminates the possibility of any non-compete agreements, ushering in a new landscape for business relations in California.
Employers, legal professionals and human resource departments across California will need to review their current contracts and practices to ensure compliance when the law comes into effect in 2024.
The repercussions of this law are expected to ripple not only through the state of California but potentially across the whole country, as it could lead to the rethinking of current practices and rules regarding non-compete agreements elsewhere. Future developments and impacts are yet to be seen, and the legal community will be watching carefully.