Employee Non-Compete Agreement and Enforceability Memo — California

California Employee Non-Compete Agreement and Enforceability Memo

Quick-Reference Summary

Part A — Enforceability Memo

I. Statutory and Common-Law Framework

California has prohibited post-employment non-compete agreements for over 150 years. Cal. Bus. & Prof. Code § 16600 provides: "Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." The California Supreme Court in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), rejected any federal "narrow restraint" exception and held that § 16600 bars even narrowly tailored noncompetes in the employment context.

Effective January 1, 2024, two new statutes substantially strengthened the ban:

• SB 699 (§ 16600.5): Any contract void under § 16600 is unenforceable "regardless of where and when the contract was signed." An employer may not enter into or attempt to enforce such a contract, even if the employee signed it out of state under another state's law. Creates a private right of action permitting injunctive relief, actual damages, and reasonable attorneys' fees.

• AB 1076 (§ 16600.1): Codifies Edwards and makes it unlawful (not merely void) to include a noncompete in an employment contract or require an employee to sign one. Requires employers to give individualized written notice — by mail and email to the last known addresses — by February 14, 2024, to all current employees and former employees employed on or after January 1, 2022 whose agreements contained a noncompete, telling them the clause is void. A violation constitutes unfair competition under § 17200.

II. Reasonableness Factors

Not applicable. California courts do not apply a reasonableness test to post-employment employee noncompetes; the statute does not permit one. Geography, duration, and scope are irrelevant — even a one-day, one-block noncompete is void.

III. Consideration Requirements

Not applicable. No amount of consideration cures a § 16600 violation.

IV. Notice and Disclosure Requirements

Under § 16600.1(b), employers who had California employees subject to noncompete clauses on or after January 1, 2022 were required to deliver, no later than February 14, 2024, an individualized written notice to the employee's last known mailing address and email address advising that the noncompete is void. The notice obligation continues to apply prospectively whenever an employer identifies a covered agreement.

A sample notice form is provided in Part B, § 4 of this packet.

V. Income / Salary Thresholds

None. The ban applies to all employees regardless of compensation level — executives, technologists, sales personnel, and low-wage workers alike.

VI. Industry Carve-Outs and Statutory Exceptions

There are no industry-based carve-outs — the ban applies uniformly. The only recognized statutory exceptions to § 16600 are:

These exceptions are construed narrowly and turn on the sale-of-goodwill rationale, not the employment relationship. See Strategix, Ltd. v. Infocrossing W., Inc., 142 Cal. App. 4th 1068 (2006).

VII. Remedies (Employee Remedies)

Under § 16600.5(e), a current, former, or prospective employee may bring a civil action and recover:

• Injunctive relief;
• Actual damages;
• Reasonable attorneys' fees and costs (mandatory to a prevailing employee).

Failure to provide the AB 1076 notice or attempts to enforce a void agreement constitute unfair competition under § 17200, subject to civil penalties up to $2,500 per violation. Employers face exposure to UCL injunctions and restitution as well as potential class actions.

VIII. Recent Caselaw and Legislative Changes (2023–2025)

• AB 1076 (Stats. 2023, ch. 828) — eff. Jan. 1, 2024.
• SB 699 (Stats. 2023, ch. 157) — eff. Jan. 1, 2024.
• Hermalyn v. DraftKings Inc. (litigation in 2024) — early test of § 16600.5's extraterritorial reach where employee signed a noncompete in New Jersey and moved to California; underscores employer exposure when California employees are recruited from other states.
• Beluca Ventures LLC v. Aktiebolag (N.D. Cal. 2023) — confirmed that California courts will refuse to enforce sister-state noncompetes even with foreign choice-of-law clauses.
• FTC Non-Compete Rule (2024) — federal rule was set aside by the Northern District of Texas (Ryan, LLC v. FTC, Aug. 20, 2024). California's stricter regime remains controlling for California employees.

Part B — Non-Compete Cannot Be Enforced in California: Alternative Protections Package

1. Confidentiality and Trade Secret Protection Agreement (Caption and Recitals)

CONFIDENTIALITY AND TRADE-SECRET PROTECTION AGREEMENT

This Agreement is entered into as of [__/__/____] between:

Recitals:

A. Company is engaged in the business of [________________________________] (the "Business").

B. In the course of employment, Employee will receive and have access to Company's trade secrets and confidential information.

C. No non-competition covenant is contained in this Agreement. California Business and Professions Code § 16600 voids any post-employment restraint on Employee's ability to engage in a lawful profession, trade, or business.

D. The parties intend, in this Agreement, only to protect Company's trade secrets and confidential information under the California Uniform Trade Secrets Act, Cal. Civ. Code §§ 3426 et seq.

2. Definitions

"Confidential Information" means non-public business or technical information of Company disclosed to or learned by Employee in the course of employment, including pricing, customer-specific information, business strategies, financial information, and unpublished product specifications. Confidential Information does not include: (a) information generally known to the public through no fault of Employee; (b) information Employee lawfully knew before employment; (c) information lawfully obtained from a third party not under a duty of confidentiality; or (d) information independently developed by Employee without use of Company's information.

"Trade Secret" has the meaning set forth in Cal. Civ. Code § 3426.1(d).

3. Employee Covenants (Lawful Under California Law)

3.1 Confidentiality

During and after employment, Employee shall not use or disclose Company's Confidential Information or Trade Secrets except in the performance of Employee's duties for Company or as expressly authorized in writing.

3.2 Return of Property

On termination, Employee shall return all Company property and copies of Confidential Information in any form.

3.3 Narrow Non-Solicitation of Trade Secrets

Employee shall not, after termination of employment, use Company's Trade Secrets to solicit Company's customers. This provision is narrowly tailored to trade-secret misappropriation under CUTSA and is not a customer non-solicit. See Reeves v. Hanlon, 33 Cal. 4th 1140 (2004).

3.4 Invention Assignment

Employee assigns to Company all inventions developed using Company resources or relating to Company's Business, except inventions excluded by Cal. Labor Code § 2870 (inventions developed entirely on Employee's own time, without Company equipment, supplies, facilities, or trade-secret information, that do not relate to Company's actual or anticipated business). A written notification of § 2870 rights is attached as Exhibit A.

3.5 Whistleblower / DTSA Notice

Pursuant to 18 U.S.C. § 1833(b), Employee is hereby notified that Employee may not be held criminally or civilly liable under any federal or state trade-secret law for the disclosure of a trade secret that is made (i) in confidence to a federal, state, or local government official or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit, if made under seal. Nothing in this Agreement limits Employee's right to file or participate in an investigation by any government agency.

3.6 Acknowledgment That No Non-Compete Is Imposed

Employee acknowledges and Company affirms that this Agreement does not contain any post-employment non-competition covenant, and that any prior agreement of the parties to the extent it purports to restrain Employee from engaging in a lawful profession, trade, or business after termination is void and unenforceable in California under Cal. Bus. & Prof. Code §§ 16600, 16600.1, and 16600.5.

4. AB 1076 / SB 699 Statutory Notice (for Legacy Noncompete Clauses)

NOTICE TO EMPLOYEE — VOID NONCOMPETE PROVISION

Date: [__/__/____]

Employee Name: [________________________________]
Last Known Mailing Address: [________________________________]
Last Known Email: [________________________________]

Re: Noncompete Provision in Your [Date of Agreement: __/__/____] [Agreement Title]

This notice is provided pursuant to California Business and Professions Code § 16600.1.

The noncompete provision contained in the agreement identified above is VOID and UNENFORCEABLE under California law (Cal. Bus. & Prof. Code §§ 16600, 16600.1, and 16600.5). Company will not seek to enforce that provision against you. This notice does not affect lawful obligations regarding confidentiality, trade secrets, or invention assignment, which remain in effect according to their terms.

If you have questions, contact: [________________________________].

Sincerely,

[Company Authorized Signatory]
[________________________________]

5. Choice of Law and Forum

This Agreement is governed by California law without regard to choice-of-law principles. Any action arising out of or relating to this Agreement shall be brought exclusively in the state or federal courts located in [_____] County, California. The parties expressly waive any choice-of-law or forum-selection provision in any prior agreement that conflicts with this Section.

6. Severability

If any provision is held unenforceable, the remainder shall remain in effect. The parties expressly acknowledge that no court is authorized to reform a void noncompete; an unenforceable noncompete shall be stricken in its entirety.

7. Entire Agreement

This Agreement supersedes any prior post-employment noncompete covenant between the parties to the extent such covenant is void under California law. All other obligations not inconsistent with California law remain in effect.

Signature Block

COMPANY:

By: [________________________________]
Name: [________________________________]
Title: [________________________________]
Date: [__/__/____]

EMPLOYEE:

[________________________________]
[Employee Printed Name]
Date: [__/__/____]

Part C — Pre-Signing / Compliance Checklist (California)

☐ Agreement contains no post-employment non-competition covenant (any such clause is void under § 16600).
☐ Agreement contains no broad customer non-solicit (only narrow trade-secret-based non-solicit permitted; see Edwards).
☐ Agreement contains no broad employee non-solicit (AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal. App. 5th 923 (2018) — likely void).
☐ Confidentiality clause limited to genuine confidential information (cannot operate as de facto noncompete).
☐ Invention-assignment clause includes Cal. Labor Code § 2870 written notification (Exhibit A).
☐ DTSA / 18 U.S.C. § 1833(b) whistleblower notice included.
☐ AB 1076 / SB 699 statutory notice delivered (by mail and email to last known addresses) for any legacy noncompete covering current employees and former employees employed after Jan. 1, 2022.
☐ Choice-of-law clause does not select another state's law to circumvent § 16600 (Cal. Lab. Code § 925 voids such clauses for California-resident employees absent independent counsel).
☐ Forum-selection clause does not require out-of-state litigation for a California-resident employee (Cal. Lab. Code § 925).
☐ Counsel review confirmed before execution.
☐ HR / payroll system flagged not to enforce or reference any pre-existing noncompete against this employee.

Sources and References

• Cal. Bus. & Prof. Code § 16600 — https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600
• Cal. Bus. & Prof. Code § 16600.1 — https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600.1
• Cal. Bus. & Prof. Code § 16600.5 — https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=16600.5
• SB 699 (2023) — https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240SB699
• AB 1076 (2023) — https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB1076
• Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008)
• AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal. App. 5th 923 (2018)
• Reeves v. Hanlon, 33 Cal. 4th 1140 (2004)
• Cal. Civ. Code §§ 3426 et seq. (California Uniform Trade Secrets Act)
• Cal. Labor Code § 925 (choice-of-law / forum restrictions for California employees)
• Cal. Labor Code § 2870 (employee invention rights)
• California Attorney General — non-compete enforcement priorities: https://oag.ca.gov/