Non-Compete Agreements in California: What Employers Can and Cannot Enforce After AB 1076

California broadly prohibits non-compete agreements in employment, and under AB 1076, many older non-compete clauses are not only void but also unlawful meaning employers may face penalties if they attempt to enforce them.

Overview of California Non-Compete Law

California Business and Professions Code Section 16600 declares that any contract restraining someone from engaging in a lawful profession, trade, or business is void, subject to narrow statutory exceptions. Courts interpret this rule broadly, so even narrowly tailored non-compete clauses that would be acceptable in other states are generally unenforceable here.

Recent legislation, including AB 1076 and SB 699, codifies a strong public policy in favor of employee mobility and makes non-compete agreements in the employment context not just void but unlawful to impose or attempt to enforce. Employees can sue an employer who tries to enforce a non-compete that violates these statutes, and may recover their attorneys’ fees and costs.

What AB 1076 Changed

AB 1076 amends Section 16600 and adds Section 16600.1, confirming that any non-compete in employment, regardless of how narrow, is void unless a specific statutory exception applies. The law applies broadly to employers that have California employees or otherwise do business in the state, even if the agreement was signed elsewhere.

AB 1076 also creates a notice requirement, obligating employers to tell certain current and former employees in writing that their non-compete clauses are void. Failure to provide the required notice can be treated as an unfair competition violation and may carry civil penalties of up to $2,500 per violation.

What Employers Cannot Enforce After AB 1076

In most cases, employers cannot enforce a post-employment restraint that prevents a worker from joining a competitor, starting a competing business, or working in a similar role after leaving the company. This includes non-compete clauses in employment contracts, offer letters, handbooks, or separate restrictive covenant agreements that restrict lawful future employment.

Attempts to enforce out of state non-competes against employees who live or work in California are also prohibited under the new scheme, and such efforts can themselves be actionable. California courts typically reject attempts to relabel a non-compete agreement as something else if the practical effect is still to restrain an employee from engaging in a lawful business.

What Employers Can Still Use Instead

AB 1076 does not prevent employers from using properly tailored confidentiality and trade secret protection agreements. Employers can still prohibit employees from misusing or disclosing trade secrets and proprietary information, and may enforce these provisions under trade secret and unfair competition laws.

Employers can also use non-solicitation of customers or employees in some limited contexts, but these provisions must be carefully drafted so they do not function as de facto non-compete clauses. Well built policies on conflicts of interest, protection of intellectual property, and return of company property remain important tools that do not conflict with section 16600 when narrowly focused on legitimate business interests.

Limited Statutory Exceptions

California still recognizes narrow exceptions where non-compete type restrictions may be valid, such as when a person sells the goodwill of a business, all of their ownership interest, or substantially all operating assets of an enterprise. In those sales of business scenarios, reasonable restraints tied to the geographic area and type of business may be enforceable.

There are also related provisions addressing partners or LLC members in connection with dissolution or departure from a firm, where similar limited restraints can apply.

Outside these specific statutory exceptions, non-compete agreements in employment remain void under AB 1076 and SB 699.

AB 1076 Notice Requirement

AB 1076 requires employers to send individualized written notice to all current employees, and certain former employees employed after a specified date, who were required to sign non compete agreements that are void under California law. The notice must inform them that the non-compete clause or agreement is void and can no longer be enforced in California.

Employers had to send these notices by February 14, 2024, to the employee’s last known physical address and email address. Failure to send the notices can expose employers to unfair competition claims and civil penalties, so employers that missed the deadline should speak promptly with an employment law defense attorney about corrective steps.

Working With an Employment Defense Lawyer

Given the expanded enforcement tools for employees and regulators, California companies should partner with an experienced employment defense attorney to review existing agreements and templates. A knowledgeable employer defense lawyer can help identify non-compliant clauses, craft compliant confidentiality and trade secret agreements, and manage any litigation risk arising from past conflicts.

If your business is in Santa Cruz, on the Central Coast, or anywhere in California, our attorneys at Brereton, Mohamed, & Korte LLP can represent employers in unfair competition and contract disputes.  For companies facing a demand letter or lawsuit over an alleged unlawful non-compete agreement, engaging an employment defense attorney early improves your ability to resolve the dispute efficiently and protect your business.

FAQs About Non Competes in California After AB 1076

1. Are non-compete agreements ever enforceable in California employment?

In typical employment relationships, non-compete agreements are void and unlawful unless they fit within narrow statutory exceptions related to sale or dissolution of a business.

2. Does AB 1076 apply to non-competes signed in another state?

Yes, California now allows employees to challenge non-compete agreements that violate California laws even if they were signed in another state where such agreements might otherwise be enforceable.

3. What notice did AB 1076 require employers to send?

Employers had to send written notices to certain current and former employees stating that any non-compete provisions in their employment contracts are void in California.

4. What happens if an employer missed the February 14, 2024 notice deadline?

Missing the deadline can be treated as an unfair competition violation and may lead to civil penalties, so employers should consult an employment law defense attorney to evaluate risk and remedial options.

5. Can employers still protect trade secrets without competing?

Yes, employers can and should use confidentiality and trade secret agreements, along with strong policies and access controls, which remain enforceable when properly drafted under California law.

6. Are customer non-solicitation clauses still allowed?

Customer and employee non-solicitation clauses require careful drafting because if they effectively restrain a former employee from engaging in their profession, courts may treat them as unlawful non-competes.

7. Do small employers have to comply with AB 1076?

AB 1076 is not limited to large employers; any business with California employees or a connection to the state that used non-compete clauses should review its obligations and send required notices.

8. When should a company contact an employer defense lawyer about non-competes?

You should speak with an employer defense lawyer if you used non-compete agreements in the past, are revising your templates, or receive any demand or lawsuit involving a restrictive covenant.