The following legislation was recently passed in the state of California. As an employer, the information included in this post may apply to your business. It is every employer’s responsibility to verify that they are in compliance with applicable laws and regulations.
Senate Bill 699 (2023-2024)
Contracts in Restraint of Trade
On September 1st, 2023, Governor Gavin Newsom signed Senate Bill 699, which mirrors current state law that voids contracts that restrain an employee from engaging in a lawful profession, trade, or business of any kind.
California’s Business and Professions Code section 16600 states, “Every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This section has long been interpreted by California courts as prohibiting post-employment noncompetition, nonsolicitation of customers, and nonsolicitation of employee agreements, with few exceptions. The chapter exempts such restrictive covenants in the sale or dissolution of corporations, partnerships, and limited liability corporations.
SB 699 both reiterates existing law and goes further. Under SB 699, any contract that is void under section 16600 is unenforceable, regardless of where and when the contract was signed. In addition, an employer or former employer may not attempt to enforce a contract that restricts an employee’s ability to engage in a lawful profession, trade, or business, even if the contract was signed outside of California, and the employment was maintained outside of California.
Additionally, SB 699 prohibits an employer from entering into a contract with an employee or prospective employee that includes noncompete clauses and other restrictive covenants that are void under section 16600. Employers that violate SB 699 could be liable for civil violations.
SB 699 takes effect on January 1st, 2024.
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