Last year, California enacted two laws that severely restrict noncompete agreements in the state. First, Senate Bill 699, now codified as Section 16600.5 of the Business & Professions Code, extends the state’s general ban on noncompete agreements to agreements signed out of state. It also creates a private right of action for employees whose agreements include restrictive covenants, including attorney’s fees awards for successful lawsuits against employers. Second, Assembly Bill 1706, which amends Section 16600, codifies the 2008 California Supreme Court decision of Edwards v. Arthur Andersen LLP. As a result, all noncompete agreements are invalid, even if narrowly tailored, unless they meet specific statutory exceptions.

As part of Assembly Bill 1706, employers were required to notify current and former employees employed since January 1, 2022, that their noncompete agreements were void. Employers had until February 14, 2024, to satisfy this notice requirement. They had to send individualized notices to the employee’s last known mailing and email addresses. Notice is not required for noncompete agreements that are valid under current California law. Employers subject to this notice requirement include employers with a California presence who employ California and non-California residents and employees with no California presence who employ California residents.

Failure to comply with the notice requirements under Assembly Bill 1706 is considered an act of unfair competition. The penalty for a failure to comply is up to $2,500 per violation. However, it remains unclear how the penalty is calculated or whether each “violation” refers to each employee or each agreement.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.