For over 150 years, California’s robust public policy against “contractual restraints on trade” has protected workers from onerous non-compete agreements with their employers. On September 1, 2023, the law, codified as California Business and Professionals Code §16600 et seq., received a meaningful update to reflect the challenges faced by today’s multi-jurisdictional workers.
This change, which will become effective on January 1, 2024, renders void and unenforceable contracts signed by California workers, no matter where the contract was signed, and no matter where the employee maintained their employment for that employer. The public policy supporting the law recognizes that today’s workforce is increasingly multi-jurisdictional. With the rise in remote work, it’s not uncommon for employees to reside in California, while working for employers in New York, Texas, Florida or some other jurisdiction that permits the use of non-compete provisions. Employers have frequently used their presence in these employer-friendly jurisdictions to justify the use of non-compete provisions.
In 2017, California tried to address this precise problem. California Labor Code Section 925 prohibited employers from requiring employees who primarily worked and resided in California to sign an agreement that required the adjudication of a claim outside of California, or subject to another state’s laws.
However, Labor Code Section 925 has a significant loophole, which employers have made use of since the law’s enactment: if an employee is represented by counsel, then a choice-of-law provision selecting another state’s law would be permitted. While this loophole has been perceived as promoting a powerful executive’s freedom to contract, the reality is that most workers – even those with significant leverage – are not on equal bargaining footing with the large institutions with which they contract.
Further, those employees who were not represented by counsel when they originally signed a non-compete have been expected to know and understand the intricacies of California employment law and choice-of-law provisions. As a result, California employees have often signed non-competes that are unenforceable under California’s public policy, but which nonetheless chill their ability to find employment – either because the employee mistakenly believes the provisions are enforceable or because prospective employers don’t want the risk that comes with hiring an employee who could be the subject of actual or threatened litigation from a scorned former employer.
Can California workers recover attorneys’ fees if they challenge their non-compete agreement?
Not only are employees subject to unequal bargaining power when they enter into these agreements, they’re at a disadvantage when litigating any dispute. While many employers have in-house counsel and litigators on retainer to threaten or litigate a dispute, a worker challenging a non-compete must pay for legal fees and costs, often out of their own pockets, to defend against a breach of contract claim.
In this regard, California now provides impactful remedies. California employees who challenge the enforceability of their non-compete and prevail can recover the attorneys’ fees they incur when litigating the dispute. Further, employees can recover injunctive relief and monetary damages, meaning that the cost of a lost business opportunity caused by an unenforceable non-compete would be recoverable.
Can a California employee file a non-compete claim retroactive to January 1, 2014?
Finally, California’s updated non-compete law will apply retroactively. This means that employees who are currently subject to a non-compete can avail themselves of its protections once the law becomes effective on January 1, 2024. In the interim, employees in California should continue to abide by their restrictions and consult with counsel on how best to challenge any restrictions they believe are unenforceable.
In situations where many colleagues are forced to sign non-compete agreements, employees can often find strength in numbers. Outten & Golden’s Class Action Practice Group represents employees in challenging an employer’s across-the-board use of unenforceable or unlawful agreements and policies.
For employees outside of California who are subject to a non-compete, this law is one of many recent federal and state efforts to limit and regulate the use of non-competes, including the FTC’s Proposed Rule banning non-competes. Outten & Golden’s Executives and Professionals Practice Group is a recognized leader in advising clients on restrictive covenants and other contractual obligations and can assist employees in understanding their non-competes and other contractual restrictions, navigating job opportunities under such restrictions, and negotiating these provisions when they’re asked to sign them.
In situations where many colleagues are forced to sign non-compete agreements, employees can often find strength in numbers. Outten & Golden’s Class Action Practice Group represents employees in challenging an employer’s across-the-board use of unenforceable or unlawful agreements and policies.
For employees outside of California who are subject to a non-compete, this law is one of many recent federal and state efforts to limit and regulate the use of non-compete, including the FTC’s Proposed Rule banning non-competes.
Outten & Golden’s Executives and Professionals Practice Group is a recognized leader in advising clients on restrictive covenants and other contractual obligations and can assist employees in understanding their non-competes and other contractual restrictions, navigating job opportunities under such restrictions, and negotiating these provisions when they’re asked to sign them.
