Key takeaways

SB 699 creates a private right of action allowing employees to sue for actual damages and attorney's fees over void noncompetes.

The ban now explicitly applies to contracts signed outside California and to employment maintained out of state.

AB 1076 required employers to send written, individualized notices by February 14, 2024, to current and former employees stating their noncompetes are void.

Failure to provide the required notice constitutes unfair competition, carrying civil penalties up to $2,500 per violation.

The Legislation

California has enacted two new laws, SB 699 and AB 1076, that took effect on January 1, 2024, penalizing employers who use or attempt to enforce noncompete agreements. SB 699 (Chapter 157, approved September 1, 2023) extends California's jurisdiction across state lines, voiding noncompete agreements regardless of where or when they were signed. AB 1076 (Chapter 828, approved October 13, 2023) required employers to affirmatively notify workers that their existing noncompetes are void. Together, these statutes transform a defensive legal shield into an affirmative weapon for employees.

Why It Matters

The laws shift the financial risk of using noncompetes entirely onto the employer. Under previous standards, an unenforceable noncompete might simply be struck down by a judge if challenged in court, leaving the employer with little downside for including the restrictive covenant as a deterrent. Now, under the newly added Business and Professions Code section 16600.5, attempting to enforce a void noncompete constitutes a distinct civil violation. This exposes businesses to direct financial liability, including actual damages and attorney's fees. Furthermore, extending the ban to out-of-state contracts means companies cannot use choice-of-law provisions from other jurisdictions to bind workers who subsequently move to California. The legislation closes a loophole that out-of-state employers previously used to restrict employee mobility.

Who Should Care

For lawyers

Employment counsel must audit client agreements and enforcement strategies immediately. The creation of a private right of action for prospective, current, and former employees means that standard cease-and-desist letters sent to departing workers now carry immediate litigation risk. Defense attorneys will need to advise corporate clients on the cross-border implications, as out-of-state employment contracts are now subject to California's strict prohibitions if the employee seeks work within the state.

For consumers and employees

Workers moving to California for new jobs are protected from noncompetes they signed in other states. Employees gain the ability to sue their employers for damages if they are forced into these agreements or if the employer attempts to enforce them. This grants significant protection to workers seeking to change jobs or start competing businesses without the looming threat of costly, unrecoverable litigation.

Legal Background

California has long prohibited most restrictive covenants in the employment context. Business and Professions Code section 16600 dictates that, except as statutorily provided, 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 cemented this strict interpretation in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937. In that decision, the court held that section 16600 voids employee noncompetition agreements even if they are narrowly drawn, unless they fall within a specific statutory exception, such as sections 16601, 16602, or 16602.5. The Edwards court explicitly rejected the Ninth Circuit's "narrow restraint" exception, establishing a bright-line rule that requires a specific statutory carve-out to enforce any noncompete in the state.

What the Legislature Did

AB 1076 amended Business and Professions Code section 16600 to codify the Edwards decision. The legislation explicitly states that the amendment is declaratory of existing law and requires the statute to be read broadly to void any noncompete agreement in the employment context, no matter how narrowly drafted.

Beyond codifying case law, AB 1076 added Business and Professions Code section 16600.1, making it unlawful to include a void noncompete clause in an employment contract or to require an employee to enter a void noncompete agreement. To enforce this, section 16600.1 mandated that employers provide written, individualized notice by February 14, 2024, to current and former employees who were employed on or after January 1, 2022, and whose contracts contained a noncompete clause. The notice had to explicitly state that the clause is void and be delivered to the affected individual's last known physical address and email address. Failure to provide this required notice constitutes an act of unfair competition under the Unfair Competition Law (Bus. & Prof. Code section 17200 et seq.), which can carry civil penalties of up to $2,500 per violation.

Concurrently, SB 699 added section 16600.5, which establishes that any contract void under the chapter is unenforceable regardless of where or when it was signed. This provision specifically reaches contracts signed and employment maintained outside California. Section 16600.5 makes it a civil violation for an employer to enter into, or to attempt to enforce, a noncompete contract that is void under the chapter. To give this provision force, the legislature created a private right of action allowing an employee, former employee, or prospective employee to sue for injunctive relief, actual damages, or both. A prevailing employee or former employee is entitled to recover reasonable attorney's fees and costs.

How It May Be Applied

The new private right of action will likely generate substantial litigation over what constitutes an "attempt to enforce" a noncompete agreement. Courts will have to determine whether merely sending a reminder of contractual obligations to a departing employee qualifies as a violation that triggers actual damages and attorney's fees. Additionally, the cross-border application of section 16600.5 sets up inevitable jurisdictional conflicts with courts in states that enforce noncompetes. When an out-of-state employer sues a former employee who relocates to California, courts will have to weigh California's explicit statutory reach against traditional principles of comity and out-of-state choice-of-law provisions.

Before and After the 2024 Amendments

Feature	Prior Law	2024 Amendments (SB 699 & AB 1076)
Scope of Ban	Voided noncompetes under Section 16600.	Explicitly voids noncompetes regardless of where/when signed or out-of-state employment.
Employee Remedies	Declaratory relief to void the contract.	Private right of action for actual damages, injunctive relief, and attorney's fees.
Employer Notice	No affirmative notice required.	Required individualized written notice by February 14, 2024, to affected employees.
Penalties	Contract provision unenforceable.	Civil violation; failure to notice carries up to $2,500 penalty per violation under the UCL.

The Bottom Line

California has transformed its long-standing policy against noncompete agreements into an active threat of liability for employers. By allowing workers to sue for actual damages and attorney's fees, and by demanding retroactive notices to employees hired as far back as January 1, 2022, the state has given its ban sharp enforcement mechanisms. Companies can no longer rely on out-of-state agreements to restrict workers who move to California, fundamentally altering how national employers manage their workforce mobility.

This article is general legal information and commentary about developments in California law. It is not legal advice, does not address your specific situation, and is not a substitute for advice from a licensed attorney. Reading this article and contacting us through this website do not create an attorney-client relationship.

Sources & authorities

Business and Professions Code section 16600 — source
Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 — source

California enacts strict penalties for out-of-state noncompetes

Key takeaways