New Golden State Law To Create Gold Rush Litigation Testing Non-Compete Agreements

Topics: Court Decisions, Non-Compete and Trade Secrets

For over two decades, California law concluded non-compete agreements are not enforceable in the context of employment, Edwards v. Anderson, 44 Cal.4th 937 (2008) and even created a public policy claim against employers assisting the enforcement of out-of-state non-compete agreements, Silguero v. Creteguard, Inc., 187 Cal.App.4th 60 (2010). Effective January 1, 2024, California’s new statute expressly allows employees or former employees to file civil claims seeking injunctive relief, actual damages, and attorneys’ fees when confronted with what they believe to be void non-compete agreements. Bus. & Prof. Code § 16600.5. 

The new law expands current law to render any non-compete void and unenforceable no matter where or when the contract was signed. Moreover, the code expressly makes it a violation for an employer to even attempt to enforce a void non-complete, even if the agreement was signed in another state and related to employment in another state. Like other civil rights laws, an employer that enters into an illegal non-compete or attempts to enforce an illegal non-compete will commit what is called a civil violation.

Impact

Expect increased litigation in the Golden State over the treatment of non-competes. Employers seeking to hire their competitors’ employees have a new powerful weapon to test any non-competes in California. The new law to enforce California’s public policy includes the club of a threat of award of attorneys’ fees for successfully defeating such non-competes or a former employers’ attempts to enforce such agreements. Also, expect challenges to the enforceability of this new law under the United States Constitution from out-of-state employers.

Even employers in states where non-competes are enforceable should consider the potential consequences of an employee moving to California who then seeks injunctive relief from the agreement, damages, and the employee’s attorneys’ fees under California law.

If you have questions about enforcing non-competes or seeking to have non-competes declared void by a California court, please contact Dan M. Forman, Chair of CDF’s Trade Secret Practice Group or your favorite CDF attorney.