Noncompete agreements are void and prohibited by law in California

May 6, 2024
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QUICK SUMMARY: In California, noncompete agreements that are intended to prevent or restrain an employee from engaging in another lawful possession, trade or business during their employment have long been unenforceable. Two laws that took effect in January expressly prohibit the inclusion of noncompete clauses in employment contracts, void existing contracts that include noncompete clauses and include employee notification requirements.

With news about the Federal Trade Commission’s ban in late April on noncompete agreements nationwide, dentists may be wondering how the FTC’s rule, if it takes effect as early as Sept. 4, will impact their contracts and working relationships.

But with very few exceptions, California already forbids noncompete agreements that are intended to prevent or restrain an employee from engaging in another lawful possession, trade or business of any kind during their employment. They have long been discouraged in the state’s public policy and unenforceable in the courts, but two bills signed into law last year include language that expressly (1) prohibits the inclusion of noncompete clauses in employment contracts, (2) voids existing contracts that include noncompete clauses and (3) requires employers to notify employees that the noncompete clauses in their agreements are considered void.

The FTC’s ban is likely to get tied up in litigation that may delay its implementation date. The U.S. Chamber of Commerce and other business groups have already filed a lawsuit against the commission. But regardless of the outcome of those lawsuits, dentists and other employers in California must comply with the state laws, which contain the same provisions as the FTC’s ban.

Here is a closer look at California’s two laws on noncompete agreements that took effect in January.

Employers must notify employees that noncompete clauses are void

As CDA first reported last October, Assembly Bill 1076:

  • Prohibits employers in California from including a noncompete clause in an employment contract.
  • Prohibits employers from requiring an employee to enter a noncompete agreement.
  • Requires employers to notify current and former employees in writing that the noncompete clause or agreement is void.

By Feb. 14, 2024, employers who had noncompete agreements in place should have notified their current employees and former employees who were employed after Jan. 1, 2022, that the noncompete agreement or clause is void.

Noncompete agreements for “senior executives” as defined in the law can remain in place, and the law also makes an exception for noncompete agreements connected with the sale of a business.

Employers cannot enter into a contract with a voided noncompete clause

California’s SB 699 prohibits employers or former employers from attempting to enter into or enforce a contract that contains a noncompete agreement regardless of where the contracts were signed – whether in or outside of California.

Employers who violate the law are committing a civil violation, and employees may bring an action for relief or the recovery of actual damages.

Learn more at CDA Presents and use CDA’s sample associate agreement

Dentists can learn more about California’s laws on noncompete agreements plus other employment topics at CDA Presents in May. Ali Oromchian, JD, and CDA Employment Practices Analyst Michelle Coker, PHR, PHRca, will co-present the lecture “HR Compliance Crash Course: Stay Ahead of the Curve with the Latest Employment Law Updates” 8-10 a.m. on Friday, May 17. Register to attend.

Three member-only resources also address contracts, common dental agreements and noncompete clauses:

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