Your normal Valentine’s Day to-do list may include a box of chocolates, card, or bottle of wine. This year, for employers with California employees subject to noncompete agreements, add one more task: notices of invalidity of noncompetition agreements.
As a buzzkill for Valentine’s Day, California’s legislature recently updated its laws relating to noncompete agreements in Assembly Bill 1076, requiring Notice of Invalidity to be sent to California employees subject to noncompetition agreements by February 14, 2024. These notices are part of California’s stated efforts to ensure that existing law is broadly construed to void noncompete agreements in any employment context unless very narrow exceptions are met (discussed below). Employers of California-based employees should have already stopped including noncompete agreements or clauses in employment contracts, again unless very narrow exceptions are met.
A Notice of Invalidity must be individually addressed and sent to each current and former California-based employee who were (a) employed after January 1, 2022, and (b) who are subject to a noncompetition agreement. Note, this cannot be a generic communication to all affected employees. It must be individually addressed and sent to each affected current or former employee.
The Notice of Invalidity must be sent by February 14, 2024, to the current or former employee’s last known address and email address.
The Notice of Invalidity must identify the agreement at issue by title or, if untitled, reference the noncompetition agreement.
The Notice of Invalidity must state that the noncompetition agreement is void and will not be enforced. If the employer’s agreement contained other provisions, such as nonsolicitation, confidentiality, and trade secret protections, or assignment of inventions/work product, these terms are largely unaffected, and the Notice of Invalidity should reference that any remaining provisions of the agreement remain valid and enforceable. However, employers should note that Assembly Bill 1076 did not define “noncompete” so there is a possibility the law may be interpreted to include nonsolicitation or other provisions typically considered to be outside the definition of noncompete. For this reason, employers of California employees may want to consider preparing a new agreement containing the nonsolicitation and confidentiality/trade secret protections for California employees to sign, to avoid any confusion on validity and enforceability.
Very few exceptions apply to this invalidation of noncompete agreements; these limited exceptions relate to partnership or LLC dissolutions and sales of businesses or interests in businesses. Thus, nearly all employers with California employees from January 1, 2022, to the present will need to send Notices of Invalidity to employees who are subject to noncompetition agreements.
In a post-Valentine’s Day pocket-book downer, if the California employee does not receive the Notice of Invalidity, the employer may be penalized up to $2,500 per violation pursuant to California’s Unfair Competition Law, meaning $2,500 for each and every current or former employee who did not receive this Notice of Invalidity. Employers of California-based employees or former employees who are seeking employment in California should also be aware that another new California law, Senate Bill 699, creates a private right of action for the employee to sue the former employer seeking to enforce a noncompete, to void the noncompete, as well as seek monetary damages, temporary or permanent injunction, and attorney’s fees and costs. California’s Senate Bill 699 implicates the validity of agreements made and that are enforceable in other states, so legal challenges to this law are expected.
Spread the employee love from the State of California and send your Notices of Invalidity out right away—candy hearts optional!
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.