In a significant move to protect employee rights, California Governor Gavin Newsom signed Assembly Bill (AB) 1076 into law on October 13, 2023. This legislation reinforces California’s existing ban on noncompete agreements in employment by explicitly making it unlawful for employers to include post-employment noncompete clauses in employment contracts or require employees to enter into post-employment noncompete agreements. The law is set to take effect on January 1, 2024, but employers have specific obligations and deadlines to meet to comply with this new legal landscape.

Key Provisions of AB 1076

1. Ban on Post-Employment Noncompete Clauses: AB 1076 prohibits employers from including post-employment noncompete clauses in employment contracts. These clauses typically restrict employees from working for competitors or in similar roles for a specified period after leaving their current employer.
2. Notification Requirement: By February 14, 2024, employers must provide individualized written notices to all current employees and certain former employees who were employed after January 2022. These notices must inform employees that any post-employment noncompete clauses contained in employment agreements or any other post-employment noncompete agreements with the employer are void.
3. Legal Consequences: A violation of Section 16600.1 under AB 1076 will constitute an act of unfair competition within the meaning of Business and Professions Code Section 17200. This means that employers who fail to comply with the law may face legal consequences.

Unanswered Questions

While AB 1076 marks a significant step towards limiting the use of noncompete agreements in California, there are several unanswered questions and potential gray areas:

1. Interaction with Other Laws: California Labor Code Section 925 allows employees to negotiate choice of law and venue provisions with employers. Some parties may have negotiated post-employment noncompete clauses using this exception. AB 1076’s notice requirement raises questions about the status of such agreements.
2. Definition of “Noncompete Agreement”: AB 1076 does not provide a clear definition of what constitutes an unlawful “noncompete agreement.” This lack of clarity leaves employers uncertain about whether employee nonsolicitation agreements will be affected by the law.
3. Employee Nonsolicitation Agreements: Historically, employee nonsolicitation agreements were considered permissible in California. However, recent legal developments have cast doubt on their viability. Employers are left wondering if they should issue AB 1076 notices for such agreements.

Next Steps for Employers

Given the uncertainties and challenges associated with AB 1076, employers may want to take the following steps to prepare for the law’s enactment:

1. Employment Agreement Audit: Consider conducting a privileged audit of employment agreements with existing employees and former employees hired after January 2022 to identify any restrictive covenants that may be impacted by AB 1076.
2. Agreement Modification: Evaluate and modify agreements with current employees that contain potentially void noncompetition provisions to ensure compliance with the new law.
3. Compliance with Notification Requirement: If an AB 1076 notice is required, be prepared to provide individualized, written notices to affected employees by February 14, 2024, to their last known addresses and email addresses.

Conclusion

AB 1076 reflects California’s commitment to protecting employees from overly restrictive noncompete agreements. It comes at a time when other states and federal agencies are also scrutinizing the use of such agreements in employment. Employers in California should take proactive steps to understand and comply with the new law to avoid potential legal consequences. Additionally, staying informed about further developments in this area of employment law is crucial, as it continues to evolve.

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