The state of California has long prohibited noncompete agreements in the employment context. It defines noncompete agreements broadly, and even nonsolicitation clauses are unenforceable.
In other words, under California law, employees are not only free to directly compete with their previous employers immediately after termination of employment, but they can also directly solicit the customers they worked with in their previous jobs.
For the most part, California has refused to enforce these kinds of agreements even when the employer is based outside of California.
Effective January 1, 2024, though, such agreements are not only unenforceable but may also result in significant liability for employers.
The new law creates a private right of action for employees working in California whose agreements include noncompetition clauses. That is, affected employees can sue their employers for violating the law. The law makes clear that this is true “regardless of whether the contract was signed and the employment was maintained outside of California.”
In addition, the new law provides for attorneys’ fees for any current, former, or even prospective employee who is successful in such a lawsuit.
This means all agreements with employees who work in California (whether at an official workplace or from home) should be promptly reviewed for compliance.
Perhaps even more concerning to employers is the fact that if an employee living and working in a state other than California signed a noncompete agreement valid in that state, and the employee later leaves that job and moves to California, the employer cannot enforce that otherwise valid agreement.
Let’s say an Oregon company hires an executive, fully complying with the numerous requirements to have a valid noncompete agreement. After a few years, the executive quits, moves to California, and accepts a position with a direct competitor of the Oregon company.
If the Oregon company attempts to enforce the noncompete agreement, the executive has the right to sue that Oregon company and may be entitled to injunctive relief, actual damages, attorneys’ fees, and costs.
The unenforceability of nonsolicitation agreements may be even more problematic for employers.
First, in many states (including Oregon and Washington), nonsolicitation agreements are not subject to the strict restrictions placed on agreements broadly prohibiting competition. This means that significantly more employees are subject to nonsolicitation agreements than are bound by noncompete agreements.
Second, without enforceable nonsolicitation agreements, as soon as employment is terminated, employees can begin soliciting their former employers’ customers to switch to their own new competing companies or their new employers.
If, for example, a Washington company requires a sales representative to sign a nonsolicitation agreement and that employee later quits and moves to California, the employer can do nothing to stop the employee from attempting to bring all of the sales representative’s accounts to the new California employer.
Please feel free to contact us if you have any questions about noncompete or nonsolicitation clauses or any other aspect of employment law.
For more information about employment law, see Employment Law (in Plain English)®, co-authored by members of this law firm.
The book is available through Skyhorse Publishing, Amazon, Barnes & Noble, Powell’s Books, and Bookshop (an online bookstore that allows you to support your favorite independently owned bookstore).
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