California Enacts Private Right of Action and Notice Requirement for Unlawful Non-Competes
California has enacted two new non-compete laws in as many months, each of which reinforces the state’s longstanding public policy prohibiting post-termination non-competes and certain other post-termination restrictive covenants with employees, unless such covenants satisfy one of the three express statutory exceptions (e.g., in connection with the sale of a business or the termination of partnership or limited liability company interests, discussed further below). While these new laws do not substantively change what is permissible under California law, they do raise the stakes for noncompliance in California and create a near-term notice obligation which may present challenges for some employers. These new laws clearly apply to traditional non-compete provisions—i.e., those which expressly prevent a former employee from working for an employer’s competitors—but may also cover agreements restricting a former employee’s ability to solicit customers and clients and employee no-hire covenants, as California courts historically have read and applied California’s non-compete statute broadly to cover such agreements. In addition, while post-termination non-solicitation of employees covenants have long been treated as permissible in California (distinguished from no-hire covenants), starting in 2019, some lower California and federal courts also concluded that such covenants are impermissible non-competes under the non-compete statute (but currently there is no binding authority to this effect from a higher court). Accordingly, even though they are not expressly addressed in the text of the laws, post-termination customer and client non-solicit and employee no-hire covenants may also be within the scope of these laws.