At Coepio Legal, your dedicated San Francisco business lawyer, we recognize that non-competition provisions have long been a controversial tool in employment contracts. These agreements, designed to prevent employees from joining competitors or starting their own competing businesses, have faced increasing scrutiny, particularly in California. As a corporate lawyer in San Francisco committed to your business’s success, we’re here to guide you through the evolving landscape of non-compete agreements as we enter 2024. This article highlights recent actions by the Federal Trade Commission (FTC) and two key laws passed in California—SB-699 and AB-1076—that further limit the enforceability of these agreements.

If you’re unsure how these changes affect your business or employment agreements, reach out to Coepio Legal for personalized guidance and support.

The Federal Landscape: FTC’s Push for a Nationwide Ban on Non-Competes

On April 23, 2024, the FTC proposed a Final Rule to ban non-compete agreements across the United States effective September 4, 2024. The FTC argues that non-competes suppress wages, limit job mobility, and harm economic competition. The rule, had it gone into effect, would have:

• Prohibited employers from entering into new non-compete agreements.
• Rescinded existing non-competes, requiring employers to notify workers that their agreements are no longer enforceable.
• Covered most workers, including employees, independent contractors, and unpaid workers, while making few exceptions (such as in the sale of a business).

However, just days before the rule was set to take effect, the U.S. District Court for the Northern District of Texas ruled the FTC’s Final Rule unlawful, delaying enforcement. The FTC has 60 days to appeal, and while compliance is not currently required, it is crucial for employers, especially those supported by a San Francisco business lawyer like Coepio Legal, to stay informed of potential changes on the horizon.

For now, employers do not need to comply with the FTC’s Final Rule, although they should remain mindful that a nationwide rule is in the FTC’s sights and that there may be significant changes in federal regulation of non-competition agreements in the near future.

California’s 2024 Legislation: Even Stronger Protections Against Non-Competes

California already has some of the nation’s strongest protections against non-compete agreements. Under California Business and Professions Code Section 16600, non-competes are generally void in California. But in 2024, the state passed two new laws—Senate Bill 699 (SB-699) and Assembly Bill 1076 (AB-1076)—that further tighten the screws on employers who attempt to use or enforce non-competes in violation of California law.

SB-699: Prohibiting Non-Competes Nationwide for California Workers

SB-699, which went into effect on January 1, 2024, extends California’s strict non-compete prohibitions beyond state borders, ensuring that California employees are protected even when working for out-of-state employers. The bill clarifies that any contract violating California’s non-compete laws is void, regardless of where or when the employee signed it. The law also gives employees the right to sue any employer—whether in-state or out-of-state—if they attempt to enforce a non-compete agreement against a California worker.

Key aspects of SB-699 include:

• Nationwide Application: California’s ban on non-competes applies to any employee or contractor working in the state, even if their employer is based in another state.
• Employer Liability: Employers who attempt to enforce non-competes against California employees or contractors can be held liable, and employees can file lawsuits for damages.
• Retroactive Protection: The law voids existing non-compete agreements for California workers, regardless of when they were signed or where the employer is located.

By closing this loophole, SB-699 prevents out-of-state employers from bypassing California’s non-compete ban by relying on their home state’s more lenient laws. This is a major step in protecting California’s mobile workforce, particularly as remote work has blurred state boundaries.

AB-1076: Ensuring Compliance With California’s Non-Compete Ban

AB-1076, also effective January 1, 2024, strengthens enforcement mechanisms against employers that attempt to impose illegal non-compete agreements. Previously, employees largely had to rely on individual lawsuits to void non-competes or challenge their enforceability. AB-1076 changes that by giving the California Labor Commissioner the authority to take action against employers who include non-compete clauses in their employment contracts.

Key elements of AB-1076 include:

• State Enforcement: The California Labor Commissioner can now enforce violations of the non-compete ban, relieving employees of the sole responsibility to pursue costly litigation.
• Fines and Penalties: Employers that include non-compete clauses in contracts may face civil penalties, which can add up quickly depending on the number of affected workers.
• Deterrent Effect: By increasing the risk of penalties and state enforcement, AB-1076 serves as a significant deterrent to employers, reinforcing California’s zero-tolerance stance on non-competes.

Key Impact on Employers and Employees

For employers, these legal developments underline the necessity of reassessing employment contracts. At Coepio Legal, we advise taking proactive steps such as:

• Reviewing and Removing Non-Competes: Employers, particularly those with operations in California, should review all employment contracts and consider removing any non-compete clauses. Failure to do so may result in significant legal and financial consequences.
• Consider Alternatives: To protect trade secrets or client relationships, employers should consider alternatives like non-disclosure agreements (NDAs) or non-solicitation agreements, which are more likely to withstand legal scrutiny.
• Adapt to Remote Work: As remote work continues to grow, companies that hire employees working from California, even if headquartered in another state, must ensure compliance with California’s non-compete laws to avoid potential lawsuits and enforcement actions.

For employees, especially those working in California or remotely for out-of-state companies, the legal developments in 2024 offer stronger protections against restrictive covenants that limit their job mobility. Employees should:

• Know Your Rights: Workers who are presented with a non-compete clause should be aware that, in most cases, such clauses are unenforceable under California law. Employees can seek legal assistance to understand their rights and challenge any agreement that unlawfully restricts their future job prospects.
• Report Violations: If an employer attempts to enforce a non-compete agreement in violation of California law, employees now have the option to report the employer to the Labor Commissioner for enforcement action, without having to shoulder the burden of private litigation.

The developments in non-compete agreements in 2024 bring significant shifts in both federal and California laws. While the FTC’s proposed rule is still under legal challenge, it could lead to a nationwide transformation in the labor market. In California, SB-699 and AB-1076 further bolster employee rights, ensuring compliance with strict regulations.

At Coepio Legal, we are here to help both employers and employees navigate these changes effectively. Our experienced team understands the complexities of employment contracts and can review your agreements to ensure compliance with both California and federal laws. Whether you’re an employer seeking to protect your business or an employee wanting to understand your rights, our expertise as your corporate lawyer in San Francisco will guide you in the right direction.

Contact us today to learn how we can support you in adapting to this evolving legal landscape. Protect your interests with Coepio Legal—your trusted partner in navigating the complexities of employment law!