California non-compete law
What every executive should know about non-competes and restrictive covenants in California
Section 16600, the 2024 legislative expansion, non-solicitation voidability, and what to do when an employer threatens enforcement.
Section 16600: America’s Strongest Protection
California Business and Professions Code Section 16600 is the foundation of executive freedom in California. It voids every contract that restrains a person from engaging in any lawful profession, trade, or business. This statute is among the most employee-protective in the United States.
What makes §16600 powerful is its simplicity: it does not require that a non-compete be “unreasonable” or “too broad.” Even a narrowly tailored, one-year, 10-mile non-compete is void as applied to employment. The statute operates as an absolute bar, not a reasonableness test.
The Three Narrow Exceptions
California carves out three situations where restrictive covenants may be enforceable, all involving the sale or dissolution of business interests—not employment.
Sale of business goodwill (§ 16601). When a seller transfers the goodwill of an existing business, the seller may agree not to engage in a similar business within a reasonable geographic area for a reasonable time. This protects the buyer’s investment in what it acquired.
Dissolution of partnership (§ 16602). When a partnership dissolves, the partners may agree not to engage in the same business within a reasonable geographic area for a reasonable time.
Dissolution of LLC (§ 16602.5). Similar to partnerships. Employment agreements—even for founders and executives—do not fall within any of these exceptions.
SB 699: Choice-of-Law No Longer an Escape Route
Senate Bill 699, effective January 1, 2024, closed a significant loophole. Many employers were inserting choice-of-law provisions into employment agreements, designating Delaware, Texas, or New York law in hopes that those states would enforce the non-compete even though it would be void in California.
SB 699 makes this strategy unlawful. An employer cannot require a California employee to enter a non-compete agreement, and cannot attempt to enforce one—even if the agreement specifies that another state’s law applies. The statute applies regardless of where the employee works at the time of enforcement.
SB 699 creates a private right of action. If an employer attempts to enforce a void non-compete—through litigation, demand letters, or threats—the employee can sue for damages and recover attorney’s fees.
This creates powerful leverage for departing executives facing enforcement threats. The cost-benefit calculation has shifted: pursuing enforcement now exposes the employer to liability.
AB 1076: Codifying Edwards v. Arthur Andersen
Assembly Bill 1076, also effective January 1, 2024, codified the California Supreme Court’s landmark ruling in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937. That case established that non-competes are void even if narrowly tailored or reasonably restricted in time and geography.
AB 1076 eliminates any lingering uncertainty: employers cannot defend a non-compete by arguing it is “reasonable.” No amount of narrowing, limiting, or carving out exceptions makes a non-compete enforceable in an employment context. The statute is absolute.
Non-Solicitation Agreements: Void Under the Same Framework
Non-solicitation agreements—both customer and employee varieties—are void under the same § 16600 framework. A non-solicitation clause that prohibits an employee from soliciting customers restrains the employee from engaging in a lawful business, and is void.
In Edwards v. Arthur Andersen LLP (2008), the California Supreme Court rejected any reasonableness analysis for restraints on business activity. The Court of Appeal in AMN Healthcare Services, Inc. v. Aya Healthcare Services, Inc. (2018) applied this directly to employee non-solicitation provisions, holding them void under § 16600. SB 699 and AB 1076 further strengthened these protections, giving California employees a private right of action against employers who attempt to enforce void restrictive covenants.
Confidentiality provisions protecting legitimate trade secrets are a separate matter and may be enforceable under the California Uniform Trade Secrets Act. But any clause that restricts you from working with customers or recruiting colleagues is unenforceable.
Confidentiality Agreements as De Facto Non-Competes
Some employers draft confidentiality agreements so broad they effectively function as non-competes. An overly broad clause might classify nearly all business knowledge as “confidential,” making it impossible for you to work in the industry without risking liability.
California courts will look through the label. If a confidentiality agreement operates as a restraint on your ability to engage in a lawful profession, courts treat it as a non-compete and apply §16600. The key question is whether the clause genuinely protects trade secrets, or whether it operates as a business restraint.
Choice of Law Does Not Override California Protection
Even before SB 699, California courts applied California law to non-competes affecting California employees regardless of what the contract stated. This principle was established in Application Group, Inc. v. Hunter Group, Inc. (1998) 61 Cal.App.4th 881.
If your employment agreement says “This agreement shall be governed by the laws of Texas” or “Delaware law applies,” that does not help your employer enforce a non-compete against you in California. This is true regardless of when you signed the agreement, what state the employer is based in, or where you were working at the time.
Garden Leave: Does Paying You Make It Enforceable?
“Garden leave” provisions require an employer to pay your salary for a period after resignation, during which you cannot work for a competitor. Some jurisdictions view garden leave more favorably than traditional non-competes.
In California, garden leave still restrains an employee from engaging in a lawful business, and courts apply §16600. Paying you does not change the fact that the clause prevents you from competing. Courts view this as compensation for the restriction, not as a reason to enforce it.
What to Do If Your Employer Threatens Enforcement
Do not take enforcement threats lightly, but do not assume the restriction is enforceable. California law is on your side—but you need to respond strategically.
Do not ignore the threat. Ignoring a cease-and-desist letter may result in an unnecessary lawsuit. A written response through counsel signals that you take the matter seriously and understand your rights.
Respond through counsel immediately. An attorney can draft a response explaining why the non-compete is void under §16600 and referencing the counterclaim exposure under SB 699. Many disputes resolve quickly with a well-crafted letter.
Assess confidentiality exposure separately. Non-competes and non-solicitation agreements are void. But confidentiality provisions protecting legitimate trade secrets may create real exposure—this requires careful analysis of the clause language and the information at issue.
Consider your counterclaim rights. If the employer pursues litigation despite SB 699, you may have a counterclaim for damages and attorney’s fees. This shifts the cost-benefit analysis and provides leverage in settlement discussions.
When to Engage Counsel
Timing matters. There are three critical junctures where legal counsel changes the outcome.
Before signing an offer letter or employment agreement. Review the non-compete and other restrictive covenants before accepting. We advise on enforceability and negotiate removal or modification while you still have leverage.
When you decide to leave your current role. Before you resign or accept a competing offer, review your agreements with us. We identify which restrictions are real threats and which give you cover to make your move.
Upon receipt of a cease-and-desist or enforcement threat. Contact counsel immediately if your former employer sends any communication threatening to enforce a restrictive covenant. Time is critical for responding effectively and protecting your rights.
