As you likely know as an employer, non-compete agreements are not enforceable in California. The Golden State has been ahead of the growing nationwide movement towards ending or at least minimizing the use of these agreements and their restrictions. California law on this subject is also ahead of federal law – as it often is on so many matters.
The Federal Trade Commission (FTC) last year proposed a rule that would prohibit most non-compete agreements at the federal level. Employers could use them only if they can show that they’re necessary. Even then, they can’t be so broad in geographic or other scope or in length that they prevent people from getting work in their field. The goal is to get the final rule in place this year.
Yet, a new California law that took effect on Jan. 1 of this year not only exceeds the FTC’s proposed rule, it extends California’s existing prohibition on non-compete agreements. The new law can benefit both employees and employers. It changes language in the California Business and Professions Code to state that the prohibition on non-compete agreements extends to any employee who works in California, even if the non-compete agreement they signed is legal and valid in the state where they signed it.
How this shift can benefit California employers
This arrangement can free up a lot of talented people who move to California and who would be otherwise bound by such agreements in the states where they previously lived and worked. This shift can be particularly valuable in competitive industries like biomedicine, pharma, tech and entertainment, but can help any business to hire the best and the brightest.
With a recent increase in remote work arrangements, this can also allow California-based businesses to hire people who may reside in another state but want to work for them. If the non-compete agreement they signed with their previous employer isn’t valid here, they and their new California employer don’t need to honor it.
Yet, like most new laws, you can’t count on everyone (certainly not businesses in other states) to be aware of it or particularly interested in recognizing it. California businesses may have to deal with attempts by out-of-state businesses to try to prevent former employees from working for them. Having sound legal guidance can help you more effectively deal with any challenges that you may encounter in this regard so that you can focus on getting the best talent for your business.