ihwlaw

In the ever-evolving landscape of employment law, California’s Assembly Bill 1076, effective January 1, 2024, is a significant new landmark. This legislation clarifies the enforceability of noncompete agreements in the employment and consultancy context and has immediate implications for California employers and workers alike.  Newly invalidated non-competes and related provisions require immediate attention for all parties involved. Businesses should consult with corporate counsel to ensure compliance with this new law. Workers should also consult with competent counsel to understand the implications of this new law on their freedom to work for competitive firms in the future.

The Essence of AB 1076
At its core, AB 1076 amends Section 16600 of California’s Business and Professions Code, invalidating any noncompete covenant on employees or consultants, irrespective of how narrowly tailored the clause might be. The law’s mandate to interpret the statute broadly extends beyond noncompete provisions, encompassing customer nonsolicitation provisions and similar clauses previously enforceable under California law.  The law also requires immediate attention by parties to whom the new law applies because of a notice that is due this month, as discussed below.

The Sole Exception to the Law on Non-Competes in California
There is only one exception to the prohibition on non-competes in California, which exists in the context of business sales.  When a party sells the goodwill of a business or otherwise disposes of a critical ownership interest, a non-compete agreement may be enforceable. This is to ensure that the seller does not engage in competitive activities that diminish the value of the entity or interest that is sold. This specific scenario recognizes the legitimate business interest in protecting the acquired business’s value and thus stands as the only recognized exception under California law. Here, too, consultation with corporate counsel can help parties better understand the contours of this law.

The Notice Requirement in AB 1076
A pivotal aspect of AB 1076 is the obligation it places on employers to send a notice to current and former employees (and almost certainly individual consultants, too) who meet specific criteria:
1. Post-1/1/22 Start Date: The worker must have been engaged to work after January 1, 2022.
2. California Residency: The worker must be located in California.
3. Presence of Unenforceable Provisions: The worker must have signed a written agreement containing a noncompete provision, customer nonsolicitation provision or other similar provision now rendered unenforceable by the new law.  The notice, due by February 14, 2024, must inform workers of the void status of these provisions in California. This applies even if the provision was enforceable in another state when executed. Failure to provide this notice constitutes a violation of the state’s Unfair Competition Law, carrying the risk of civil penalties should the company be sued.

Implications for Employers and Employees and the Necessity of Legal Consultation
Employers with California-based workers should undertake an immediate review of all applicable agreements, including those signed by workers who relocated to California after signing enforceable agreements outside the state. The intricacies of AB 1076 necessitate a nuanced understanding of its provisions and potential implications for your business operations; thus, consulting with corporate counsel is highly advisable. Workers should also consult with counsel to ascertain if the new law applies to them, as may affect whether and how workers seek similar types of work in the future.

Why Consult Corporate Counsel?
1. Compliance Assurance: Corporate attorneys can guide employers and workers through the complexities of AB 1076, ensuring that all aspects of the law are addressed.
2. Risk Mitigation: Legal counsel can help identify potential areas of risk and develop strategies to mitigate them, safeguarding against inadvertent non-compliance.
3. Drafting Compliant Notices: Attorneys can assist in drafting and disseminating compliant notices to affected workers, a critical step in adherence to AB 1076.
4. Strategic Advisory: Given the broad interpretation of noncompete and similar provisions, legal advisors can offer strategic guidance on restructuring agreements and company policies in line with the new legal landscape.

Conclusion
The enactment of AB 1076 reflects a paradigm shift in the realm of noncompete agreements and underscores the importance of staying abreast of legislative changes that impact the employer-employee relationship. For those navigating these changes, consulting with an experienced corporate attorney is not just advisable; it is imperative.  Obtaining detailed guidance and support in ensuring compliance with AB 1076 can help avoid costly litigation and lead to developing alternative methods to protect proprietary information and assets.  Feel free to contact me for advice tailored to your needs.