New CA Bill Prohibits Unlawful Employee Contracts

On February 14, 2023, Assembly Bill 747 (McCarty) was introduced to prohibit certain employee contracts. AB 747 would amend Business and Professions Code Section 16601, as well as add Sections 6090.5 and 16608. 

Section 1 of the bill would add Business and Professions Code Section 6090.5 to provide that it is “cause for suspension, disbarment, or other discipline for any licensee to enter into with an employee or prospective employee, present an employee or prospective employee as a term of employment, or attempt to enforce any employee contract or other agreement that violates Section 16608.”

Section 2 of the bill would amend Business and Professions Code Section 16601 to modify the definitions of “partnership interest,” “membership interest,” and capital stock corporation to include more than a 10% interest of the total membership interest of the entity.

Section 3 of the bill would add Business and Professions Code Section 16608 to prohibit an employer from entering into, present an employee or prospective employee as a term of employment, or attempt to enforce any covenant not to compete that is void under this chapter. An employer that violates this section is liable for actual damages and an additional penalty of $5,000 per employee or prospective employee who is harmed by the violation.

An employee may bring an action for injunctive relief and for the recovery of actual damages and additional penalties, as well as reasonable costs and attorney’s fees. The phrase “covenant not to complete” and the terms “employee” and “employer” are defined.

Section 4 of the bill would amend Labor Code Section 925 to specify that, for purposes of contract negotiations, an employee is not considered individually represented by legal counsel if the counsel is paid for by, or was selected based upon the suggestion of, the employee’s employer. This new provision applies to contracts after January 1, 2024.

Section 5 of the bill would add Chapter 4.1, titled “Training Costs and Debt,” to Part 3 of Division 2 of the Labor Code. An employer would be prohibited from requiring an employee to reimburse, pay, or repay, including upon termination of employment, costs for any training related to the employee’s responsibilities and duties related to their employment.

The terms “employee,” “employer,” and “training” would be defined. Training generally includes instruction required by the employer, but does not include required training to obtain or maintain professional licenses.