SB 699: Non-compete Contracts

Senate Bill 699 by Sen. Anna Caballero (D-Merced) would address the issue of non-compete clauses in California employment situations. SB 699 would add Business and Professions Code Sections 16600.5 and 16608. Section 1 of the bill would set forth six legislative findings and declarations, including that noncompete clauses in employment contracts are extremely common in the United States, and, over the past two decades, research on the harm of noncompete clauses and other contract clauses involving restraint of trade to pursue one’s profession has been accelerating.

In addition, the California courts have been clear that California’s public policy against restraint of trade law trumps other state laws when an employee seeks employment in California. Freedom of employment is paramount to competitive business interests.

Section 2 of the bill would add Business and Professions Code Section 16600.5 to specify that any contract that is void under California law is unenforceable regardless of where and when the contract was signed. Moreover, an employer would be prohibited from attempting to enforce a contract that is void under this law regardless of whether the contract was signed and the employment was maintained outside of California.

Section 3 of the bill would add Business and Professions Code Section 16608 to prohibit an employer from entering into a contract that presents an employee or prospective employee as a term of employment. In addition, an employer that enters an agreement that the employer knows or reasonably should know is prohibited by this law commits a civil violation, and the Attorney General may bring an action on behalf of the employee, or the employee may bring a private action, against the employer to enforce this law.

Finally, an employee or prospective employee may bring an action for injunctive relief and for the recovery of actual damages and additional penalties pursuant to this law. Also, a prevailing employee or prospective employee in any action based on a violation of this law is entitled to recover reasonable costs and attorney’s fees.