Employers that asked workers to sign noncompete contracts in California are now in violation of state law.
With the recent passing of a deadline to inform employees that such contracts are void, fines of up to $2,500 plus attorney fees are now possible for businesses that have failed to comply.
The new law requires businesses to send emails and letters to the last known mailing address alerting employees to the change in order to avoid legal liability and civil penalties.
Businesses that didn’t issue such notifications by that date are now in violation and are open to legal action.
Often presented in new hire paperwork, the documents are typically signed when joining a company. Legal experts said human resources departments are advised to immediately notify any employees who signed such agreements.
The state’s top law enforcement official has repeatedly warned businesses in recent years of the illegal nature of such contracts.
“Despite being prohibited in California, noncompete provisions are routinely included in employee contracts, including contracts for lower-wage workers,” Rob Bonta, California’s attorney general, said in a 2022 statement. “This can have a tremendous effect of deterring workers from pursuing new, and oftentimes better job opportunities.”
Such contracts limiting competition are considered an impediment to California business activity; they also apply to employers located outside of California if the workers reside in the state.
“Even when invalid, these agreements can discourage workers from seeking new opportunities, causing workers in a variety of professions to mistakenly believe that they cannot pursue or accept a competitor’s offer of better pay or working conditions in fear of facing legal repercussions,” the attorney general’s statement reads. “From software engineers to baristas, those in noncompete agreements may believe that their only option is to continue to work for their current employer.”
Seen as potentially detrimental to entrepreneurship, wages, and the workforce, the contracts are unenforceable regardless of when and where the agreements were signed, according to state law.
Some tech experts suggest that the rise of the industry in California is because of the state’s long-held resistance to anti-competitive practices.
“I love that you can trace the birth of the semiconductor industry back to a series of key events that were only possible thanks to California’s 1872 decision not to recognize noncompete agreements,” John W. Lettieri, founder of the Economic Innovation Group in Washington, posted on Jan. 23 on X, formerly known as Twitter.
Business codes allow current, former, and prospective employees to file lawsuits and recover damages and legal expenses if an employer has not heeded the law.
Exceptions include those relating to a dissolution of partnerships or the sale of a business.
While illegal in California, noncompete agreements are common in some industries and widely used across the United States.
While proposing a federal rule to rescind the contracts nationwide, the FTC estimated in January 2023 that eliminating such clauses could increase wages by $250 billion to $296 billion annually.
