AB 1076: Contracts in restraint of trade: noncompete agreements.

Existing law voids contractual provisions by which a person is restrained from engaging in a lawful profession, trade, or business of any kind, except as otherwise provided. Existing case law, as established in the case of Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, interprets this provision to void noncompete agreements in an employment context and noncompete clauses within employment contracts, even if that agreement is narrowly tailored, unless an exception applies.

Existing law, the Unfair Competition Law (UCL), makes various practices unlawful and makes a person who engages in unfair competition liable for a civil penalty, as specified. Existing law provides for enforcement of these provisions exclusively by the Attorney General or other specified local agency attorneys.

This bill would codify existing case law by specifying that the statutory provision voiding noncompete contracts is to be broadly construed to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy specified exceptions. The bill would state that this provision is declaratory of existing law. The bill would make these provisions applicable to contracts where the person being restrained is not a party to the contract.

This bill would also make it unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy specified exceptions. The bill would require employers to notify current and former employees in writing by February 14, 2024, that the noncompete clause or agreement is void, as specified. This bill would make a violation of these provisions an act of unfair competition pursuant to the UCL.