AB 747: Business: unlawful employee contracts and requirements.

(1)Existing law provides that every contract that restrains anyone from engaging in a lawful profession, trade, or business of any kind is, to that extent, void, except as provided. Existing law authorizes any person who sells the goodwill of a business, any owner of a business entity selling or otherwise disposing of all of their ownership interest in the business entity, or any owner of a business entity that sells specified assets or ownership interests to agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, if the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein. Existing law defines ownership interest as a partnership interest, membership interest, or a capital stockholder, as described.

This bill would modify the definition of ownership interest to require the partnership interest, membership interest, or capital stock to be more than a 10% interest of the total partnership interest, more than a 10% interest of the total membership interest, or more than 10% of the total shares of ownership of the entity, respectively.

This bill would prohibit an employer, as defined, from entering into, presenting an employee, as defined, or prospective employee as a term of employment, or attempting to enforce any contract in restraint of trade, as defined, that is void, as described. The bill would provide that an employer, as defined, that enters into, attempts to enter into, or seeks to enforce a contract in violation of these provisions violates that provision is liable for actual damages and an additional penalty of up to $5,000 per employee, as defined, or prospective employee in a civil action brought by the employee or prospective employee. The bill would authorize an employee or prospective employee to bring an action for injunctive relief and for the recovery of actual damages and penalties and would provide that a prevailing employee or prospective employee is entitled to recover reasonable costs and attorneys fees. The bill would require the Attorney General to receive and investigate allegations of a violation of this provision and would authorize the Attorney General to bring an action enforcing this provision.

Existing law provides for a system of labor standards enforcement administered by the Labor Commissioner.

This bill would require the Labor Commissioner to enforce the above-described prohibition against entering into a contract or contract term that requires a debtor to pay for a debt if the debtors employment or work relationship with the employer is terminated, according to specified existing law, and would require the Attorney General and the Labor Commissioner to coordinate responsibility with respect to enforcement of those provisions, as specified, and would make a contract entered into in violation of that prohibition void. to, in coordination with the Attorney General, receive and investigate complaints related to the above-described provisions of this bill.

(2)Existing law, the State Bar Act, provides for the licensure and regulation of attorneys by the State Bar of California, a public corporation. Existing law provides that it is cause for suspension, disbarment, or other discipline for any licensee, whether acting on their own behalf or on behalf of someone else, whether or not in the context of litigation, to solicit, agree, or seek agreement that, among other things, misconduct or the terms of a settlement of a claim for misconduct shall not be reported to the State Bar.

This bill would provide that it may be is cause for suspension, disbarment, or other discipline for any licensee to enter into with an employee, prospective employee, or former employee, present an employee, prospective employee, or former employee as a term of employment, or attempt to enforce any employee contract or other agreement on the licensees behalf, or on behalf of their client, that violates the above-described prohibition against entering into a contract or contract term that requires a debtor to pay for a debt if the debtors employment or work relationship with the employer is terminated. in restraint of trade, as provided.

(3)Existing law prohibits an employer from requiring an employee who primarily resides and works in the state to agree, as a condition of employment, to a provision that would require the employee to adjudicate outside of the state a claim arising in the state or would deprive the employee of the substantive protection of state law with respect to a controversy arising in the state. Existing law provides that this prohibition does not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.

This bill would provide that, for a contract entered into, modified, or extended on or after January 1, 2024, 2025, the above-described prohibition does not apply to a contract with an employee who is individually represented by legal counsel, excluding when the counsel is paid for by, or was selected based upon the suggestion of, the employees employer, in negotiating the terms of an agreement and, at the option of the employee, designates either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.