California law has declared void “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.” (Business & Professions Code section 16600.) California courts have increasingly relied on Section 16600 to invalidate nonsolicitation provisions.

With the passage of SB 699, that provides such provisions are unenforceable even if the employment agreement was an out-of-state agreement, continued use of nonsolicitation provisions in California is riskier than ever. Before the adoption of section 16600.5, individuals suing in California to invalidate restrictive covenants had no basis to recover damage awards or attorney’s fees. While individuals could seek restitution, that dollar figure is different than a damages award and often less than a damages award. Effective January 1, 2024, section 16600.5 authorizes employees, former employees, and applicants to recover damage awards, injunctive relief, and attorney’s fees, and costs against their employers when they prevail in invalidating restrictive covenants, without a corresponding provision for employers who prevail in litigation.

The incentive to litigate employee nonsolicitation clauses has increased exponentially and should chill further use of these provisions against California-based employees. Therefore, if you are a California employer with a Non-Solicitation provision in your employment agreements, call your business counsel as you may want to eliminate the provision. If you are an employee who is subject to a Non-Solicitation provision who wants to start a competing business, contact your business attorney. The Non-Solicitation provision may not be lawful and may entitle you to damages, injunctive relief, and recovery of reasonable attorneys’ fees and costs.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.