California Non-Compete Agreements: An Employer’s Cleanup Guide

February 14, 2024 was the deadline. By then, Business and Professions Code section 16600.1 required California employers to tell current employees, and former employees employed after January 1, 2022, in writing that a noncompete clause in their contracts was void unless it fit a statutory exception. A company that missed that date, or still has the clause in its offer letter template, carries real exposure. Including or enforcing a void clause is now a civil violation, and a worker who sues over it and wins recovers attorney’s fees.

Can a California employer ever enforce a non-compete against an employee?

Almost never. Section 16600(a) says that “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The exceptions in the chapter deal with selling a business or leaving a partnership or LLC, not with ordinary employment.

The Supreme Court of California read the statute strictly in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937. The court concluded “that section 16600 prohibits employee noncompetition agreements unless the agreement falls within a statutory exception.” It also refused to adopt the “narrow-restraint” exception some federal courts had used to uphold limited restrictions. The clause in Edwards barred an accountant, for 18 months after he left, from serving any client he had worked on during his last 18 months, and for a year from soliciting clients of his office. The court struck both parts.

In 2023 the Legislature wrote Edwards into the statute. Section 16600(b)(1) now says the section “shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 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 an exception in this chapter.”

So the question for a California employer isn’t whether a clause is reasonable. It’s whether the clause fits a statutory exception. For most employees, it doesn’t.

What exposure does an old non-compete clause create today?

More than it used to. Before 2024, an employer’s liability usually came from what it did with the clause, such as firing someone for refusing to sign, or demanding something in exchange for releasing the employee from it, which Edwards said could be a wrongful act. Two statutes that took effect on January 1, 2024, made including the clause itself unlawful.

Section 16600.1(a) makes 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 an exception in this chapter.” Subdivision (b) required the individualized notice by February 14, 2024, delivered “to the last known address and the email address of the employee or former employee.” Subdivision (c) makes a violation an act of unfair competition under the Unfair Competition Law (UCL).

Section 16600.5 adds the private lawsuit. It says a void contract “is unenforceable regardless of where and when the contract was signed,” and that an employer “shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.” Under subdivision (d), an employer that enters into a void contract or tries to enforce one “commits a civil violation.” Under subdivision (e), “An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both,” and a prevailing worker “shall be entitled to recover reasonable attorney’s fees and costs.”

Notice what the fee provision doesn’t say. It gives fees to a prevailing employee, former employee, or prospective employee. It doesn’t give them to an employer that wins. That one-way fee shifting is what makes a small damages claim worth a plaintiff’s lawyer’s time.

The UCL piece works differently. A private plaintiff under section 17204 must have “suffered injury in fact and has lost money or property as a result of the unfair competition,” and the private remedies in section 17203 are injunctions and restitution. The civil penalty in section 17206, up to $2,500 for each violation, is recovered only in an action brought by the Attorney General, a district attorney, or the other public prosecutors the statute lists.

The biggest risk I see is the enforcement letter. A company that sends a former employee or the new employer a letter threatening to sue on a void non-compete has done the thing section 16600.5(b) prohibits, and it has created the evidence for the employee’s claim in the same envelope.

Which sale-of-business deals can still include a non-compete?

The exceptions follow the transaction, not the job title. Section 16601 lets “Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity” agree with the buyer not to compete. It also covers an owner of an entity that sells all or substantially all of its operating assets, or those of a division or subsidiary, together with the goodwill, and an owner of an entity that sells all of a subsidiary’s ownership interest.

The covenant has limits written into the statute. The seller may agree “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, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.” A covenant that reaches places the business never operated, or that keeps running after the buyer stops doing business there, is outside those words.

Two more exceptions cover owners leaving a business. Section 16602 lets a partner agree not to compete upon or in anticipation of a dissolution of the partnership or the partner’s dissociation. Section 16602.5 does the same for an LLC member on dissolution or the termination of the member’s interest. Both carry a similar geographic limit, and both require that another partner or member keep carrying on a like business there.

Edwards gives one example of the sale exception at work. The opinion describes a Court of Appeal case upholding a non-compete signed by a terminated employee “who had sold all of his stock in the business for $500,000 prior to his termination.” The point for employers is that he sold all of it. An employee who holds a few option shares and keeps them hasn’t disposed of “all of his or her ownership interest” under section 16601, and a non-compete in the option agreement doesn’t fit section 16601 just because equity is involved. I’d treat any employee equity plan with a non-compete in it as a cleanup item.

How do the common restrictive covenants stack up in California?

The stay-or-pay row is a separate statute with its own effective date, and an urgency bill signed September 30, 2026, pushed it back a year. The current section 16608 applies “for contracts entered into on or after January 1, 2027.” Labor Code section 926 carries the same 2027 date for its private remedies. Training repayment and signing bonus terms belong in the same review as non-competes, but the rules and exceptions differ.

What protects a company’s information if the non-compete is gone?

Trade secret law and well-drafted confidentiality terms. Edwards left one question open. In a footnote, the court said “We do not here address the applicability of the so-called trade secret exception to section 16600,” because Edwards hadn’t challenged that part of his agreement. Whatever the answer to that question, the California Uniform Trade Secrets Act stands on its own. Under Civil Code section 3426.2(a), “Actual or threatened misappropriation may be enjoined,” and section 3426.3 allows damages for the actual loss caused by misappropriation.

Information qualifies only if it meets the definition in section 3426.1(d). Among other things, it must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” That’s where the cleanup pays twice. A company that replaces a void non-compete with a confidentiality agreement aimed at real secrets, plus access controls and exit procedures, is in a better spot than one that relied on the non-compete to do all the work. The firm’s trade secret litigation page covers disputes that start when an employee leaves.

My own view is blunt. A non-compete in a California employment agreement buys an employer nothing in court and gives the employee a claim. If the clause is still in your templates, it should come out this quarter.

What should an employer do about old non-compete clauses now?

The order matters, and so does the paper trail. If a worker has already complained or sued, start at the top:

1. If a claim has arrived, put a litigation hold on every version of the offer letters, employment agreements, equity documents, and handbooks that contained the clause, and on any emails or letters that mentioned it to the employee or a new employer.
2. Calendar the response deadline on any complaint or demand, and check for an arbitration agreement and an employment practices liability (EPLI) policy with notice requirements.
3. Identify the people who drafted the clause and the people who used it, and stop any further enforcement step, including cease-and-desist letters to the employee or the new employer.
4. Pull the records the claim depends on: the signed agreement, the date it was signed, the employee’s dates of employment, and proof of whether and when the section 16600.1 notice went out.
5. Talk to a lawyer before responding, contacting the worker or the worker’s lawyer, or offering anything to settle.

If no claim has arrived, the same inventory becomes the cleanup: find every agreement with the clause, send the written notice to anyone who should have received it and didn’t, strip the clause from templates and equity plans, and replace it with confidentiality and trade secret terms the law will enforce. Sending notice late doesn’t erase a missed deadline, but in my judgment it beats leaving a void clause in place with no correction on record. The firm’s California employment defense lawyers page describes how restrictive covenant disputes fit into its defense work, and the breach of contract page covers fights over the agreements themselves.

Non-compete questions California employers ask

Is it too late to send the section 16600.1 notice?

The statutory deadline passed on February 14, 2024. Sending notice now doesn’t change that date. But the notice tells the worker the clause is void, and it shows the company isn’t relying on it. For an employer whose templates still carry the clause, a late notice plus a revised template is usually better evidence of good faith than silence. Deliver it the way the statute describes: an individualized written communication to the last known address and email address.

Does section 16600.5 reach employees who signed outside California?

The statute is written to. Section 16600.5 says a void contract is unenforceable “regardless of where and when the contract was signed,” and bars enforcement even if the contract was signed and the employment maintained outside California. A multistate employer whose out-of-state employee moves to California should assume a California court will apply it. How far courts in other states will follow it is a separate question.

Are employee non-solicitation clauses treated the same way?

Edwards didn’t decide that. The court noted that Edwards did not argue that the clause barring him from recruiting Andersen employees violated section 16600, so it didn’t rule on that clause. The client restrictions, by contrast, were struck. An employer that keeps an employee non-solicitation clause should have it reviewed under current California case law before relying on it.

Can we still require confidentiality after an employee leaves?

Yes, for information that is actually confidential. The Uniform Trade Secrets Act protects trade secrets with injunctions and damages, and section 3426.7 says that title doesn’t affect contractual remedies. The risk comes when a confidentiality clause is drafted so broadly that it works like a non-compete, for example by barring use of general skills or publicly known customer information.

If a former employee says your non-compete cost them a job

If a former employee or a competitor has challenged one of your restrictive covenants, the signed agreement and what your company did to enforce it usually decide the exposure. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving void non-compete agreements. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.

Sources

The statutes are Business and Professions Code section 16600, section 16600.1, section 16600.5, section 16601, section 16602, section 16602.5, and section 16608, with Labor Code section 926; the UCL provisions at sections 17203, 17204, and 17206; and the Uniform Trade Secrets Act at Civil Code sections 3426.1, 3426.2, 3426.3, and 3426.7. The case is Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937. The 2026 stay-or-pay amendment is AB 1697 (Stats. 2026, ch. 889).

This post is general information about California and federal employment law as of November 5, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.