The Foundation: Business & Professions Code § 16600

California Business and Professions Code § 16600 states with striking brevity: "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." This provision has been in California law for more than a century and has been interpreted broadly by California courts to void virtually all non-compete agreements in the employment context.

Unlike most states, which apply a reasonableness test and allow "reasonable" non-competes, California has long rejected this approach. The landmark case of Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 emphatically rejected the "narrow restraint" doctrine that some courts had used to save a small subset of non-competes. The California Supreme Court held that § 16600 means what it says: any restraint on trade is void unless it falls within one of the statute's statutory exceptions (business sales, dissolution of partnerships, or dissolution of LLCs), and courts have no authority to create additional exceptions.

SB 699 (2024): The Extraterritorial Reach of California's Ban

Senate Bill 699, effective January 1, 2024, amended Business and Professions Code § 16600 to add a critical new provision: California's non-compete ban now applies regardless of where the employment contract was signed and regardless of where the employee worked when they signed it. Specifically, SB 699 provides that any contract that is void under § 16600 is unenforceable regardless of whether the contract was signed and the employment was maintained outside of California.

This extraterritorial provision addresses the common practice of employers with national workforces requiring employees to sign non-competes with a non-California choice of law clause, intending to enforce those agreements against employees who later move to or work in California. Under SB 699, such an agreement is void as to any employee who: (1) is employed in California at any time; (2) was a California resident at the time of the contract; or (3) lives in California when their employment terminates.

SB 699 also created a private right of action for employees — they can sue their employer for attempting to enforce a void non-compete, and they are entitled to attorney's fees if they prevail. This substantially raises the stakes for out-of-state employers who attempt to enforce non-competes against California-based employees.

Employers must provide written notice of void non-competes. Companion legislation (AB 1076, effective January 1, 2024) requires employers to notify current and former California employees hired after January 1, 2022, by February 14, 2024 (and within 30 days of any new hire) if any non-compete agreement the employee previously signed is void under § 16600. Failure to provide this notice is an act of unfair competition under Business and Professions Code § 17200, subject to injunctive relief and civil penalties.

The Three Statutory Exceptions to § 16600

California does permit non-compete agreements in three specific statutory contexts, which are narrowly construed:

These exceptions are interpreted strictly. California courts have refused to extend them to situations that do not precisely fit the statutory description, and they have been skeptical of creative structuring designed to bring an employment non-compete within the business-sale exception.

Trade Secret Protections as the Practical Alternative

Because non-competes are void, California employers must rely on other legal tools to protect legitimate business interests. The primary alternative is trade secret law, both under the California Uniform Trade Secrets Act (Civil Code § 3426 et seq.) and the federal Defend Trade Secrets Act (18 U.S.C. § 1836).

To protect trade secrets in California without a non-compete, employers should: (1) identify and document what constitutes a trade secret with specificity; (2) implement reasonable security measures to maintain secrecy — access controls, NDAs, password policies, encryption; (3) include robust confidentiality and non-disclosure provisions in employment agreements; (4) conduct thorough exit interviews and remind departing employees of their continuing confidentiality obligations; and (5) require the return of all company property and electronic data upon separation.

California courts have upheld injunctive relief against employees who threaten to misappropriate trade secrets, even absent a non-compete. The key is proving the existence of a protectable trade secret and an imminent threat of disclosure, not simply the existence of a competitive employment relationship. This is a higher bar than a non-compete but remains a viable protective mechanism for employers with genuinely valuable proprietary information.

California allows "inevitable disclosure" injunctions in limited circumstances. While the "inevitable disclosure" doctrine — which allows courts to enjoin a departing employee from working for a competitor based solely on the theory that they will inevitably use or disclose trade secrets — is not recognized as broadly in California as in some other states, California courts have granted limited injunctive relief where there is specific, concrete evidence of threatened misappropriation, not merely the fact of competitive employment. Employers seeking such relief must present specific evidence, not speculation.

The Non-Solicitation Grey Zone

Non-solicitation agreements — which restrict a departing employee from soliciting the employer's customers or employees — occupy a contested grey zone in California law. The California Supreme Court's decision in Edwards v. Arthur Andersen suggested that § 16600 applies broadly to any restraint on trade, which some courts have read to void non-solicitation clauses as well.

The post-Edwards landscape for non-solicitation agreements remains unsettled. Following Edwards, some California Court of Appeal decisions have held that customer non-solicitation agreements are also void under § 16600 because they restrain the employee from engaging in their lawful profession. Other decisions have upheld narrowly tailored non-solicitation agreements that target only customers with whom the employee had direct personal relationships during employment.

Employee non-solicitation agreements — which restrict a departing employee from recruiting former colleagues — have faced similar scrutiny. The 2018 decision in WeRide Corp. v. Huang signaled that overbroad employee non-solicitation clauses may also run afoul of § 16600. Employers who rely on non-solicitation agreements in California should have them reviewed by California employment counsel in light of the evolving case law.

Impact on Multi-State Employment Agreements

For national employers, California's non-compete ban — especially as extended by SB 699 — creates significant challenges in maintaining consistent employment agreement templates. Best practices for multi-state employers include: