Noncompete agreements are used in many industries in states around the nation. California, however, has a history of prohibiting and voiding noncompete agreements. Noncompete agreements are supposed to help businesses keep their intellectual property safe once an employee leaves the company. However, recent legislation in California aimed at mostly outlawing the use of noncompete agreements may harm some businesses.
Understanding the new legislation
According to Assembly Bill 1076, which was signed into law on Oct. 13, 2023, noncompete agreements that do not meet the very limited exceptions will be void. This could put many businesses in jeopardy of losing exclusive access to intellectual property if an employee chooses to leave the business and begin working with a competitor. Industries that rely on advanced technology and information could lose their edge over their competitors and see significant profit losses.
The exceptions to the new law allow very specific exemptions for some businesses to continue to enforce noncompete agreements. Under the new law, California employers must inform employees that noncompete agreements are void by Feb. 14, 2024. Businesses that do not comply could face serious financial and legal consequences.
Employees may file lawsuits
The new legislation could lead to a rise in lawsuits from employees against their employers. Employment laws are often misconstrued by employees, leading them to seek compensation from an employer when they feel wronged. California businesses are wise to seek legal advice when an employee threatens to sue. Spending time in court defending the business against accusations can be costly and time-consuming so it’s important to have an experienced attorney to help manage the employer’s defense strategy.