Bill Text: CA SB699 | 2023-2024 | Regular Session | Amended

NOTE: There are more recent revisions of this legislation. Read Latest Draft

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Bill Title: Contracts in restraint of trade.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2023-09-01 - Chaptered by Secretary of State. Chapter 157, Statutes of 2023. [SB699 Detail]

Download: California-2023-SB699-Amended.html

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Amended  IN  Senate  March 22, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill

No. 699

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Introduced by Senator Caballero

February 16, 2023

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An act to amend Section 16600 of add Sections 16600.5 and 16608 to the Business and Professions Code, relating to business.

LEGISLATIVE COUNSEL'S DIGEST

SB 699, as amended, Caballero. Contracts in restraint of trade.

Existing law regulates business activities in order to maintain competition. Existing law voids contractual provisions by which a person is restrained from engaging in a lawful profession, trade, or business of any kind, except as otherwise provided.

This bill would establish that any contract that is void under California law is unenforceable regardless of where and when the contract was signed. The bill would prohibit an employer from enforcing a contract that is void regardless of whether the contract was signed and the employment was maintained outside of California.

The bill would prohibit an employer from entering into a contract that presents an employee or prospective employee as a term of employment, or attempting to enforce any contract that is void, as described. The bill would establish that an employer who violates that provision commits a civil violation. The bill would authorize the Attorney General to bring an action on behalf of the employee, or the employee to bring a private action, against the employer. 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 attorney’s fees.

The bill would also make a related statement of legislative findings and declarations.

Existing law regulates business activities in order to maintain competition. Existing law voids contractual provisions by which a person is restrained from engaging in a lawful profession, trade, or business of any kind, except as otherwise provided.

This bill would make a nonsubstantive change in the above-described provisions regarding contracts that would restrain engaging in lawful activities.

Digest Key

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: NOYES   Local Program: NO  

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Bill Text

The people of the State of California do enact as follows:

SECTION 1.

 The Legislature finds and declares the following:

(a) Noncompete clauses in employment contracts are extremely common in the United States. Research shows that one in five workers are currently subject to a noncompete clause out of approximately 30 million workers nationwide. The research further shows that California employers continue to have their employees sign noncompete clauses that are clearly void and unenforceable under California law. Employers who pursue frivolous noncompete litigation has a chilling effect on employee mobility.

(b) California’s public policy 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 under limited statutory exceptions. California has benefited significantly from this law, fueling competition, entrepreneurship, innovation, job and wage growth, equality, and economic development.

(c) Over the past two decades, research on the harm of noncompete clauses and other contract clauses involving restraint of trade to pursue one’s profession has been accelerating. Empirical research shows that noncompete clauses stifle economic development, limit firms’ ability to hire and depress innovation and growth. Noncompete clauses are associated with suppressed wages and exacerbated racial and gender pay gaps, as well as reduced entrepreneurship, job growth, firm entry, and innovation.

(d) Recent years have shown that employers utilizing broad noncompete agreements attempt to subvert this longstanding policy by requiring employees to enter void contracts that impact employment opportunities once an employee has been terminated from the existing employer. Moreover, as the market for talent has become national and remote work has grown, California employers increasingly face the challenge of employers outside of California attempting to prevent the hiring of former employees.

(e) The California courts have been clear that California’s public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer.

(f) California has a strong interest in protecting the freedom of movement of persons whom California-based employers wish to employ to provide services in California, regardless of the person’s state of residence. This freedom of employment is paramount to competitive business interests.

SEC. 2.

 Section 16600.5 is added to the Business and Professions Code, to read:

16600.5.

 Any contract that is void under California law is unenforceable regardless of where and when the contract was signed. 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.

SEC. 3.

 Section 16608 is added to the Business and Professions Code, to read:

16608.

 (a) An employer shall not enter into a contract that presents an employee or prospective employee as a term of employment, or attempt to enforce any contract that is void under this chapter.

(b) An employer that enters an agreement that the employer knows or reasonably should know is prohibited by this act commits a civil violation. The Attorney General may bring an action on behalf of the employee, or the employee may bring a private action, against the employer to enforce this section.

(c) An employee or prospective employee may bring an action for injunctive relief and for the recovery of actual damages and additional penalties pursuant to this section. In addition to these remedies, a prevailing employee or prospective employee in any action based on a violation of this section is entitled to recover reasonable costs and attorney’s fees.

SECTION 1.Section 16600 of the Business and Professions Code is amended to read:

16600.

Except as provided in this chapter, a contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.