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How to Draft an Enforceable Non-Compete Agreement for Employees in California After SB 699 and AB 1076

California has effectively banned employee non-compete agreements for decades, and SB 699 (effective Jan. 1, 2024) and AB 1076 (effective Jan. 1, 2024) further tighten enforcement and employer exposure. These new laws expand remedies, reinforce extraterritorial reach, and create new notice obligations for employers with California employees. This article explains how to draft enforceable California employee restrictive covenants post‑SB 699/AB 1076 by using lawful alternatives—NDAs, trade secret protections, and tailored non-solicitation/return-of-property terms.

California’s baseline rule: employee non-competes are void

California’s public policy against restraints on employment is among the strictest in the United States. Under Business and Professions Code section 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” For most employees, that means a traditional post-employment non-compete clause is unenforceable, even if it is reasonable in duration, geography, or scope.

There are limited statutory exceptions—most commonly in connection with the sale of a business (e.g., B&P Code §§ 16601–16602.5) where goodwill is transferred. But for rank-and-file employees and many executives, the default rule remains: a provision that prevents working for a competitor or starting a competing business is generally void in California.

What changed in 2024: SB 699 and AB 1076

SB 699 and AB 1076 did not “create” California’s non-compete ban; they strengthened it. The practical takeaway for employers is that risky non-compete language is now more likely to lead to disputes, statutory claims, and attorney-fee exposure—especially where agreements were drafted for multi-state workforces.

SB 699: expanded enforcement tools and extraterritorial emphasis

SB 699 (effective January 1, 2024) reinforces California’s policy by making it unlawful for an employer to enter into or attempt to enforce a contract that is void under section 16600. It also adds employee-facing enforcement leverage—most importantly by authorizing employees to bring an action for injunctive relief and, in many cases, recover attorney’s fees.

Critically for employers with remote or multi-state operations, SB 699 underscores California’s intent to protect California employees even when an agreement includes another state’s choice-of-law clause or was signed outside California. Agreements that purport to restrict a California employee’s future work—especially via non-competes drafted for other jurisdictions—can create immediate litigation risk once the employer “attempts to enforce” them.

AB 1076: codifies the ban and imposes a notice obligation

AB 1076 (effective January 1, 2024) further codifies that section 16600’s prohibition applies broadly, and it adds a compliance requirement: employers must provide written notice to certain current and former employees if they were subject to an unlawful non-compete. In general terms, the notice must tell the employee the non-compete is void and that the employer will not enforce it.

AB 1076’s notice obligation is particularly important during acquisitions, HR audits, and multi-state onboarding where legacy templates may include non-compete language. Failing to address old agreements can turn a paper problem into a statutory one.

First principle of “drafting an enforceable non-compete” in California: don’t draft a non-compete

For employees in California, the drafting goal is usually not an enforceable non-compete—because a non-compete is usually void—but an enforceable protective package that safeguards customer relationships, confidential information, and trade secrets without restraining lawful competition.

In practice, California-compliant drafting focuses on:

Confidentiality and trade secret protections (properly defined and operationalized).
Return-of-property and device/data preservation obligations.
Non-solicitation provisions drafted narrowly, mindful of California case law.
Invention assignment and IP clauses that comply with California Labor Code limits.
Unfair competition and fiduciary-duty acknowledgments that track existing law (without overreaching).

Step-by-step: building a California-enforceable restrictive covenant package

1) Start with a clean “no restraint” statement

A well-drafted agreement often includes an express statement that nothing in the contract prohibits the employee from working for a competitor after employment ends. This can help demonstrate intent to comply with section 16600 and reduce arguments that a clause is a disguised restraint.

Drafting tip: Avoid “functional non-competes,” such as clauses that prohibit working in the same industry, bar employment with a list of competitors, or require “prior consent” to accept competitive employment.

2) Define “Confidential Information” with precision—and exclude what must be excluded

Confidentiality agreements are enforceable in California, but overbroad definitions can invite challenges (and may be treated as a restraint if they effectively prevent an employee from using general skills and knowledge). Use a definition that is specific, business-tied, and consistent with trade secret principles.

Include carve-outs such as information that:

Is or becomes publicly available through no fault of the employee;
Is rightfully received from a third party without a duty of confidentiality;
Is independently developed without using the employer’s confidential information; and
Constitutes the employee’s general knowledge, skill, and experience.

Example: It is typically reasonable to protect pricing strategy not publicly known, customer-specific purchasing preferences, source code, product roadmaps, and non-public financial metrics. It is risky to define confidential information as “anything the employee learns” or “all information relating to the business,” without limits.

3) Tie confidentiality to operational reality (trade secret hygiene)

Even the best NDA is harder to enforce if the employer does not treat the information as confidential. Courts evaluating trade secret claims commonly look at whether the company used reasonable measures to maintain secrecy.

Draft provisions that reflect and require real practices, such as:

Marking confidential documents;
Role-based access controls;
Prohibiting personal email forwarding of company files;
Requiring use of company-approved storage and devices; and
Exit-interview certification and device return.

4) Use a strong return-of-property and data preservation clause

A return-of-property obligation is often one of the most enforceable, practical tools California employers have. Require return (and deletion where appropriate) of company property and data at separation, including copies in personal cloud accounts and personal devices used for work (subject to wage/hour and privacy considerations and any BYOD policy).

Key components:

Immediate return of laptops, badges, keys, storage media, documents.
Deletion of company data from personal devices/accounts, with cooperation for verification.
No retention of customer lists, templates, or proprietary playbooks.
Litigation hold/data preservation cooperation if disputes arise.

5) Be cautious with customer and employee non-solicitation clauses

California’s treatment of non-solicitation is nuanced and evolving. Historically, some customer non-solicitation clauses were enforced when narrowly aimed at protecting trade secrets. More recent authority has signaled skepticism of broad non-solicitation restrictions that operate as restraints on trade.

Practical drafting approach: If you include non-solicitation language, draft it as a trade secret and unfair competition protection rather than a blanket ban:

Focus on solicitation using confidential information or trade secrets.
Limit to customers the employee had material contact with, and only where the relationship details are non-public and treated as confidential.
Avoid “no business with any customer” clauses that restrict customers’ choice.

Employee non-solicitation: Restrictions on soliciting coworkers can also be challenged as restraints, especially if broad. A safer alternative is to prohibit misuse of confidential compensation/organizational data and to reinforce anti-raiding obligations during employment through duty-of-loyalty concepts (without imposing an across-the-board post-employment hiring ban).

6) Add a compliant inventions assignment and IP clause

California allows invention assignment agreements, but they must comply with Labor Code section 2870 (and related provisions), which limit an employer’s reach over inventions developed entirely on the employee’s own time without using employer resources, except for inventions that relate to the employer’s business or anticipated research/development.

Drafting tip: Include the statutory notice language and a clear process for disclosing inventions. Overreaching IP clauses can become leverage points for departing employees in negotiations and litigation.

7) Use lawful consideration and avoid “penalty” clauses

Even when a covenant is otherwise lawful, employers should avoid contractual penalties that punish competition indirectly, such as “forfeiture of earned wages,” clawbacks that function as a restraint, or liquidated damages untethered to any reasonable estimate of loss. Severance-based non-compete conditions also raise enforceability concerns in California if they effectively restrain future work.

Confidentiality obligations can be supported by continued employment in many settings, but consult counsel on additional consideration for mid-employment agreements, equity plans, and post-termination payments.