How to Draft an Enforceable Non-Compete Agreement in California After SB 699 and AB 1076 (2024)
California non-competes are now broadly void by statute, and SB 699 plus AB 1076 (effective Jan. 1, 2024) strengthen enforcement and add new notice and liability risks. These laws expand employee remedies, impose penalties, and require many employers to notify current and former California employees that non-compete clauses are unenforceable. This article shows attorneys and business owners how to draft (or replace) restrictive covenants that still protect legitimate interests in California after the 2024 changes.
California’s 2024 Non-Compete Overhaul: What Changed and Why It Matters
California has long prohibited most restraints on lawful professions, trades, and businesses under Business and Professions Code section 16600. In practice, that already made employee non-compete agreements largely unenforceable, with limited statutory exceptions (notably for certain sale-of-business contexts). Effective January 1, 2024, Senate Bill 699 (SB 699) and Assembly Bill 1076 (AB 1076) significantly increased the legal and operational risk of using non-compete language with California workers.
These new laws do not “create” enforceable non-competes—rather, they strengthen California’s anti-non-compete policy and add new remedies, penalties, and an affirmative notice obligation for many employers. The result is that drafting strategy in 2024 is less about “how to write a non-compete that survives” and more about (1) removing or narrowing void restraints, (2) using legally supported alternatives (trade secret, confidentiality, IP, and limited customer protections where viable), and (3) ensuring compliance with AB 1076’s notice requirements and SB 699’s expanded enforcement provisions.
Core Rule: Most Employee Non-Competes Are Void Under Section 16600
Section 16600 states that, except as provided by statute, “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 employees, that means post-employment restrictions that prevent someone from working for a competitor, starting a competing business, or operating in an industry are generally unenforceable in California—even if they are “reasonable” in duration or geographic scope.
Attorneys drafting for California should treat “reasonableness” tests (common in other states) as the wrong framework. In California, the starting point is that restraints are void unless they fall squarely within a statutory exception, and the 2024 laws increase the consequences for getting this wrong.
Key statutory exceptions (narrow and fact-specific)
While this article focuses on employee agreements, California does recognize limited exceptions, most notably in certain sale-of-business and dissolution contexts. For example, restrictions can be enforceable when tied to the sale of goodwill or ownership interests (e.g., a seller agrees not to compete with the buyer) if drafted to fit the applicable statute and deal structure. These provisions are complex and highly sensitive to the underlying transaction and ownership interest.
Drafting note: If your client’s non-compete is not tied to a legitimate statutory exception, it should be presumed void. “We’ll enforce it in another state” strategies are also increasingly risky after SB 699.
SB 699 (2024): Expanded Enforcement, Private Rights, and Out-of-State Clauses
SB 699 reinforces California’s public policy against non-competes by strengthening employees’ ability to challenge restrictive covenants. Among its most consequential features is that it targets the common practice of using out-of-state choice-of-law or forum-selection provisions to impose non-compete restrictions on workers connected to California.
In effect, SB 699 increases exposure for employers that:
- Require California employees to sign non-competes (even if another state’s law is selected);
- Attempt to enforce non-competes against individuals who perform work in California; and/or
- Threaten enforcement in a way that chills mobility.
For drafting purposes, SB 699 pushes practitioners to shift from restraint-based clauses (non-compete, broad non-solicitation, broad “no business with” provisions) to protection-based clauses grounded in recognized California law—trade secret misappropriation prevention, confidentiality, return-of-property, and narrowly tailored IP assignment.
AB 1076 (2024): Notice Obligation and Civil Penalties
AB 1076 adds two major compliance pressures: (1) explicit statutory confirmation that non-compete clauses are void in employment contexts, and (2) a notice requirement that many employers must satisfy regarding past and present agreements that include non-compete language.
The notice requirement (who, what, and when)
AB 1076 requires employers to provide written notice to many current employees and certain former employees that any non-compete clause (or similar restraint) is void. The law is aimed at cleaning up legacy agreements and preventing “dead-letter” restrictions from continuing to chill worker mobility.
Practical implications for counsel:
- Clients may need an audit of offer letters, employment agreements, equity award documents, bonus plans, severance templates, and employee handbooks for restraint language.
- Notices should be carefully drafted to comply with the statute while minimizing admissions or unnecessary expansions.
- Multi-state employers must segment their workforce and documents, because a one-size-fits-all restrictive covenant package can trigger California-specific liability.
Penalties and enforcement risk
AB 1076 authorizes civil penalties for violations related to void non-competes and the notice obligations. Taken together with SB 699, the legal risk is not limited to “we might lose in court.” It can include statutory penalties, fee exposure, and claims arising from attempts to restrain worker mobility.
So How Do You “Draft an Enforceable Non-Compete” in California?
In most employer-employee relationships, you do not—at least not in the traditional sense. The enforceable approach is to replace non-compete restraints with California-compliant protective covenants and operational controls that accomplish the legitimate business goal (protecting trade secrets, customer relationships, and investments in innovation) without restricting lawful competition.
Below are the drafting components California employers can typically enforce when properly tailored, plus examples of what to avoid after SB 699 and AB 1076.
California-Compliant Alternatives That Protect the Business
1) Trade secret and confidentiality agreements (the primary tool)
A well-drafted confidentiality and trade secret agreement is the foundation of post-employment protection in California. The objective is not to prevent competition; it is to prevent misuse or disclosure of protectable information.
Key drafting elements:
- Define “Confidential Information” carefully (non-public, valuable, subject to reasonable efforts to maintain secrecy). Avoid defining it so broadly that it effectively covers an employee’s general skill and knowledge.
- Carve out exclusions: publicly available information, information independently developed without using employer confidential info, and information rightfully obtained from third parties.
- Trade secret alignment: reference “trade secrets” consistently and tie the agreement to applicable trade secret law.
- Use obligation-focused language: “Employee shall not use or disclose Confidential Information except for Company purposes,” rather than “Employee shall not work for a competitor.”
Example (generally safer): “During and after employment, Employee will not use or disclose Company Trade Secrets except as required to perform authorized duties.”
Example (high risk/void in effect): “Employee shall not provide services to any business that competes with the Company if that role could involve use of Company Confidential Information.” This can read like a de facto non-compete.
2) Return-of-property and data access controls (contract + operations)
Courts and regulators evaluate whether information is truly treated as confidential. Pair contract language with operational measures:
- Return/disable access obligations on termination;
- Certification of deletion of company data from personal devices and cloud accounts (where lawful and appropriately scoped);
- Role-based access controls and logging;
- Clear classification of sensitive materials.
Drafting tip: Add a short “return and certification” clause that is practical and enforceable, and make sure HR/IT can actually implement it.
3) Invention assignment and IP protection (narrowly tailored)
California allows employers to protect IP and require assignment of inventions developed within the scope of employment or using company resources, subject to statutory limits. Draft with care:
- Describe scope: inventions created on company time, with company equipment, or relating to company business/anticipated R&D.
- Include statutory employee carve-outs and required notices where applicable.
- Avoid language that claims ownership of everything an employee creates “at any time,” which may be overbroad and invite challenge.
4) Non-solicitation and customer restrictions: proceed cautiously
California treatment of non-solicitation has tightened over time, and overly broad customer or employee non-solicitation clauses can be attacked as restraints under section 16600—especially if they functionally prevent a person from working in their field.
Best practice in 2024: If using any non-solicitation language, tie it to protection of trade secrets and confidential information (e.g., prohibiting use of confidential customer lists, pricing, renewal calendars, or strategic plans) rather than a blanket ban on contacting customers or hiring employees.
Safer approach: Prohibit solicitation using confidential information, and separately enforce trade secret law if the employee misappropriates. Avoid broad “no contact with any customer you ever touched” restrictions.
5) Narrow “no raiding” and interference provisions (if justified)
Some employers use clauses that prohibit wrongful interference, disparagement, or inducing breach of contract. These can be enforceable if they are not used as a backdoor non-compete. Draft them to target unlawful conduct (misappropriation, breach of duty, interference), not lawful recruiting or competition.
