Non-Competes in California

Business owners who move here from another state are often surprised by this rule, and owners who’ve been here a while are often surprised by how much tougher it got in 2024. The short version: if the agreement keeps someone from working in their field after they leave you, California voids it outside a few owner exceptions, and trying to enforce it can now cost you money.

This guide covers the rule, the notice requirement, the exceptions that do work, the new 2026 limits on repayment clauses, and what an employer can do instead. It’s part of my series on contractors, contracts, and leases.

Are non-compete agreements enforceable in California?

No, outside the statutory exceptions. Bus. & Prof. Code § 16600(a) provides that, except as the chapter allows, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

The legislature closed off the “reasonable non-compete” argument in 2024. Bus. & Prof. Code § 16600(b)(1) says the section shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void any noncompete agreement in an employment context, no matter how narrowly tailored, that does not satisfy an exception. A one-year, ten-mile clause for a single job title is as void as a nationwide one.

The rule reaches beyond the people who sign. Bus. & Prof. Code § 16600(c) says the section isn’t limited to contracts where the person being restrained is a party. And because it covers “anyone,” it applies to independent contractors and vendors, not only employees.

What changed in 2024?

Two 2023 bills, SB 699 and AB 1076, turned a void clause into an unlawful one. Before 2024, an employer that used a non-compete mostly risked having it ignored. Now there are affirmative duties and real penalties.

• Don’t include one. Under Bus. & Prof. Code § 16600.1(a), it is unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception.
• Don’t try to enforce one. Under Bus. & Prof. Code § 16600.5(b), an employer or former employer shall not attempt to enforce a void contract, regardless of whether the contract was signed and the employment was maintained outside California.
• Expect to be sued if you do. Under Bus. & Prof. Code § 16600.5(e), an employee, former employee, or prospective employee may bring a private action for injunctive relief or actual damages, and a prevailing employee is entitled to reasonable attorney’s fees and costs.

Bus. & Prof. Code § 16600.5(d) adds that an employer that enters into or attempts to enforce a void contract commits a civil violation. Lab. Code § 432.5 separately bars an employer from requiring an employee to agree in writing to any term the employer knows is prohibited by law.

The notice requirement

Employers had a one-time deadline to tell workers their non-competes were void. Under Bus. & Prof. Code § 16600.1(b)(1), for current employees and former employees employed after January 1, 2022, whose contracts included a void noncompete clause, the employer had to notify the employee by February 14, 2024, that the clause is void.

The form of the notice is specific. Bus. & Prof. Code § 16600.1(b)(2) requires a written individualized communication delivered to the last known address and the email address of the employee or former employee. A general memo or a handbook update doesn’t satisfy it, and under Bus. & Prof. Code § 16600.1(c), a violation is an act of unfair competition.

If your offer letters or employment agreements from 2022 or later contain a non-compete and no notices went out, replace the documents now and talk with counsel about the notices. I draft replacement agreements and notices. If a former employee has already raised the issue, that’s a matter for employment litigation counsel, and I can refer you.

Does a non-compete signed in another state work in California?

Not against a California employee. Bus. & Prof. Code § 16600.5(a) says a contract void under the chapter is unenforceable regardless of where and when it was signed.

California also limits out-of-state forum and choice-of-law clauses. Under Lab. Code § 925, an employer can’t require an employee who primarily resides and works in California, as a condition of employment, to agree to litigate a California claim outside California or to give up the substantive protection of California law. The clause is voidable by the employee, with an exception where the employee was individually represented by counsel in negotiating the forum or choice-of-law terms.

Courts outside California don’t always agree about how far California’s 2024 law reaches, so an employee who moves here with a Texas or Massachusetts non-compete may still face a lawsuit in that state. That fight belongs to litigation counsel. For a California business hiring that person, the practical step is to avoid any role that would require them to use their old employer’s confidential information.

Are non-solicitation clauses enforceable?

Treat them as unenforceable in employment contracts, except as they protect trade secrets. A clause that bars a former employee from calling on your customers restrains them from practicing their trade, which is the thing § 16600 voids, and the 2024 amendment tells courts to read the statute broadly.

What you can protect is information. A former employee can’t use your trade secrets, such as a customer list that you’ve kept confidential and that has value because competitors don’t have it, to solicit customers. That protection comes from trade secret law, and my NDA guide explains how to draft for it.

What are the exceptions to California’s non-compete ban?

The exceptions are about owners, not employees. Each one lets an owner who is cashing out or leaving agree not to compete with the buyer or with the remaining owners.

Exception	Section	Who can agree not to compete	Limits
Sale of a business	§ 16601	A person selling the goodwill of a business; an owner selling all of their ownership interest; an owner of an entity selling all or substantially all of its operating assets with goodwill	Only within the geographic area where the business was carried on, and only while the buyer carries on a like business there
Partnership dissolution or dissociation	§ 16602	A partner, on or in anticipation of dissolution or the partner’s dissociation	Same geographic and like-business limits
LLC dissolution or member exit	§ 16602.5	A member, on or in anticipation of dissolution or the termination of the member’s interest	Same geographic and like-business limits

How the sale-of-business exception works

Under Bus. & Prof. Code § 16601, a person who sells the goodwill of a business, or an owner of a business entity selling all of their ownership interest, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business was carried on, so long as the buyer carries on a like business there. The same section covers an owner of an entity that sells all or substantially all of its operating assets together with its goodwill.

The logic is that the buyer paid for goodwill, and the seller shouldn’t be able to walk across the street and take it back. That also marks the limits. A non-compete that reaches areas where the business never operated, or that continues after the buyer stops running the business, falls outside the exception.

Here’s a worked example. A dentist sells her Camarillo practice, including its patient records and goodwill, for $900,000. The purchase agreement can include her promise not to open a competing practice in the area where the practice drew its patients, for as long as the buyer runs a dental practice there. A promise not to practice anywhere in Ventura County, if the practice drew patients from a few zip codes, invites a fight over the part that goes too far.

The statute doesn’t set a maximum number of years. I tie duration and territory to what the buyer is paying for and write them into the deal documents from the letter of intent onward, so the covenant reads as part of the sale price and not as an afterthought. My guide to selling a California business covers where it fits in the larger deal.

Partial sales and employee-owners

The sale exception for entity interests requires the owner to dispose of all of their ownership interest. A founder who sells 60 percent and stays on as a minority owner and employee isn’t covered by that clause, although a sale of goodwill or substantially all operating assets can be. Stock or unit grants to key employees don’t create an exception either. Handing an employee 2 percent of the company doesn’t let you bind them to a non-compete when they leave, unless the exit fits one of the owner exceptions in the table above.

For co-owners, the right place to set exit terms is the company agreement. An LLC operating agreement or a buy-sell agreement can include a covenant that takes effect when a member’s interest terminates, within the limits of § 16602.5.

What is the 2026 “stay-or-pay” ban?

Starting with contracts entered into on or after January 1, 2026, California bars most clauses that make a worker pay the employer for leaving. Bus. & Prof. Code § 16608(b)(1) makes it unlawful to include in an employment contract, or require as a condition of employment, a term that requires the worker to pay a debt, or imposes any penalty, fee, or cost, if the worker’s employment with a specific employer terminates.

The definitions are broad. Under Bus. & Prof. Code § 16608(a)(7), a penalty, fee, or cost includes a replacement hire fee, retraining fee, quit fee, reimbursement for immigration or visa costs, liquidated damages, lost goodwill, and lost profit. Bus. & Prof. Code § 16608(c) treats a violating contract entered into on or after January 1, 2026 as a contract restraining a lawful trade, and therefore void.

There are narrow exceptions in Bus. & Prof. Code § 16608(b)(2), including:

• Government loan repayment or loan forgiveness programs
• Repayment of tuition for a transferable credential, if the agreement is separate from the employment contract, the credential isn’t required for the job, the amount is stated up front, repayment is prorated, and there’s no repayment if the employer fires the worker other than for misconduct
• State-approved apprenticeship programs
• A sign-on bonus not tied to performance, if the repayment terms are in a separate agreement, the worker gets at least five business days to consult an attorney, repayment is interest-free and prorated over a retention period of no more than two years, the worker can choose to defer the bonus to the end of the period instead, and repayment is triggered only by the worker quitting or being fired for misconduct
• Contracts for the lease, financing, or purchase of residential property

The penalty is set per worker. Under Lab. Code § 926(c), a person found liable is liable for actual damages or $5,000 per worker, whichever is greater, plus injunctive relief and reasonable attorney’s fees and costs. If your offer letters include a training repayment clause, have it reviewed before your next hire.

What can a California employer do instead?

Protect information and relationships directly, and pay people in ways that reward staying. These tools work in California:

1. Trade secret protection. Identify what’s secret in fact, limit who sees it, and use a targeted confidentiality agreement. The NDA guide covers the drafting.
2. Invention assignment. Employees can be required to assign inventions related to your business, with the written notice Lab. Code § 2872 requires about the limits in Lab. Code § 2870.
3. Retention pay done right. A deferred bonus that vests with continued service is different from a clawback. If you use a sign-on bonus with repayment, meet every condition of § 16608(b)(2)(D).
4. Customer relationships owned by the company. Keep customer data in company systems, introduce more than one person to key accounts, and document the relationship in company contracts.
5. Owner covenants in the right documents. For co-owners and sellers, put the non-compete in the operating agreement, buy-sell, or purchase agreement, where the statute allows it.

If you hire contractors, the same rule applies to them. A contractor agreement that bars the contractor from working for competitors is void under § 16600 and also undercuts the contractor’s independence under the ABC test. My contractor agreement guide covers the replacement clauses.

Where I fit

I review and draft employment agreements, offer letters, confidentiality agreements, and the owner covenants in sale documents and operating agreements, at $500 per hour. That work is part of my business law practice.

I don’t litigate non-compete disputes. If you’ve received a demand letter, a former employee has sued under the 2024 law, or you’re being sued in another state over a non-compete, you need litigation counsel, and I can refer you.

Frequently asked questions

Can an employer in California make me sign a non-compete?

No. Since January 1, 2024, it’s unlawful to include a non-compete that doesn’t fit a statutory exception in an employment contract or to require an employee to sign one. An employee who’s asked to sign one can bring a private action for damages and attorney’s fees.

Is a non-compete enforceable if I signed it before moving to California?

California says it’s unenforceable here regardless of where or when it was signed. An employer in another state may still try to enforce it in that state’s courts, and whether that works depends on the other state’s law. That’s a question for litigation counsel.

Can I make the seller of a business sign a non-compete?

Yes. Bus. & Prof. Code § 16601 allows a seller of goodwill, or an owner selling all of their interest, to agree not to compete within the area where the business operated, as long as the buyer carries on a like business there. Keep the territory tied to where the business actually operated.

Are non-solicitation agreements legal in California?

In employment agreements, treat customer non-solicitation clauses as void except to the extent they stop the use of trade secrets. The safer tool is a confidentiality agreement that protects the customer information itself. Owner covenants in a sale or member exit can be broader.

What happens if my business didn’t send the 2024 non-compete notices?

The failure is an act of unfair competition under Bus. & Prof. Code § 16600.1(c). Stop using the clause, replace the agreements, and get advice about notices now. If an employee has already complained or sued, bring in employment litigation counsel.

Can I charge an employee for training if they quit?

For contracts entered into on or after January 1, 2026, generally not. Bus. & Prof. Code § 16608 bars quit fees, retraining fees, and similar repayment terms, with narrow exceptions for transferable credentials, apprenticeships, and properly structured sign-on bonuses.

Do non-competes apply to independent contractors in California?

Yes, the ban applies to them too. Section 16600 voids contracts that restrain “anyone” from a lawful trade, so a non-compete in a contractor agreement is void unless it fits one of the owner exceptions.