With the yearly celebration of affection comes the state of California wrapping up its own love-infused announcement about the legal environment concerning employment. The enactment of California Assembly Bill 1076, the 'Love Law,' now firmly positions the state against non-compete agreements. It ushers in a new era, effective January 1, 2024, drawing strict lines around the permissibility of such clauses in employment contracts.
Is The Love Law Really About Keeping Things Fair?
So named due to the proximity of its notification deadline with Valentine's Day, this law showcases earnest renewal in Sacramento's law book. By offering no roses to non-compete clauses, AB 1076 takes the conversation back to fairness in employment.
The Love Law codifies a landmark judgment of the California Supreme Court, Edwards v. Arthur Anderson LLP, which put a stop to any non-compete clause, regardless of its specificity. The legislation underlines that California's opposition to such agreements isn't confined to contracts involving individuals limited from practicing a lawful profession, business, or trade.
Does the Valentine's Day Deadline Ring a Bell?
With a nod to the language of romance, the law lays down an unequivocal notice requirement for employers.
By February 14, employers must inform current and former employees (those employed post-January 1, 2022) in writing. The message is loud and clear - any unenforceable non-compete clause or agreement they may have signed stands null and void.
This Valentine's Day directive demands a "written individualized communication" delivered to the employee's latest known address and email. Failing to adhere to this regulation could land employers in hot water, possibly breaching California's Unfair Competition Law.
In the run-up to the notification deadline, employers need to examine their existing agreements urgently to identify if and to whom the notices need to be sent.
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Are There Still Non-compete Agreements that Hold Legal Water?
Some may query if there are still any permissible non-compete agreements in California. Although AB 1076 doesn't heart employers much, select non-compete agreements remain enforceable, including clauses attached to the sale of goodwill or ownership stakes in a business entity, partnership dissolution, or disassociation from a limited liability company.
Employers received a bit of reprieve when AB 747, a proposed legislation that could impose a $5,000 penalty per employee for certain non-compete violations, hit a stumbling block in the state legislature. The bill planned to set a new parameter for the exception to the sale-of-business, raising ownership interests to 10% or above (a leap from "less than 3%" based on existing case law).
Employers can consult counsel to understand better the viability of such exceptions to the broad prohibition on non-competes imposed by the Love Law. Evidently, the dance between love, non-competes, and employment continues in California, with the state leading as lawmakers across the country watch this legal shake-up unfold.
