California Non-Compete Agreement
California voids employee non-compete agreements under Business and Professions Code Section 16600. They are enforceable only in a business sale. Attorney review available.
Introduction
A non-compete agreement asks an employee to promise not to compete with a business for a set time and area after leaving, and California weighs every such promise against Business and Professions Code Section 16600. California is the most important state to understand on this point, because California voids them. Under Business and Professions Code Section 16600, every contract that restrains someone from engaging in a lawful profession, trade, or business is void to that extent, and the statute is read broadly to void an employee non-compete no matter how narrowly tailored it is. Recent laws went further: AB 1076 (Section 16600.1) made it unlawful for an employer to include a non-compete and required employers to notify affected current and former employees by February 14, 2024 that the clause is void, and SB 699 (Section 16600.5) voids these contracts regardless of where or when they were signed and lets an employee sue. There are only three narrow exceptions, all tied to a business sale or the wind-down of a company: the sale of business goodwill (Section 16601), a partnership dissolution or dissociation (Section 16602), and the dissolution of a limited liability company or termination of a member's interest (Section 16602.5). California employers protect confidential information through a confidentiality or trade-secret agreement instead. This page explains California's rule and offers a template limited to the situations where a non-compete is actually enforceable here. It is a state-law overview, not a promise that any given clause will hold up.
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Key Things to Know
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A non-compete asks an employee to agree not to work for a rival for a set period after leaving, but California's Business and Professions Code Section 16600 makes that employee promise void no matter how narrowly it is drawn.
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California voids non-competes under Business and Professions Code Section 16600: every contract restraining someone from a lawful profession, trade, or business is void to that extent, and the statute is read broadly to void it no matter how narrowly tailored (Section 16600(b)(1)).
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California has no salary or income threshold that makes a non-compete valid. The restraint is void regardless of how much the employee earns; you cannot buy or bargain your way into an enforceable employee non-compete here.
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AB 1076 (Section 16600.1) makes it unlawful to include a void non-compete and required employers to notify affected current employees, and former employees employed after January 1, 2022, by February 14, 2024 that the clause is void.
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SB 699 (Section 16600.5) voids these contracts in California regardless of where or when they were signed, bars an employer from trying to enforce one, and lets an employee, former employee, or prospective employee sue for an injunction, damages, and attorney fees.
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The only exceptions are a sale of business goodwill or ownership interest (Section 16601), a partnership dissolution or dissociation (Section 16602), and an LLC dissolution or termination of a member's interest (Section 16602.5). Each allows a reasonable covenant tied to the transaction.
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Because employee non-competes are void, California employers protect confidential information through a confidentiality or trade-secret agreement under the Uniform Trade Secrets Act (Civil Code Section 3426 et seq.), not through a non-compete.
Key decisions before you file
Before you file a Non-Compete Agreement in California, a few decisions shape the document: which option to choose and what each one means. The Non-Compete Agreement guide walks through them.
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California Requirements for Non-Compete Agreement
Employee Non-Competes Are Void
In California an employee non-compete is void. Business and Professions Code Section 16600 makes every contract that restrains someone from a lawful profession, trade, or business void to that extent, and Section 16600(b)(1) directs courts to read it broadly and void the clause no matter how narrowly tailored. There is no reasonableness test that saves an employee non-compete in California.
No Income Threshold
California has no salary or income threshold that makes a non-compete enforceable. Unlike states that permit non-competes above a wage floor, California voids the employee restraint regardless of compensation (Business and Professions Code Section 16600). Do not rely on any other state salary figure when the worker is in California.
Void Regardless of Where or When Signed
Business and Professions Code Section 16600.5 makes a covered non-compete unenforceable in California regardless of where and when it was signed, and bars an employer from trying to enforce one signed or performed outside California. An employer that enters into or tries to enforce such a contract commits a civil violation, and the worker may sue for an injunction, actual damages, and attorney fees.
Employer Notice Duty (AB 1076)
AB 1076, codified at Business and Professions Code Section 16600.1, makes it unlawful to include a void non-compete and required employers to notify affected current employees, and former employees employed after January 1, 2022, by February 14, 2024 that the clause is void. A violation is an act of unfair competition under Section 17200.
Sale-of-Business Exception
California allows a non-compete when a person sells the goodwill or all of their ownership interest in a business (Business and Professions Code Section 16601). The seller may agree not to carry on a similar business within the geographic area where the business operated, so long as the buyer carries on a like business there. The covenant must be tied to that sale.
Partnership and LLC Exceptions
California also allows a covenant on a partnership dissolution or a partner dissociation (Business and Professions Code Section 16602) and on the dissolution of an LLC or termination of a member interest (Section 16602.5). In each, the departing owner may agree not to carry on a similar business within the area where the business operated, so long as the remaining owners carry on a like business.
Protect Trade Secrets Instead
Because an employee non-compete is void, California employers protect confidential information with a confidentiality or non-disclosure agreement and the California Uniform Trade Secrets Act (Civil Code Section 3426 et seq.). This protects trade secrets and customer data without restraining where a former employee may work, which is what keeps it lawful in California.
Federal FTC Rule Is Not in Force
The 2024 Federal Trade Commission non-compete rule was set aside by a federal court before it took effect, so it is not currently binding, and its status remains unsettled. California does not depend on it: Business and Professions Code Section 16600 independently voids employee non-competes in California regardless of what happens with the federal rule.