California Non-Compete Agreements: Why § 16600 and AB 1076 Make Almost Every One Unenforceable

HOME › CALIFORNIA EMPLOYMENT LAW › EXECUTIVE EMPLOYMENT ISSUES › CALIFORNIA NON-COMPETE AGREEMENTS

Last updated: April 2026 — Reflects Business and Professions Code § 16600 as amended by AB 1076 (effective January 1, 2024), the new private right of action and notice requirements under Business and Professions Code § 16600.1, SB 699 expanding extraterritorial enforcement against out-of-state employers, Labor Code § 925 governing forum selection in California employment contracts, and the California Supreme Court's Edwards v. Arthur Andersen framework as confirmed and extended through 2026.

California is the most employee-friendly jurisdiction in the United States on non-compete agreements. The state has prohibited them for over 150 years. As of January 1, 2024, that prohibition is no longer just defensive — California employers and employers operating in California now face affirmative liability if they use, threaten to enforce, or even retain a non-compete clause in their employment contracts.

The legal posture has flipped. Employees once hoped a court would refuse to enforce their non-compete; now, employees have a private right of action against the employer that asked them to sign one.

This guide explains the current state of California non-compete law in 2026, what AB 1076 and its companion statute SB 699 changed, why almost every non-compete you have ever signed in California is unenforceable, and what to do if your current or former employer is threatening to sue you over one. For broader context on executive employment matters, see our California Executive Employment Issues guide.

The Core Rule: Business and Professions Code § 16600

California's hostility to non-competes traces back to 1872. Today, the operative statute is Business and Professions Code § 16600, which states: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." That sentence has been the law in California since the codification of the Civil Code, and it remains the law today.

The California Supreme Court interpreted § 16600 in Edwards v. Arthur Andersen LLP (2008), holding that even narrow non-compete restraints are void in California unless they fit one of three statutory exceptions: the sale of a business under § 16601, the dissolution of a partnership under § 16602, or the dissolution of a limited liability company under § 16602.5. The Court rejected the federal "rule of reason" approach that allows narrow restraints elsewhere. In California, the rule is categorical.

The three exceptions are narrow and apply only to ownership transfers. None of them applies to ordinary employment relationships. If you signed a non-compete as an employee — not as a seller of a business — § 16600 voids it.

What AB 1076 Changed (Effective January 1, 2024)

Before 2024, § 16600 was a defense. An employer could sue you for breach of a non-compete; you defended by invoking § 16600 to void the clause; the court agreed; the employer lost. The cost of bringing the defense was on you, and many employees signed onerous non-competes without understanding their unenforceability, then self-restrained their job searches out of fear of being sued.

AB 1076, signed into law in October 2023 and effective January 1, 2024, transformed the statute from defensive to offensive. It added Business and Professions Code § 16600.1, which imposes three new affirmative obligations on California employers:

It is unlawful to include a non-compete clause in an employment contract. Even if the employer never tries to enforce it, including the clause is itself a violation. The unlawful conduct is the inclusion, not the enforcement.

Employers were required to send written notice to current and former employees by February 14, 2024. The notice had to inform every employee employed after January 1, 2022 — and every former employee from that period — that their non-compete clause is void. Employers who failed to send the notice violated § 16600.1 and are subject to private litigation by every employee who should have received it.

A private right of action was created. Employees can now sue the employer directly for actual damages, injunctive relief, and attorneys' fees and costs. This is the first time California employees have had a statutory cause of action against the employer just for using a non-compete. Before AB 1076, the recourse was to wait to be sued and win the defense.

Now the employee is the plaintiff.

The Labor and Workforce Development Agency has confirmed that the obligations under § 16600.1 apply regardless of whether the underlying employment contract was signed before or after January 1, 2024. The notice

obligation is retroactive; the private right of action is prospective.

The Companion Statute: SB 699 and Out-of-State Employers

Many California employees are hired by companies headquartered outside California — Texas, New York, Delaware, Florida — that draft their employment agreements under their home-state law. For decades, those employers tried to enforce non-competes against California employees by arguing that the contract was governed by the law of the employer's home state and adjudicated in that state's courts.

SB 699, also effective January 1, 2024, eliminated that workaround. The statute, codified at Business and Professions Code § 16600.5, provides that any contract that is void under § 16600 is unenforceable regardless of where and when the contract was signed. It applies to contracts that purport to apply the law of another state to restrict competition by a California employee. It applies to contracts that designate an out-of-state forum for resolving disputes arising out of competition. And it applies to contracts signed before the employee moved to California.

The combination of SB 699 and the existing protections in Labor Code § 925 — which voids choice-of-law and forum-selection clauses in employment contracts of California-based workers — means that an out-of-state employer essentially cannot enforce a non-compete against a California-based employee in any forum, under any law.

Scenario	Pre-2024 enforceability	2026 enforceability
CA employee, CA employer, CA contract	Void under § 16600	Void; employer affirmatively liable under § 16600.1
CA employee, NY employer, NY law/forum	Often enforced in NY court	Void under § 16600.5; CA employer/employee can void NY proceedings
Employee signed in TX, later moves to CA	Sometimes enforced	Void retroactively under § 16600.5
Employee signed before AB 1076 took effect	Void as defense only	Void; employer must have sent § 16600.1 notice by Feb 14, 2024
Sale of business under § 16601	Enforceable if narrowly drawn	Still enforceable; one of three statutory exceptions

What Counts as a Non-Compete Under California Law

California courts read § 16600 broadly. A "non-compete" includes any contractual restraint on the employee's ability to engage in a lawful profession, trade, or business after employment ends. That extends well beyond the obvious "you cannot work for a competitor for two years" clause.

Non-disclosure agreements that operate as non-competes. An NDA so broad that it effectively prevents an employee from using their general industry skills and knowledge is treated as an unlawful non-compete. The line is between protecting genuinely confidential information (enforceable) and using confidentiality language to lock the employee out of the industry (void).

Customer non-solicitation clauses that prevent the employee from accepting business. California courts have consistently held under AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. and the line of cases following it that broad customer non-solicitation provisions function as non-competes and are void. Narrow protections of trade secrets under the California Uniform Trade Secrets Act survive; broad customer prohibitions do not. See our companion guide on California non-solicitation agreements for the full framework.

Employee non-solicitation clauses (anti-poaching). Following AMN Healthcare and Brown v. TGS Management Co., California Court of Appeals decisions have held that broad employee non-solicitation clauses — preventing a departing employee from recruiting former colleagues — are also void as restraints of trade.

"Forfeiture for competition" provisions. Provisions that purport to forfeit equity, deferred compensation, or commissions if the employee competes are treated as non-competes. The California Supreme Court's decision in Muggill v. Reuben H. Donnelley Corp. established that an indirect financial penalty for competing is just as unlawful as a direct prohibition.

Garden leave provisions. Extended notice periods that require the employee to remain employed (paid but not working) for months before joining a competitor function as time-limited non-competes and may be unenforceable under § 16600, depending on their structure.

Stay-or-pay provisions. Provisions requiring employees to repay training costs, signing bonuses, or relocation expenses if they leave to join a competitor have been increasingly treated as restraints on trade, and AB 692 (effective January 1, 2026) provides additional explicit protections in this area. See our AB 692 stay-or-pay explainer for the framework.

What Remains Enforceable in California

Three categories of post-employment restraint remain enforceable in California even after AB 1076 and SB 699.

Non-competes tied to the sale of a business. Business and Professions Code § 16601 permits a non-compete in connection with the sale of the goodwill of a business. The seller can be restrained from competing within a defined geographic area for a defined time. This is the most commonly used surviving exception, frequently invoked in M&A transactions where the founder is also an employee post-acquisition.

Non-competes in partnership and LLC dissolutions. Sections 16602 and 16602.5 permit non-competes among former partners or LLC members upon dissolution.

Non-disclosure of trade secrets. A properly drafted NDA that protects genuine trade secrets under the California Uniform Trade Secrets Act (Civil Code §§ 3426 et seq.) is enforceable. The line between trade-secret protection and unlawful non-compete is fact-intensive, but courts respect narrowly drawn confidentiality protections.

True client confidentiality protections in regulated industries. In contexts where state licensing or regulatory rules require confidentiality (legal practice, medical practice, accounting), narrow confidentiality provisions survive even if they incidentally restrain post-employment activity.

What to Do If Your California Employer Is Threatening to Enforce a Non-Compete

The first move is documentation. Preserve every version of the employment agreement, every related email, every copy of the alleged non-compete, and any cease-and-desist letter or threat communication you have received. This is your case file.

The second move is to identify whether you received a § 16600.1 notice from the employer between January 1, 2024, and February 14, 2024. If you did not — and most California employees did not — the employer has already violated the notice provisions of AB 1076, exposing themselves to your private right of action. The failure to send the notice is itself a violation, regardless of what happens next.

The third move is to retain California employment counsel before responding to any cease-and-desist letter or threat. The temptation to write a defensive response on your own — explaining why the non-compete is unenforceable, citing § 16600 — is understandable, but it forfeits leverage.

A response from California employment counsel signals to the former employer that pursuing the non-compete will trigger your counterclaim under § 16600.1, which carries attorneys' fees. That signal almost always ends the threat.

The fourth move is to evaluate whether the employer's conduct supports an affirmative claim by you. If the employer has interfered with a job offer, contacted your new prospective employer, threatened your professional license or reputation, or imposed other restraints in connection with the void non-compete, those actions may support claims for tortious interference with prospective economic advantage (in addition to the § 16600.1 statutory claim), with damages potentially including lost compensation from the interfered-with job.

Frequently Asked Questions

Is my non-compete enforceable in California in 2026?

Almost certainly not. Unless your non-compete falls within one of the three narrow statutory exceptions (sale of business, partnership dissolution, LLC dissolution), it is void under Business and Professions Code § 16600 and your employer is affirmatively liable under § 16600.1 for including it in your employment contract.

My employer is in New York, but I work remotely from California. Can they enforce the non-compete I signed?

No. SB 699, codified at Business and Professions Code § 16600.5, voids non-competes that purport to restrict competition by a California-based employee, regardless of where the contract was signed or what state's law it specifies. Combined with Labor Code § 925, this means an out-of-state employer cannot enforce a non-compete against a California employee in any forum.

I signed my non-compete before AB 1076 took effect. Is it still void?

Yes. § 16600 has voided non-competes since long before AB 1076 — AB 1076 just added new remedies. Non-competes signed in 2010 or 2020 are just as void as those signed in 2024 or 2026. If your employer did not send you the required notice by February 14, 2024, informing you of the unenforceability, you may have a private claim under § 16600.1 in addition to the underlying void clause.

My employer is threatening to sue me if I take a job with a competitor. What should I do?

Retain California employment counsel before responding. The threat itself is unlikely to ripen into an actual lawsuit because the underlying non-compete is void and the employer faces affirmative liability under § 16600.1 for pursuing enforcement. But responding without counsel can forfeit leverage. A demand letter from your attorney citing § 16600.1 typically ends the threat within a few weeks.

Can my employer make me forfeit my equity or commissions if I go to a competitor?

Generally no. California courts treat forfeiture-for-competition provisions as non-competes under Muggill v. Reuben H. Donnelley. A provision that says "you forfeit your unvested RSUs if you join a competitor within 12 months" is functionally a non-compete and void under § 16600. See our companion guides on California equity, RSU, and stock option disputes and California sales commission disputes.

What about non-disclosure agreements? Are those enforceable?

NDAs that protect genuinely confidential trade secret information are enforceable under the California Uniform Trade Secrets Act. NDAs so broad that they effectively prevent an employee from using their general skills and knowledge in the industry are treated as unlawful non-competes and are void. The line is fact-intensive and worth review by California employment counsel before signing.

My new employer asked whether I have a non-compete. What should I tell them?

Tell them the truth: you have a clause that purports to restrict competition, but California Business and Professions Code § 16600 voids such clauses. Many California employers and recruiters are familiar with this analysis and will not let an unenforceable non-compete derail an otherwise viable hire. If the new employer is hesitating because of perceived enforcement risk, a short letter from your California employment counsel confirming unenforceability typically resolves the issue.

DISCLOSURE

1000Attorneys.com is a California State Bar Certified Lawyer Referral and Information Service (LRIS #0128, ABA-Accredited, established 2005). The information on this page is for general educational purposes only and is not legal advice. We are not a law firm and do not provide legal representation. Statutes, case law, and regulatory guidance change. Confirm currency with a California employment attorney before relying on any of the information here.