California non-compete law: why Business and Professions Code §16600 makes nearly every non-compete void, what the narrow exceptions actually are, and how SB 699 extends the ban to out-of-state agreements

The rule: non-competes are void

California's position on non-compete agreements is the most absolute in the country. Business and Professions Code §16600 states it plainly: "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's not a reasonableness test. It's not a balancing framework. It's a categorical rule. A non-compete agreement that restricts an employee from working for a competitor after employment ends is void in California regardless of how narrowly it's drafted, how much consideration the employee received, how senior the employee was, or how much confidential information the employee accessed. The California Supreme Court confirmed this reading in Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, rejecting the argument that California courts should adopt a "narrow restraint" exception for limited non-competes. The court held that §16600 means what it says.

This is not a recent development. California has voided non-competes since 1872, when the original version of §16600 was enacted as part of the Civil Code. The state's refusal to enforce these agreements is deeply rooted in its legal culture and its economic history — Silicon Valley's growth is partly attributed to the free movement of talent that California's non-compete ban enabled. AnnaLee Saxenian's research on the divergence between Silicon Valley and Route 128 in Boston documented this dynamic decades ago, and legal scholars like Ronald Gilson have argued that California's refusal to enforce non-competes was a structural advantage for innovation.

The three statutory exceptions

Section 16600 is not completely without exceptions. Three narrow carve-outs survive, all involving the sale or dissolution of a business interest rather than an employment relationship.

Sale of a business (§16601). When someone sells the goodwill of a business, the entire ownership interest of a business entity, or all of the operating assets of a business, the buyer and seller can agree that the seller won't compete within a specified geographic area for a specified time. This makes intuitive sense — if you buy a dental practice for a price that reflects its patient base, the seller shouldn't be able to open a competing practice next door and take those patients back. The restriction must be limited to the geographic area in which the business was conducted and to a reasonable time period.

Dissolution of a partnership (§16602). When a partnership dissolves, the former partners can agree that some or all of them won't compete within a specified geographic area where the partnership operated. Same logic as the sale-of-business exception — the departing partner received value tied to the business's competitive position.

Dissolution or sale of an LLC membership interest (§16602.5). The LLC analog to the partnership exception. When an LLC member sells or transfers their interest, the agreement can include a geographically bounded non-compete.

These exceptions share a common thread: they apply to owners selling or dissolving a business interest, not to employees leaving a job. If you're an employee — even a very senior one, even a C-suite executive, even one who received equity — the sale-of-business exceptions don't apply to your departure. They apply only to genuine sales of goodwill or ownership interests, not to the end of an employment relationship.

What §16600 does and doesn't reach

The ban covers more than just traditional non-compete clauses labeled as such. California courts have invalidated contractual provisions that function as non-competes even when they're styled differently.

Forfeiture-for-competition clauses. Some agreements provide that equity vesting accelerates or bonus payments are forfeited if the employee goes to work for a competitor. California courts have held that such provisions restrain engagement in a lawful profession and are void under §16600. The leading case is Silguero v. Creteguard, Inc. (2010) 187 Cal.App.4th 60.

Customer non-solicitation agreements. This is more contested. A pure non-solicitation agreement that only restricts an employee from soliciting the former employer's clients doesn't look like a non-compete on its face. But in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, the California Court of Appeal held that a non-solicitation clause that effectively prevents an employee from doing their job — because the job inherently involves contacting and serving clients — is an unlawful restraint under §16600. The case-by-case inquiry is whether the non-solicitation provision, in practice, functions as a restraint on engaging in a lawful profession.

Trade secret protections. California's non-compete ban does not eliminate trade secret protection. Employers can still enforce their rights under the California Uniform Trade Secrets Act (Civil Code §3426 et seq.) and the federal Defend Trade Secrets Act (18 U.S.C. §1836). The distinction is that trade secret law restricts what an employee can use or disclose — specific confidential information — not where the employee can work. An employer can sue a former employee who takes a customer list and uses it at a new job. The employer cannot prevent the former employee from taking the new job in the first place.

Non-disclosure agreements. NDAs that restrict the disclosure of genuinely confidential information remain enforceable in California. The line is between restricting what you say (enforceable) and restricting where you work (not enforceable). An NDA that's drafted so broadly that it effectively prevents the employee from performing a similar role elsewhere may be challenged as a de facto non-compete, but a properly scoped NDA protecting actual trade secrets or confidential business information is a separate instrument under a separate legal framework.

SB 699 and the out-of-state problem

Before 2024, a significant loophole existed. An employer based in another state could hire a California employee under a contract governed by that other state's law, include a non-compete, and argue that California's ban didn't apply because the contract designated, say, Delaware or Florida law. California courts were inconsistent in how they handled these situations.

SB 699, effective January 1, 2024, closed this loophole. The statute makes it unlawful for any employer to enter into or attempt to enforce a non-compete against an employee who is "primarily domiciled in or working from California" at the time of the enforcement, regardless of where the contract was signed, where the employer is based, or what state's law the contract designates.

SB 699 does three things. First, it voids non-competes against California workers regardless of choice-of-law provisions. Second, it creates an affirmative cause of action — a California employee whose employer attempts to enforce a void non-compete can sue for injunctive relief, actual damages, and attorney's fees. Third, it establishes that any contract that is void under California law is unenforceable regardless of where it was signed.

The practical effect is significant for employees who relocate to California or begin working remotely from California for out-of-state employers. A non-compete that was valid and enforceable in, say, Florida becomes unenforceable once the employee is primarily working from California.

AB 1076 and the notice requirement

AB 1076, also effective January 1, 2024, added a notice obligation. Employers were required to notify current and former employees (employed after January 1, 2022) by February 14, 2024 that any non-compete clause in their agreements is void. The notice had to be individualized — not a general announcement — and sent to the employee's last known address and email.

Failure to provide the required notice is a violation of California's Unfair Competition Law (Bus. & Prof. Code §17200 et seq.), which opens the door to injunctive relief and potential penalties. If your California employer hasn't told you your non-compete is void, that silence is itself a violation.

The practical enforcement landscape

Because non-competes are categorically void in California, the enforcement landscape is less about whether courts will uphold them (they won't) and more about three practical concerns.

Intimidation effect. Many employees don't know California law. They see a non-compete in their contract, assume it's enforceable, and self-restrict. They decline job opportunities, turn down interviews, or stay in positions they'd otherwise leave. The non-compete accomplishes its purpose through deterrence even though it has zero legal force. This is precisely the harm that SB 699 and AB 1076 were designed to address — by creating affirmative causes of action and notice requirements, the legislature tried to reduce the information asymmetry that makes void non-competes effective in practice.

Employer forum shopping. Some employers attempt to enforce non-competes in courts outside California, hoping to avoid §16600. If the employer files suit in a state that enforces non-competes, the employee must raise California's public policy as a defense and argue that California law should apply. SB 699 strengthened this position considerably, but the practical reality of defending a lawsuit in another state is expensive and stressful regardless of the legal merits.

Trade secret claims as proxy non-competes. Because non-competes are void, some employers pursue trade secret misappropriation claims as a substitute. The employer can't prevent the employee from working for a competitor, but it can allege that the employee will inevitably disclose trade secrets in the new role. California courts have been skeptical of this "inevitable disclosure" doctrine — in Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, the Court of Appeal rejected inevitable disclosure as inconsistent with California's policy favoring employee mobility. But employers continue to try, and defending against a trade secret claim is expensive even when the defense ultimately prevails.

What this means for employees right now

If you work in California or are primarily based in California, your non-compete is void. Period. It doesn't matter when you signed it, what state's law the contract designates, how senior you are, how much confidential information you accessed, or what your employer has told you about enforcement.

Your employer may still have enforceable rights under trade secret law and enforceable NDA provisions. Those are legitimate protections that survive §16600. But the restriction on where you work and who you work for after you leave — that's the non-compete, and in California, it's nothing.

If your employer is currently threatening to enforce a non-compete against you, SB 699 gives you an affirmative claim. You can seek an injunction, damages, and attorney's fees. That's not just a defense — it's a cause of action that puts the employer on the wrong end of the litigation cost calculus.

The broader context matters here. California's non-compete ban is the strongest in the country, but it's part of a wider trend. The FTC's attempted federal ban collapsed in court, and multiple states have responded by strengthening their own restrictions. Minnesota banned non-competes in 2023. Colorado imposed criminal penalties for void non-competes. The legislative direction is toward more employee protection, though the pace and degree vary enormously from state to state.

If you're considering a move to California from a state with enforceable non-competes, or if you're a California employee being pressured by an out-of-state employer, the legal answer is clear. The harder question is always the practical one — how much appetite does your employer have for enforcement, and how much appetite do you have for defending yourself if they try. For most employees, the answer to that question improved substantially on January 1, 2024.