Assembly Bill 747, if signed by Governor Newsom, will heavily impact the position of employers seeking to enforce any restrictive covenant in a non-compete agreement and the attorneys who advise them. Unfortunately, some issues remain unsettled between California’s appellate courts and its Supreme Court.

The bill before the State Assembly will, if enacted, add another set of teeth to the current penalties against employers and could instigate disciplinary actions by the State Bar against attorneys advising their clients on the current and unsettled issues.

The legal professionals at the Omni Legal Group, specializing in employment contracts in the Greater Los Angeles region, want business owners requiring non-compete agreements to be aware of the ramifications of AB 747.

The Ramifications of AB 747

If passed, AB 747 will impact employers operating within California’s state lines and those working across them. The aim of AB 747 is the employers’ enforcement of the restrictive covenants within a non-compete agreement.

As an overview, the effect of this bill would be:

• an additional penalty of $5,000 per person if harmed by the enforcement, or by any attempt to enforce, a non-compete covenant,
• a disciplinary action, including disbarment, taken by the State Bar against any attorney for presenting or attempting to enforce a non-compete covenant against any person, and
• the broadening of the definition of “non-compete” to include the engagement of any lawful trade, business, or profession.

In each of the above, a “person” can be an employee or a prospective employee.

AB 747 continues to carry out California’s public policy against enforcing non-compete covenants. The enforcement of such covenants will become narrower and more specific.

The Effective Ban on Covenants Not to Compete

Under California’s Business and Professional Code, non-compete clauses post-employment are void. However, this violation could become the basis of a claim for unfair business practices under the Code, but without a specific monetary penalty. The Code does provide for equitable relief.

The $5,000 per-person penalty is the added teeth to the damages relief.

California’s Labor Code

AB 747 would extend to the State’s Labor Code. Currently, an employee who primarily resides and works in California is offered a choice of law of another state that enforces restrictive covenants. This choice is available only if an attorney represents the employee during the negotiation of the agreement.

This exception to the Code is heavily relied upon by employees who work across or outside of the state. If AB 747 is enacted, the “attorney representation” clause would not be recognized if the employee was represented by an attorney selected or paid by the employer—even if the selection of the attorney was at arm’s length.

This limit on the choice-of-law provision would become effective for employment agreements entered into or modified on or after January 1, 2024.

The Non-Solicitation Clause

While non-compete clauses are typically a post-employment issue, there was a time when current or prospective employees clearly violated this covenant when soliciting employees or co-workers of prior employers.  These non-solicitation clauses were valid, definitive, and enforceable in California.

However, lower appeals courts have since held these clauses invalid. This issue remains unsettled as California’s Supreme Court has not addressed the disparity in court opinions. This is an unsettled issue. AB 747 could force the settlement by bringing the non-solicitation clauses into the same sphere as a non-compete covenant.

The Disciplinary Actions Against Attorneys

AB 747 could also be used against attorneys who advise or draft non-solicitation clauses in restrictive agreements. Effectively, the bill will extend beyond the actions of employers and reach the work of attorneys in representing their clients. Any disciplinary action by the Bar would hold even though the non-solicitation issue remains unsettled in the courts.

Take Action and Schedule a No-Cost Consultation With a Knowledgeable Los Angeles Business Litigation Lawyer Today

California is known for its liberal and progressive protection of individuals. Before 2018, employees agreed to non-compete agreements when appropriate consideration was given in exchange for restrictions on their livelihood. Now, this issue is moot.

AB 747 will broaden the unenforceability of non-compete covenants in the pre- and employment stages. Employers will be further limited in enforcing restrictive covenants and their legal representation of these issues.

If you are an employer and need legal advice on the effects of AB 747 on the current forms of employment and other proprietary contracts, please schedule a consultation with a highly reputable and experienced Los Angeles Business Litigation Lawyer by calling Omni Legal Group at 855.433.2226 or visit www.OmniLegalGroup.com to learn more.