Russell Beck to Speak at PLI on California’s New Noncompete Restrictions

On Thursday, January 18, 2024, Russell Beck will be speaking at Practising Law Institute’s program on California’s new noncompete laws.

Russell’s presentation is titled “Can You Avoid the Californication of Your Restrictive Covenant Agreements?” The one-hour, live briefing starts at 3 p.m. ET on January 18, 2024. More information and registration is available here.

During this discussion, registrants will learn:

  • How California’s current law changed, and what other recent developments do companies need to know about (15 minutes);
  • Practical implications of California’s changes: what agreements are at risk, and who will be affected and how (20 minutes); and
  • Strategies for protecting trade secrets, customer relationships, and workforce integrity in light of California’s changes, with a focus on what to do about existing restrictive covenants, how to draft restrictive covenants going forward, alternatives to traditional restrictive covenants, and other strategies to consider (25 minutes).

The program is tailored for lawyers and human resources personnel who assist companies or individuals in evaluating, enforcing, and defending against noncompetes and other restrictive covenants, as well as anyone involved in the hiring of employees, and anyone else responsible for an organization’s internal hiring policies or lobbying on related issues.


Russell has recently been writing and speaking about California’s latest efforts to restrict noncompete agreements.

For up-to-the-minute analysis of legal issues concerning trade secrets and noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

ussell frequently writes and speaks about trade secrets and noncompete agreements. He was featured on NPR and quoted in the New York Times discussing federal regulatory efforts targeting noncompete agreements. In November 2023, Russell hosted a virtual roundtable to discuss California’s new, expanded, anti-restrictive covenant laws. In January 2023, Russell was quoted in a Bloomberg Law article about the FTC’s proposed rule, and he wrote an article for Law360 called “Companies Must Brace For FTC’s Overbroad Noncompete Rule.”

Beck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Russell Beck’s work in this area is well recognized, and includes:

  • Over thirty years of experience working on trade secret, noncompete, and unfair competition matters
  • Assisting the Obama White House as part of a small working group to develop President Obama’s Noncompete Call to Action
  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (6th ed., MCLE, Inc. 2021), used by other lawyers to help them with their noncompete matters
  • Authoring the book Trade Secrets Law for the Massachusetts Practitioner (1st ed. MCLE 2019), covering trade secrets nationally, with a focus on Massachusetts law
  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law
  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law
  • Founding and administering the award-winning blog, Fair Competition Law
  • Establishing and administering the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 1,660 and 870 members, respectively, around the world
  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2020 Chambers USA Guide, which stated that Russell Beck is “an expert in the field of trade secret and restrictive covenant law,” and is also noted for his “ability to adjust and come up with successful solutions.” Chambers noted that Russell “basically wrote the new Massachusetts statute on noncompetes” and that “he’s an expert in employee mobility and nonrestrictive covenants.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Russell Beck Featured in Law360 on California’s Expanded Noncompete Ban

Russell Beck‘s article about California’s new, expanded, anti-restrictive covenant laws was published by Law360 under the title, “Get Ready for Calif.’s Expanded Restrictive Covenant Ban.

The article, reprinted in full below, analyzes California’s new law expanding the scope of their restrictive covenant ban.

n October 13, California Gov. Gavin Newsom signed the second of two bills that, together, expand California’s restrictive covenant law and prioritize it over the laws of every other state.

The two new laws go into effect on Jan. 1, 2024, and will operate retroactively.

What do you need to know?

First, the background.

While most states permit reasonable employee noncompete agreements,[1] California has banned employee noncompetes since 1872.[2]

Some courts, however, had interpreted Californina Business and Professions Code Section 16600 — California’s noncompete statute — as making illegal only “those restraints which preclude one from engaging in a lawful profession, trade, or business,” but permitting restrictive covenants “where one is barred from pursuing only a small or limited part of the business, trade or profession.”[3] This interpretation was generally referred to as the narrow restraint doctrine.

In 2009, in Edwards v. Arthur Andersen LLP, the California Supreme Court rejected the narrow restraint doctrine and made it clear that the ban applied not only to noncompetes, but to nonsolicitation of clients as well.[4]

Following that decision, other courts in California have found no-recruit agreements[5] and broad confidentiality agreements to be banned by the statute as well.[6]

hat brings us to this year.

During September and October, the California Legislature extended the ban even further through two new laws.

The first law — S.B. 699 — adds Section 16600.5 to the California Business and Professions Code. With that new law, which will become effective on Jan. 1, California essentially thumbed its nose at all other state laws, virtually saying, “California’s public policy against restraint of trade law trumps other state laws.”

The impact of the law is extreme. By way of example, an employee living in Massachusetts with a noncompete executed in Massachusetts, valid in Massachusetts, enforceable in Massachusetts, and for which the employee received substantial consideration, can — according to California’s soon-to-be-effective law — flee to California, void the contract and ignore those otherwise-lawful obligations with impunity.[7]

Whether this law is constitutional or will be enforced by non-California courts remains to be seen.

However, apparently unsatisfied with merely imposing its existing state policy on the rest of the country, California has doubled down on its policy, both expanding the scope of its restrictive covenant ban and imposing additional obligations on companies using restrictive covenants.

Specifically, the law signed by Newsom on Oct. 13 — A.B. 1076 — changes California’s noncompete statute in several ways.

First, it mandates that Section 16600 “shall be read broadly, in accordance with Edwards v. Arthur Andersen … to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored.”[8]

Second, it prohibits companies from including “a noncompete clause in an employment contract, or … requir[ing] an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter.”[9] To be clear: This does not just void an agreement or render it unenforceable — it prohibits its use.

Third, it requires companies — by Feb. 14, 2024 — to notify employees subject to a covenant that violates Section 16600 that their restrictions are void.[10] This notice requirement applies to current employees, as well as to former employees who were employed after Jan. 1, 2022.[11] The notice must be “in the form of a written individualized communication to the employee or former employee, and shall be delivered to the last known address and the email address of the employee or former employee.”[12]

Fourth, not surprisingly, the new law also adds penalties for failing to comply by making it “an act of unfair competition” to violate the statute.[13]

ow will this affect you?

First, the new law immediately presents a threshold question: What agreements, in addition to noncompetes and nonsolicitation covenants, are covered?

Although purporting not to constitute a change, but rather to be “declaratory [of] existing law,”[14] the law does in fact expand on existing case law.

For example, it seems to change the law on no-recruit agreements. Currently, the law is unsettled. But the following language suggests that no-recruit agreements will likely be prohibited going forward: “This section shall not be limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.”[15]

This language presumably covers many other agreements as well. For example, it seems to prohibit joint venture agreements and confidentiality agreements in connection with a possible merger or acquisition, where the company parties agree not to hire the other party’s employees during the joint venture or exploratory period — putting aside for some time after.[16]

Similarly, broad confidentiality agreements are likely also covered, at least to the extent that the confidentiality obligations could be interpreted to be so broad as to effectively prevent someone from working in their field, i.e., effectively constituting a noncompete agreement.[17]

Second, the new law will affect different companies and employees differently.

From the perspective of a company that is incorporated or headquartered in California, there is an argument that the company simply cannot use noncompetes, nonsolicits, no-recruits, broad nondisclosure agreements or other agreements that might violate the new law with anyone. Full stop. No employees. Nowhere.

To the extent that the company is using any of these restrictive covenants, it will need to take steps to promptly undo those agreements and notify affected employees — and others with whom they may have such agreements.

From the perspective of a company outside of California with employees in California, the new law can still be an issue. Companies with California employees who have noncompetes or nonsolicits — and likely no-recruits and broad nondisclosure agreements — will need to promptly come up with a plan for complying with the new law.

For example, such companies will need to consider whether to send notices at all and, if so, which employees they will send notices to. And they will need to consider whether and how to address no-recruit agreements and confidentiality agreements. They will also need to make sure that they are taking reasonable measures to protect their trade secrets, other confidential information, customer and employee goodwill, and any other legitimate business interests.

From the perspective of an employee, this is obviously a boon. I expect we will see an increased number of employees fleeing — at least temporarily — to California to void their restrictive covenants. California will become even more of a clearing house for employees who live, work and enjoy benefits received in other states, in exchange for agreeing to a restrictive covenant. Specifically, many of those employees are likely to relocate to California to relieve themselves of their otherwise-enforceable contractual obligations.

We will have to see how this all plays out, but I fully expect that there will be plenty of legal challenges to the law. And I expect they will come soon, given the Jan. 1, 2024, effective date, the laws’ retroactive operation and the Valentine’s Day deadline to send notice to affected employees.

hat steps should you take now?

As noted above, the time to come up with a plan for compliance with the new California laws is short. Planning should start now.

Separately, now is also the time to revisit how your company — or your clients’ companies — protects confidential information, including trade secrets, and other legitimate business interests. While there are many contractual options,[18] including for example, deferred compensation plans governed by the Employee Retirement Income Security Act that have forfeiture-for-competition provisions,[19] their effectiveness may be questionable in light of California’s new laws.[20]

For that reason, it is all the more important to have a comprehensive trade secret — and other legitimate business interest — protection plan in place now.

A good starting point is to review all documents related to protecting the company’s legitimate business interests. Those documents include any restrictive covenant agreements, whether contained in employment agreements, restricted stock unit agreements, stock option agreements, long-term incentive agreements or other agreements, and policies and codes of conduct. All such documents should be brought into compliance and strengthened as much as permissible and appropriate.

From an operational standpoint, make sure that there is a culture of confidentiality. That is not to say that all information needs to be locked down; there is always a balance. If information is locked down too tightly, work becomes less efficient and people will find workarounds, likely resulting in even less security for the information.

Training is critical.[21] And it should be provided at all stages of the employment life cycle where there is a risk of infiltration of — and contamination by — someone else’s information, or a risk of exfiltration and loss of trade secrets. Training of some sort should be conducted during the recruiting and onboarding process, through and during the employment relationship, and at off-boarding.

Given that the goal is to protect trade secrets, as well as customer relationships and other legitimate business interests — as opposed to being able to win a costly, time-consuming lawsuit after the fact — preemptive measures are critical. Take them now before there is a problem. It truly is the case that an ounce of prevention is worth a pound of cure.


For up-to-the-minute analysis of legal issues concerning trade secrets and noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Russell Beck’s work in this area is well recognized, and includes:

  • Over thirty years of experience working on trade secret, noncompete, and unfair competition matters
  • Assisting the Obama White House as part of a small working group to develop President Obama’s Noncompete Call to Action
  • Authoring the book Negotiating, Drafting, and Enforcing Noncompetition Agreements and Related Restrictive Covenants (6th ed., MCLE, Inc. 2021), used by other lawyers to help them with their noncompete matters
  • Authoring the book Trade Secrets Law for the Massachusetts Practitioner (1st ed. MCLE 2019), covering trade secrets nationally, with a focus on Massachusetts law
  • Drafting and advising on legislation for the Massachusetts Legislature to define, codify, and improve noncompetition law
  • Teaching Trade Secrets and Restrictive Covenants at Boston University School of Law
  • Founding and administering the award-winning blog, Fair Competition Law
  • Establishing and administering the Noncompete Lawyers and Trade Secret Protection groups on LinkedIn, with over 1,660 and 870 members, respectively, around the world
  • Founded and chaired the Trade Secret / Noncompete Practice for an AmLaw 100 firm

In addition, Russell was honored for his work in this area of law in the 2020 Chambers USA Guide, which stated that Russell Beck is “an expert in the field of trade secret and restrictive covenant law,” and is also noted for his “ability to adjust and come up with successful solutions.” Chambers noted that Russell “basically wrote the new Massachusetts statute on noncompetes” and that “he’s an expert in employee mobility and nonrestrictive covenants.”

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.


[1] See Beck, Employee Noncompetes, A State-by-State Survey (“50 State Noncompete Survey”), available at https://www.beckreedriden.com/50-state-noncompete-chart-2/.

[2] See Cal. Bus. & Prof. Code § 16600.

[3] See Campbell v. Trustees of Leland Stanford Jr. Univ ., 817 F.2d 499, 502-03 (9th Cir. 1987) (citations omitted).

[4] Edwards v. Arthur Andersen , 44 Cal.4th 937, 81 Cal. Rptr. 3d 282, 189 P.3d 285 (Cal. 2008). The “narrow restraint” exception was, as its name implies, an interpretation of Cal. Bus. & Prof. Code § 16600 that permitted certainly narrowly tailored restrictive covenants.

[5] No-recruit agreements are often called “employee nonsolicitation clauses” (or simply “nonsolicitation agreements”) or “no-raid” agreements.

[6] See, e.g., AMN Healthcare, Inc. v. AYA Healthcare Servs., Inc ., 28 Cal.App.5th 923, 936-939, 239 Cal. Rptr. 3d 577 (Cal. Ct. App. 2018) (no-recruit agreements); Parsable, Inc. v. Landreth , 2022 WL 19692034, at *3-4 (N.D. Cal. Aug. 5, 2022) (no-recruit agreements); Brown v. TGS Mgmt ., 57 Cal.App.5th 303, 271 Cal. Rptr. 3d 303 (Cal. Ct. App. 2020) (broad confidentiality agreement). Instructively, none of these cases was decided by the California Supreme Court, and therefore they do not overrule preexisting case law, including case law suggesting that no-recruit agreements are permissible under Cal. Bus. & Prof. Code § 16600, such as Loral v. Moyes , 174 Cal. App. 3d 268, 278-280 (1985).

[7] This new law is discussed in some detail in Russell Beck, California is set to (officially) tortiously interfere with noncompetes from other states (Sept. 6, 2023), available at https://faircompetitionlaw.com/2023/09/06/california-is-set-to-officially-tortiously-interfere-with-noncompetes-from-other-states/; and Sarah Tishler, Calif. Law Tests Noncompete Prohibitions’ Potential Reach (Oct. 3, 2023), available at https://www.law360.com/articles/1726065/calif-law-tests-noncompete-prohibitions-potential-reach.

[8] New Cal. Bus. & Prof. Code § 16600(b)(1).

[9] New Cal. Bus. & Prof. Code § 16600.1(a).

[10] New Cal. Bus. & Prof. Code § 16600.1(b)(1).

[11] Id.

[12] New Cal. Bus. & Prof. Code § 16600.1(b)(2).

[13] New Cal. Bus. & Prof. Code § 16600.1(c).

[14] New Cal. Bus. & Prof. Code § 16600.1(b)(2).

[15] New Cal. Bus. & Prof. Code § 16600(c).

[16] Though perhaps offering little solace, while these types of B2B agreements might be void under section 16600, they likely do not constitute an act of unfair competition under 16600.1(c) insofar as they neither are in an employment contract nor “require an employee to enter a noncompete agreement . . . .”

[17] See Brown v. TGS Mgmt. , 57 Cal.App.5th 303, 271 Cal. Rptr. 3d 303 (Cal. Ct. App. 2020); FTC proposed “Non-Compete Clause Rule,” available at https://www.federalregister.gov/documents/2023/01/19/2023-00414/non-compete-clause-rule.

[18] For some suggestions, see Russell Beck and Erika Hahn, 3 Ways To Plan For A Possible Federal Ban On Noncompetes (March 17, 2021), available at https://www.law360.com/articles/1363450/3-ways-to-plan-for-a-possible-federal-ban-on-noncompetes; Russell Beck, Change of Course on Noncompetes: President Biden to Issue Executive Order (July 8, 2021), available at https://faircompetitionlaw.com/2021/07/08/change-of-course-on-noncompetes-president-biden-to-issue-executive-order/.

[19] See Gretchen Harders and Cassandra Labbees, ERISA Nonqualified Deferred Compensation Plans, Restrictive Covenants, and ERISA Preemption (June 27, 2019), available at https://www.natlawreview.com/article/erisa-nonqualified-deferred-compensation-plans-restrictive-covenants-and-erisa#:~:text=A%20restrictive%20covenant%20in%20a,a%20result%20of%20the%20behavior.

[20] Some of these agreements may also be of questionable utility if the Federal Trade Commission moves forward with a rule that would ban noncompete agreements as well as any other agreements that the FTC interprets to be “de facto” noncompetes, such as broad confidentiality agreements. See Russell Beck, FTC Should Take Nuanced Approach On Noncompete Regs (July 19, 2021), available at https://www.law360.com/articles/1403765/ftc-should-take-nuanced-approach-on-noncompete-regs.

[21] Even short video trainings can be helpful. See Beck Reed Riden, LLP’s Ten Minute Trade Secret TrainingTM videos, available at https://beckreedriden.com/50-state-noncompete-chart-2/.

Roundtable on California’s New Sprawling Noncompete Ban

On Friday, November 17, from 1:00 to 3:00 PM ET, Beck Reed Riden LLP will be hosting a virtual roundtable to discuss California’s new, expanded, anti-restrictive covenant laws.

The webinar will feature about 50 restrictive covenant / trade secrets / employee mobility lawyers from around the country. The speakers will conduct a virtual brainstorming session to plan for California’s newly-enacted restrictive covenant laws.

To register for the webinar, send an email to register@beckreed.com. Please note that attendance is limited.

alifornia has a long history of regulating restrictive covenants. But its new laws have nationwide, retroactive effects on restrictive covenants.

  • As of January 1, 2024, California is expanding the scope of its anti-restrictive covenant policy, making clear that virtually all, if not all, restrictive covenants in whatever form they may take and wherever signed are prohibited, including even broad confidentiality agreements signed out of state by an out-of-state employee and an out-of-state employer and otherwise-lawful agreements that affect a non-party.
  • As of January 1, 2024, California is prioritizing its policy over all other states’ policies, and in so doing, purports to be creating a safe-haven for employees with otherwise-lawful and enforceable contracts to flee to California to avoid their lawful obligations.
  • By February 14, 2024, employers with employees in California must notify all of those employees that their restrictive covenants (if they have one) are void.

Given California’s effort to invalidate contracts that have no relationship to California, companies need to know how to protect their trade secrets, customer relationships, and workforces in light of this new reality.

The roundtable discussion will address the following topics:

  • Update on what has happened.
    • Summary of California’s current law.
      • Bus. & Prof. Code §§ 16600 – 16602.5; and
      • Labor Code § 925
    • Explanation of California’s new laws.
      • Bus. & Prof. Code §§ 16600 (amended)
      • Bus. & Prof. Code §§ 16600.1
      • Bus. & Prof. Code §§ 16600.5
    • Brief summary of other developments this year and predictions for additional changes.
  • Practical implications of California’s changes.
    • What agreements are at risk.
    • Who will actually be affected and how.
  • Strategies for protecting trade secrets, customer relationships, and workforce integrity in light of California’s change:
    • What to do about existing noncompetes, nonsolicitation agreements, no-recruit agreements, confidentiality agreements, and others.
    • How to draft restrictive covenants going forward.
    • Alternatives to traditional restrictive covenants.
    • Other strategies for companies to consider.

For up-to-the-minute analysis of legal issues concerning trade secrets and non-compete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.

eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.

Sarah Tishler Featured in Law360 on New Calif. Noncompete Restrictions

Sarah Tishler’s article about California’s latest effort to stamp out noncompete restrictions for its residents was published by Law360 under the title, “Calif. Law Tests Noncompete Prohibitions’ Potential Reach.”

The article, reprinted in full below, analyzes California’s new law expanding the scope of their restrictive covenant ban.

s increasing numbers of states enact laws to protect employees within their boundaries, the question of the reach of those laws — namely, the extent to which they will be enforced in other jurisdictions — is simultaneously becoming increasingly important and increasingly fractured.

Many states have tried to bolster protections for workers through laws that prevent employers from contracting around statutory limitations on post-employment restrictive covenants — in particular, preventing employers from requiring employees to adopt the law of a less protective state as the governing law for an employment agreement containing post-employment restrictive covenants.

There are nine states that have adopted these types of laws: California, Colorado, Louisiana, Massachusetts, Minnesota, Montana, North Dakota, Texas, and Washington.[1]

Michigan appears ready to become the tenth with H.B. 4399, legislation regulating post-employment restrictive covenants, which provides: “All of the following are void and unenforceable: … A choice of law provision in an agreement, to the extent that it would negate the requirements of this section.”

The most recent update to this trend is California’s addition to its Business and Professions Code, Section 16600.5, which was signed into law by Gov. Gavin Newsom on Sept. 1, and takes effect Jan. 1, 2024.

Section 16600 codifies California’s well-known policy prohibiting employee noncompetes: “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.”

The new Section 16600.5 states, in relevant part:

  1. Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed.
  2. An employer or former employer shall not attempt to enforce a contract that is void under this chapter regardless of whether the contract was signed and the employment was maintained outside of California.[2]

here can be no question about the intent of the legislation. The Legislature’s findings in support of the law states in part: “The California courts have been clear that California’s public policy against restraint of trade law trumps other state laws when an employee seeks employment in California, even if the employee had signed the contractual restraint while living outside of California and working for a non-California employer.”

It is clear that California wants no ambiguity surrounding the reach of its restrictive covenant laws — if the employee resides in California, during or after signing a contract containing a provision that violates Section 16600, then California wants to ensure that there is no way the employer can enforce the provision in question.

In other words, it wants every California resident to live, or arrive, in the state free and clear of restraints on their employment.

This legislation has the potential to upend the usual considerations taken into account when negotiating an employment agreement with restrictive covenants. As it stands, many employers include forum selection and governing law clauses in their employment agreements, in an effort to maintain uniformity across their operations.

Up to now, that approach has generally found success in overcoming employees’ attempts at seeking statutory protection under laws like California Labor Code, Section 925, which provides as follows:

  1. An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:
    1. Require the employee to adjudicate outside of California a claim arising in California.
    2. Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.
  2. Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.

The substantive legislative intent of Section 925, therefore, is to ensure that California workers enjoy the benefit of Section 16600 regardless of what their contracts say, but that strategy has had mixed results in the courts.

For example, in Ronnoco Coffee LLC v. Castagna, a 2021 decision by the U.S. District Court for the Eastern District of Missouri, one of the defendants was employed by the plaintiff as a territory sales manager in Los Angeles.[3]

The agreement the California defendant signed prohibited him from working for a competitor during and for two years after his employment; prohibited him from soliciting the plaintiff’s employees, clients and customers; and prohibited him from disclosing any confidential and proprietary information.[4]

The agreement also specified that Missouri law governed the agreement and provided for jurisdiction and venue in that forum.[5]

Shortly after signing the agreement, the defendant resigned and began employment with a direct competitor.[6] On a motion to dismiss, the defendant specifically argued that as a California resident, Section 925 of the California Labor Code voided the agreement’s jurisdiction and venue provisions, and argued that California law should apply under conflict of law principles, voiding the restrictive covenants as well.[7]

Rejecting these arguments, the court noted that “district courts outside of California considering choice of law provisions and forum selection clauses have refused to apply § 925 when another state’s law has been chosen by the parties.”[8]

Following the enactment of Section 16600.5, the stakes seem even higher. Now it will not only be California employees attempting to avail themselves of the protections of California’s competition law. It has significantly increased the potential for employees from other states to relocate to California to seek the benefits of Section 16600.5.

Take the hypothetical of a New York company that employs a New York resident. The parties enter into an employment agreement containing a post-employment noncompete, with a choice of law clause selecting New York, and a forum selection clause also selecting New York courts.

The employee resigns, moves to California, and starts working for a direct competitor. The employer wants relief. What can it do?

  • Could the employer sue the former employee in California for breach of the noncompete? This seems like it has a high probability of failure given the explicit language of Section 16600.5; it is even more certain than in the past that a California court would void the noncompete.
  • Could the employer sue the former employee in New York? This seems more promising given New York’s jurisprudence on forum selection clauses.[9] Note that the employer would also have to establish personal jurisdiction over the employee, which is likely, but not necessarily guaranteed despite the existence of the forum selection clause.[10]
  • Could the employer sue the new employer in California under a theory of tortious interference with contract? It seems likely that a California court would hold that there could be no tortious interference with an invalid contractual provision.
  • Could the employer sue the new employer in New York? Establishing personal jurisdiction over a California company with, for argument’s sake, no business in New York would be an uphill battle.

Along with these strategic issues, foundational constitutional questions regarding how other states should treat legislation such as California’s have simultaneously come to the fore.

Earlier this year, a petition to review a decision of the U.S. Court of Appeals for the Eighth Circuit was brought before the U.S. Supreme Court, captioned Traffic Tech Inc. v. C.H. Robinson Worldwide Inc.[11]

In Traffic Tech, five individual defendants, all California citizens, signed employment agreements with C.H. Robinson — a transportation and logistics giant — containing post- employment restrictive covenants, and a choice of law clause selecting Minnesota as the governing law of the agreements.[12]

The restrictive covenants at issue were indisputably illegal under California law, and legal under Minnesota law. Each of the individual defendants resigned from C.H. Robinson, began employment for a competitor, and continued to live and work exclusively in the state of California.[13]

C.H. Robinson sued the individual defendants first in Minnesota state court for breach of contract — specifically, breach of the customer nonsolicitation provision — and the defendants removed the case to the U.S. District Court for the District of Minnesota.[14]

n summary judgment, the defendants argued that the district court should apply California law to the dispute, rendering the restrictive covenants void and unenforceable.[15] After the district court granted summary judgment, C.H. Robinson appealed to the Eighth Circuit, arguing that the district court erred by not applying the usual choice of law test under Minnesota law.

The Eighth Circuit ruled that “Minnesota is committed to the rule that parties can agree on the law that governs their contract … a contractual choice-of-law provision will govern … so long as the parties acted in good faith and without an intent to evade the law,” reversing the district court and determining that Minnesota law applied, without consideration of the impact of California’s laws.[16]

The defendants’ petition for a writ of certiorari side steps the usual choice of law analysis, and goes straight to the question of “the constitutional limitations of the Full Faith and Credit Clause and the Due Process Clause, specifically as it relates to a State’s ability to disregard unwaivable rights of the citizens of another State.”[17]

The petition states: “This Court has not yet set forth how a State should address an applicable Anti-Waiver Statute of a sister State, such as Cal. Labor Code § 925.”[18] It goes on to summarize the “patchwork of conflicting case law” that has grown on this subject without clear guidance from the Supreme Court.[19]

Importantly for California and other states with similar statutes, the petitioners argue that Minnesota’s choice-of-law test, as applied by the Eighth Circuit, is unconstitutional because it exhibits a policy of hostility to the public acts of its sister state, violating the full faith and credit and due process clauses of the Constitution.[20]

However, this is not the end of the story for California’s legislation, specifically the new Section 16600.5. As the petition notes, the court’s existing jurisprudence on the full faith and credit clause and the due process clause with respect to conflicts of law requires that “for a State’s substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.”[21]

The petition also cites former Justice John Paul Stevens’ 1981 concurrence in Allstate Insurance Co. v. Hague,[22] in which he wrote, “A choice — of — law decision that frustrates the justifiable expectations of the parties can be fundamentally unfair. This desire to prevent unfair surprise to a litigant has been the central concern in this Court’s review of choice — of — law decisions under the Due Process Clause.”[23]

It is difficult to square that precedent, which has not been abrogated since, with the explicit statutory command of Section 16600.5 to disregard where a given contract was signed, when a given contract was signed, and whether the employee lived and worked in California during the relevant time period.

If the touchstone of constitutionality in a conflict-of-laws analysis is fairness, can a statute allowing complete disregard of salient facts related to the dispute survive?

Unfortunately, the Traffic Tech case will not resolve these important constitutional questions, because the Supreme Court denied the writ for certiorari on October 2, 2023. Because the court’s denial did not include any rationale, it is impossible to know why the Supreme Court decided that it did not need to review the case.

Traffic Tech therefore joins the U.S. District Court for the District of New Jersey’s 2020 decision in Howmedica Osteonics Corp. v. DePuy Synthes Sales Inc.[24] and other recent cases touching upon these choice-of-law issues that the Supreme Court has declined to resolve.

These choice-of-law questions therefore remain live and salient for practitioners, employers and employees around the country.

Given the mixed success that California’s worker protections have found in other jurisdictions, particularly when faced with another state’s choice-of-law or venue provision, it is understandable why the California Legislature felt the need to go as far as it has.

Only time will tell, however, whether Section 16600.5 will be considered consistent with the U.S. Constitution, or whether legislators will need to go back to the drawing table to find another way to ensure that California workers receive the benefit of their home state’s laws.


Sarah Tishler is a commercial litigator whose practice focuses on complex business disputes in state and federal courts, including intellectual property, breach of contract, and fraud claims.


eck Reed Riden LLP is among the leading authorities in trade secret, noncompete, and unfair competition law, and our experience handling these matters is backed by our extensive employment law and business litigation experience. Our hand-picked team combines attorneys with complementary expertise and practical experience.

The Wall Street Journal featured Beck Reed Riden LLP’s noncompete agreement experience. In 2016, the White House issued a report entitled, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses,” relying in part on Beck Reed Riden LLP’s research and analysis, including its 50 State Noncompete Survey.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and employment.

We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.


Footnotes:

  1. See: Cal. Labor Code § 925; Colo. Rev. Stat. Ann. § 8-2-113; La. Stat. Ann. § 23:921; Mass. Gen. Laws Ann. Ch. 149, § 24L; Minn. Stat. § 181.988; Mont. Code Ann. § 28-2-708;N.D. Cent. Code Ann. § 9-08-05; Tex. Bus. & Com. Code Ann. § 15.52.; and Wash. Rev. Code Ann. § 49.62.050.
  2. In addition to these provisions, § 16600.5 also mandates that employers who violate the law commit a civil violation, and affected employees may bring a private action for injunctive relief, the recovery of actual damages, or both.
  3. Ronnoco Coffee LLC v. Castagna, No. 4:21-CV-00071 JAR, 2021 WL 842599, at *1 (E.D. Mo., March 5, 2021).
  4. Id. at *2.
  5. Id. at *5.
  6. Id. at *3.
  7. Id. at *6.
  8. Id. In support, the Ronnoco court cited Howmedica Osteonics Corp. v. Howard, No. CV1919254SDWLDW, 2020 WL 1102494, at *4 (D.N.J. Jan. 17, 2020), report and recommendation adopted, No. 19-19254 (SDW) (LDW), 2020 WL 1082601 (D.N.J. Mar. 5, 2020); Genesys Telecommunications Labs. Inc. v. Morales, No. 119CV00695TWPDML, 2019 WL 5722225, at *7 (S.D. Ind. Nov. 5, 2019); Cherry Creek Mortg. Co. v. Jarboe, No. 18-CV-00462-KLM, 2018 WL 6249887, at *4 (D. Colo. Nov. 29, 2018). While it is accurate that many courts have refused to apply § 925 when another state’s law has been chosen by the parties, the courts are not unanimous. See, e.g., Focus Fin. Partners LLC v. Holsopple, 241 A.3d 784, 821 (Del. Ch. 2020) (applying Delaware conflict of law rules to determine that § 925 governed the case, and therefore invalidated the Delaware forum selection and choice- of-law provisions in the restrictive covenant agreement); C.H. Robinson Worldwide Inc. v. Traffic Tech Inc., No. CV 19-902 (MJD/DTS), 2021 WL 4307012, at *1 (D. Minn. Sept. 22, 2021) (as discussed below, this case was reversed in relevant part by the Eighth Circuit, and is on certiorari before the United States Supreme Court); Oxford Glob. Res. LLC v. Hernandez, 480 Mass. 462, 472 (2018) (affirming order of dismissal for forum non conveniens despite a forum selection clause selecting Massachusetts, because it was contrary to California’s fundamental public policy, and California had a materially greater interest in the dispute).
  9. See Ministers & Missionaries Benefit Bd. v. Snow, 26 N.Y.3d 466, 476 (2015) (holding that “New York courts should not engage in any conflicts analysis where the parties include a choice-of-law provision in their contract”); see also Capstone Logistics Holdings Inc. v. Navarrete, No. 17-CV-4819 (GBD), 2018 WL 6786338, at *20 (S.D.N.Y. Oct. 25, 2018) (“the courts of New York have refused to consider the public policy of foreign states – including California – to overturn an otherwise valid contractual choice of law provision”) (emphasis in original), aff’d and remanded in part, 796 F. App’x 55 (2d Cir. 2020). To further illustrate the disparate approaches taken by different jurisdictions, consider the Georgia Supreme Court’s recent decision in Motorsports of Conyers LLC v. Burbach, where the court clarified that while Georgia courts must generally honor a contractual choice-of-law provision selecting a foreign law, it may not if doing so is “restrained by the General Assembly” or “contrary to the policy or prejudicial to the interests of this state.” 2023 WL 5760197, at *3 (Ga. Sup. Ct. Sept. 6, 2023). Applying this standard, the Motorsports court held that the analysis for foreign choice-of-law provisions with respect to restrictive covenants begins by asking whether the restrictive covenant comports with Georgia’s restrictive covenant statute. Id. at *7. The Motorsports court vacated the judgment, and reversed and remanded the case back to the trial court to apply the standard it articulated. Id. at *8.
  10. While New York state and federal courts apply the general rule that a forum selection clause confers personal jurisdiction over a defendant (see, e.g., D.H. Blair & Co. v.Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006)), they also are exacting in their requirements that a forum selection clause be unambiguous to be enforceable. For example, the Eastern District of New York deemed a forum selection clause ambiguous and unenforceable, and therefore found no personal jurisdiction, when the clause in question provided “This Agreement shall be governed by, construed and enforced, at the sole election of the company at any court.” PowerDsine Inc. v. Broadcom Corp., No. 07CV2490(SJF)(WDW), 2008 WL 268808, at *4 (E.D.N.Y. Jan. 29, 2008) (granting motion to dismiss in part for lack of personal jurisdiction). The court’s close analysis of the contractual language only underscores the importance of a well-drafted forum selection clause.
  11. Petition for Writ of Certiorari, Traffic Tech, Inc. v. C.H. Robinson Worldwide Inc., No. 23- 70 (July 10, 2023) (hereinafter “Petition”).
  12. C.H. Robinson Worldwide Inc. v. Traffic Tech Inc., 60 F.4th 1144, 1146-47 (8th Cir. 2023).
  13. C.H. Robinson Worldwide Inc. v. Traffic Tech Inc., No. CV 19-902 (MJD/DTS), 2021 WL 4307012, at *1 (D. Minn. Sept. 22, 2021), aff’d in part, rev’d in part and remanded, 60 F.4th 1144 (8th Cir. 2023).
  14. Id. at *5.
  15. Id. at *5-10.
  16. C.H. Robinson Worldwide, 60 F.4th at 1148 (internal quotation marks and citation omitted). Note that this case was decided before Minnesota changed its law to (prospectively) prohibit noncompete agreements. See Minn. Stat. § 181.988.
  17. Pet. at 10.
  18. (Pet. at 11.),
  19. See Pet. at 12-13.
  20. Pet. at 19.
  21. Pet. at 19, quotingPhillips Petroleum Co. v. Shutts, 472 U.S. 797, 818 (1985) (internal quotation marks and citation omitted).
  22. 449 U.S. 302 (1981).
  23. Pet. at 24-25, quoting Allstate Ins. Co. v. Hague, 449 U.S. 302, 327 (1981).
  24. Petition for Writ of Certiorari, Howmedica Osteonics Corp. v. DePuy Synthes Sales Inc., No. 22-55126 (Sept. 14, 2022), petition for writ of certiorari denied (Dec. 12, 2022). For further discussion of the Howmedica cases, see Sarah Tishler, Law360, Minn. Noncompete Ban May Add to Nat’l Venue Choice Tangle (July 20, 2023), available at https://www.law360.com/articles/1696897.

Massachusetts Court Warns Employers Not to Coast on Forum Selection Clause

he Business Litigation Session of the Massachusetts Superior Court recently dismissed a noncompete case against a California employee on the basis of forum non conveniens, notwithstanding a Massachusetts forum selection clause and a Massachusetts choice-of-law provision in the defendant’s employment agreement. The case is titled Oxford Global Resources, LLC v. Hernandezand it was issued on June 9, 2017.

This decision calls into question the enforceability of forum selection and choice-of-law provisions in employment agreements with California employees. The decision also characterizes employment agreements (especially with low-level employees) as “contracts of adhesion” that may be subject to more careful judicial scrutiny. Finally, as discussed below, the Hernandez opinion takes a dim view of what constitutes an employer’s “confidential information,” highlighting existing tension in Massachusetts case law.

Background

efendant Jeremy Hernandez was a California resident who was recruited, hired, and employed by Plaintiff Oxford Global Resources, LLC, in California. Hernandez’s employment with Oxford was conditioned on his signing a “protective covenants agreement,” which contained confidentiality, noncompete, and nonsolicitation obligations, as well as a Massachusetts choice-of-law provision and a Massachusetts forum selection clause. Oxford filed the case claiming that Hernandez breached his agreement when he used Oxford’s confidential information to solicit its clients on behalf of a competitor. Hernandez moved to dismiss the case on the basis of forum non conveniens.

As an initial matter, the Court found that because Hernandez had no meaningful opportunity to negotiate the terms of his employment agreement, it was a contract of adhesion that was subject to careful scrutiny. The Court based its finding on the following facts:

  1. Oxford would not have hired Hernandez if he did not sign the agreement.
  2. Oxford did not allege or offer any evidence suggesting that the parties negotiated the choice-of-law or forum selection provisions, or that Oxford had even demonstrated a willingness to discuss the issues.
  3. Hernandez started as an entry-level employee at $50,000 annual salary.
  4. Hernandez possessed no prior industry skill or experience that would have given him bargaining power to negotiate the agreement.

Notably, the Court did not give any weight to “boilerplate language” in the agreement stating that Hernandez had read the agreement and had the opportunity to have his own lawyer review it.

The Court next found that enforcing the agreement’s Massachusetts choice-of-law provision would result in “substantial injustice” to Hernandez. Because Hernandez was a California resident who was recruited, hired, and employed there, California law (generally voiding noncompetes) would otherwise govern the dispute absent a choice-of-law provision. The court ruled that enforcing the provision would deny Hernandez the protections of California law and subject him to a noncompete.

Although some California courts recognize a trade secret exception that permits the enforcement of agreements that are “necessary to protect the employer’s trade secrets,” the Court nevertheless found that the agreement, which provided that Hernandez could not compete against Oxford using its trade secret information, was not enforceable because it defined confidential information so broadly as to include the identities of Oxford’s customers, prospective customers, and consultants. The Court stated:

The non-competition restriction that Oxford seeks to enforce therefore goes far beyond what is permitted under California law or, for that matter, under Massachusetts law.

An employee is free to carry away his own memory of customers’ names, needs, and habits and use that information, even to serve or to solicit business from those very customers. Such “remembered information” is not confidential because the information itself, as distinguished from an employer’s compilation of such information into a list or database, is known to the customers and thus not kept secret by the employer

The Court concluded that:

Since the mere identity of customers is not confidential, the Agreement that Oxford seeks to enforce is the kind of non-competition agreement that is void under California law. Accordingly, the Court held that the choice-of-law provision was not enforceable.

Finding that it was evident that Oxford sought to include a Massachusetts forum selection clause in order to avoid the application of California law, the Court also held that the forum selection clause was not enforceable under California law.

Ultimately, the Court dismissed the case on grounds of forum non conveniens, finding that it would be unfair to compel Hernandez to defend in Massachusetts and that California had a stronger interest in the case.

Import of the Hernandez Decision

ernandez not only underscores the difficulty of enforcing restrictive covenants against California residents, but also generally calls into question the validity of choice-of-law and forum selection clauses, especially where the employee has had no meaningful opportunity to negotiate the terms of his employment agreement.

Notably, in characterizing the employment agreement as a “contract of adhesion,” the Court in Hernandez gave no weight to the affirmative representations in the agreement (stating that the employee had read and had opportunity to have his attorney review the agreement). Historically, the Superior Court has given varying degrees of weight to these types of affirmative representations.

Moreover, Hernandez adds to the argument that (in some instances) employees are permitted to use their employer’s confidential information concerning client names, needs, and habits, as long as that information is “remembered” rather than compiled into a list or database. In this respect, Hernandez highlights the tension that exists in Massachusetts case law regarding confidential information that is stored in an employee’s memory.

Given the evolving case law on these issues, businesses seeking to protect their confidential information should consult with their attorneys before drafting or enforcing these types of agreements.

***

Hannah T. Joseph, the author of this article, is a lawyer in the firm’s litigation practice, whose work in intellectual property has been recognized by, among others, the Boston Bar Association (where she serves as Co-Chair of the Boston Bar Association’s Intellectual Property Committee). Thank you to Monika Zarski for contributing to this article.

Beck Reed Riden LLP is Boston’s innovative litigation boutique. Our lawyers have years of experience at large law firms, working with clients ranging from Fortune 500 companies to start-ups and individuals. We focus on business litigation and labor and employment. We are experienced litigators and counselors, helping our clients as business partners to resolve issues and develop strategies that best meet our clients’ legal and business needs – before, during, and after litigation. We’re ready to roll up our sleeves and help you. Read more about us, the types of matters we handle, and what we can do for you here.