California non-competes after §§ 16600, 16600.1, 16600.5
Updated
Independent editorial team. Every numeric claim cites a primary source — IRS / agency publication, federal or state statute, or controlling case law.
§ 16600 — the rule
Cal. Bus. & Prof. Code § 16600 is the foundational California non-compete statute, and it is short. Subdivision (a) provides: "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 rule has been in California law since 1872, originally codified at Civil Code § 1673 and moved to the Business and Professions Code on its enactment in 1941. It applies to all post-employment restraints on lawful work — not only those literally labeled "non-compete" — and it voids the restraint to the extent of the restraint, leaving the rest of the contract intact.
The Legislature amended § 16600 in 2023 (AB 1076, effective January 1, 2024) to codify decades of case law and resolve any lingering judicial debate about how broadly the statute should be read. New subdivision (b)(1) directs that § 16600 "shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 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, that does not satisfy an exception in this chapter." Subdivision (b)(2) clarifies that subdivision (b) "does not constitute a change in, but is declaratory of, existing law" — that is, the broad-reading rule has always been the rule. New subdivision (c) extends the protection beyond contracting parties: "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." Subdivision (c) reaches third-party arrangements such as customer non-solicitation provisions where the restrained worker is not a signatory.
The exceptions referenced in subdivision (a) are codified at §§ 16601 (sale of business), 16602 (partnership dissolution), and 16602.5 (LLC dissolution). They are narrow, fact-specific, and discussed in detail below. Critical for severance analysis: there is no exception for "the employee was laid off and signed a separation agreement." The non-compete-release clause that appears in many out-of-state-drafted severance templates does not become enforceable in California simply because the employee signs it. The underlying restraint remains void, and the release of the underlying restraint releases nothing.
A California employer that asks a departing employee to sign a non-compete release as a condition of severance is therefore asking the employee to release a claim the employer cannot enforce. This is a common point of confusion in cross-border layoffs — particularly for engineers, sales staff, and executives whose home companies are headquartered outside California — where the severance package is drafted at corporate headquarters using a template designed for a different state's law. The California-resident employee should read the release carefully, but in most cases the non-compete release portion of the document is legally inert.
§ 16600.1 — the 2024 notice requirement (AB 1076)
AB 1076 added Cal. Bus. & Prof. Code § 16600.1 effective January 1, 2024. The statute does two things. First, subdivision (a) makes it explicitly unlawful to include a non-compete clause in an employment contract or to require an employee to enter one: "It shall be unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception in this chapter." Second, subdivision (b)(1) imposes a one-time written-notice obligation on California employers. Employers were required, by February 14, 2024, to notify in writing every current and former employee employed after January 1, 2022 whose employment contract included a now-void non-compete clause that the clause is void.
Subdivision (b)(2) prescribes the form of the notice: "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." A generic blog post or HR newsletter does not satisfy the statute — the notice must be addressed to the individual and delivered both physically and electronically to the addresses the employer has on file. The February 14, 2024 deadline has now passed; employees who never received a § 16600.1 notice from a California employer that had previously asked them to sign a non-compete have a colorable basis to claim the employer violated the statute.
Subdivision (c) frames a violation as an unfair competition act: "A violation of this section constitutes an act of unfair competition within the meaning of Chapter 5 (commencing with Section 17200)." Cal. Bus. & Prof. Code § 17200 is the state's Unfair Competition Law (UCL), which permits private actions for injunctive relief and restitution, and which (under § 17206) also allows the Attorney General, district attorneys, and certain city attorneys to seek civil penalties of up to $2,500 per violation. The practical exposure is therefore meaningful in the aggregate: an employer that failed to notify hundreds or thousands of California employees by February 14, 2024 faces enforcement risk from both private UCL plaintiffs and public prosecutors.
For the severance context, the § 16600.1 notice obligation is significant because it confirms the legal premise of any non-compete release clause: the underlying non-compete was always void, the employer was required to say so in writing, and the employer cannot now claim consideration for releasing a void clause. The non-compete release in a California severance agreement therefore typically does not create legal consideration on either side — there was nothing to release.
§ 16600.5 — out-of-state employer prohibition (SB 699)
SB 699 added Cal. Bus. & Prof. Code § 16600.5, also effective January 1, 2024. The statute closes a long-running gap in California non-compete enforcement. Before SB 699, an out-of-state employer with a non-compete that had been signed under another state's law (typically with a choice-of-law clause selecting that state's law) sometimes attempted to enforce the non-compete against an employee who had since relocated to California. Federal courts and California courts had reached inconsistent results on whether California's strong public policy under § 16600 could override the foreign choice-of-law clause. § 16600.5 ends the debate.
Subdivision (a) of § 16600.5 provides: "Any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed." Subdivision (b) reaches the enforcement attempt itself: "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." The combined effect is that a CA-based employee, even one who originally signed a non-compete in another state for an out-of-state employer, is protected from enforcement of that non-compete in California once the employee is working in California. The choice-of-law clause does not save the foreign employer.
Subdivision (c) adds a forward-looking prohibition on entering into such contracts in the first place: "An employer shall not enter into a contract with an employee or prospective employee that includes a provision that is void under this chapter." Subdivision (d) declares the violation explicitly: "An employer that enters into a contract that is void under this chapter or attempts to enforce a contract that is void under this chapter commits a civil violation." Subdivisions (e)(1) and (e)(2) create the enforcement mechanism. Subdivision (e)(1): "An employee, former employee, or prospective employee may bring a private action to enforce this chapter for injunctive relief or the recovery of actual damages, or both." Subdivision (e)(2): "In addition to the remedies described in paragraph (1), a prevailing employee, former employee, or prospective employee in an action based on a violation of this chapter shall be entitled to recover reasonable attorney's fees and costs."
The private right of action plus attorney's-fees shifting changes the practical risk calculus for both sides. Before § 16600.5, a former employee facing an enforcement letter from an out-of-state employer often had no economical way to push back — defending an enforcement action cost more than the salary at risk during the non-compete period. Under § 16600.5(e), the employee now has affirmative claims for damages and injunctive relief, and prevailing-party fees mean a relatively small case is economical for plaintiffs' counsel to take on contingency. For severance analysis: a California employee with an out-of-state choice-of-law clause in a pre-existing non-compete should treat the non-compete as unenforceable in California and should not feel compelled to sign an additional release of that non-compete as a condition of severance.
The exceptions (§§ 16601, 16602, 16602.5)
California law recognizes three statutory exceptions to the § 16600 non-compete prohibition. None of them apply to an ordinary layoff or to a severance agreement signed because the employer-employee relationship is ending. Each requires a specific underlying transaction in which the restrained person is selling something more than their labor.
Section 16601 covers the sale of a business. Any person who sells the goodwill of a business, or any owner who sells or otherwise disposes of all of their ownership interest in a business entity, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area where the business was conducted, so long as the buyer (or any person deriving title to the goodwill from the buyer) carries on a like business there. The statute defines "business entity" to include partnerships (including limited and limited liability partnerships), limited liability companies, and corporations. The key element is the sale of goodwill or of all of an ownership interest — not just employment with the buyer. A founder who sells their startup to an acquirer and signs a three-year non-compete as part of the sale documents is enforceable under § 16601; the same founder later being laid off by the acquirer does not invalidate that earlier sale-related non-compete.
Section 16602 covers partnership dissolution and dissociation. A partner may, upon or in anticipation of dissolution of the partnership or dissociation of the partner from the partnership, agree not to carry on a similar business within a specified geographic area, so long as any other member of the partnership (or person deriving title to the business or its goodwill from such other member) carries on a like business there. Section 16602.5 extends a parallel rule to limited liability companies, applying to members upon dissolution of the LLC or termination of their interest in the LLC. As with § 16601, the trigger is an ownership-side transaction, not employment.
For severance purposes, the practical filter is straightforward: was the employee selling goodwill or selling out an equity interest, or was the employee simply being separated from employment? If the answer is the latter, none of §§ 16601, 16602, or 16602.5 saves a non-compete clause. The exceptions are also fact-intensive and narrowly construed by California courts; an employer attempting to shoehorn an ordinary employment separation into the sale-of-business exception — for example, by adding a token cash payment for "goodwill" — will generally fail. A California employee facing a non-compete in a severance package who is not also selling a business should treat the non-compete as void under § 16600.
What this means for severance agreements
The statutory framework above translates into a few practical guidelines for California severance agreements, but the analysis still requires careful reading of the actual document — and an employment lawyer's review when the stakes are material. Non-compete release clauses in California severance packages are usually unenforceable on their face because the underlying non-compete is void under § 16600. The release of a void clause confers no benefit on the employer and creates no separate obligation on the employee. A California employee asked to "sign a non-compete release" as part of severance is in most cases being asked to give up nothing — the clause cannot have been enforced anyway.
That does not mean other restrictive covenants in the severance agreement are unenforceable. California courts continue to enforce most non-disclosure (confidentiality) provisions when properly drafted, subject to the federal Speak Out Act's carve-out for sexual harassment and sexual assault disputes (42 U.S.C. § 19402) and California's parallel limits under Cal. Code Civ. Proc. § 1001 (Silenced No More Act). California also treats non-disparagement provisions more strictly post-McLaren Macomb (NLRB, 2023): the National Labor Relations Board held in McLaren Macomb, 372 NLRB No. 58, that broad non-disparagement and confidentiality provisions in severance agreements covered by the NLRA can themselves violate Section 7 rights, and California employers covered by the NLRA must draft accordingly.
Customer non-solicitation provisions and employee non-solicitation provisions occupy a more complicated middle ground. Under the 2024 amendments and the broad-reading rule in § 16600(b)(1), California courts now treat most customer non-solicitation clauses as void post-employment restraints. Recent California appellate decisions have rejected the older "Loral exception" for narrowly-drafted employee non-solicitation clauses as inconsistent with Edwards v. Arthur Andersen and § 16600(b)(1)'s broad-reading rule. The safer assumption for a California employee receiving a severance agreement with employee or customer non-solicitation language is that the provisions are likely void if they extend post-employment, but a fact-specific analysis is warranted.
The bottom-line practical guidance: read the severance agreement carefully, identify which provisions are non-compete vs. non-disclosure vs. non-solicitation vs. non-disparagement, and recognize that the non-compete portion in California is usually inert. If the employer treats the non-compete release as a deal-breaker — refusing to pay severance unless the employee signs — consult an employment lawyer before signing or before refusing. The legal posture (declining to sign a void clause does not, in California, give the employer cause to withhold severance) is favorable to the employee, but each agreement and each employer is different, and the right move depends on the specific facts. The calculator and scenario links below can help frame the financial trade-offs.
Worked example
| Scenario | Enforceability in CA | Relevant statute |
|---|---|---|
| CA-based engineer signs non-compete with CA employer at hire; gets laid off and signs severance with non-compete release | Original non-compete VOID at signing; release adds nothing | § 16600 |
| Engineer signed non-compete with Texas employer (choice-of-law = TX); relocates to CA; gets laid off | Non-compete UNENFORCEABLE in CA per SB 699 | § 16600.5 |
| Founder sells startup to acquirer and signs 3-year non-compete as part of the sale; later laid off by acquirer | Sale-of-business non-compete is VALID under § 16601; survives layoff | § 16601 |
§ 16600 voids the non-compete provision but does not void the rest of the contract — employees can usually keep severance while declining to honor a void non-compete, and California employment counsel can confirm the analysis for a specific agreement. Non-disclosure, non-disparagement, and non-solicit provisions are analyzed separately and may still be enforceable in California, subject to federal Speak Out Act and Silenced No More Act carve-outs for sexual harassment claims and to NLRB McLaren Macomb (2023) limits on broad non-disparagement clauses in severance agreements covered by the NLRA.
Calculate your California severance
Inputs default to California; adjust to your specifics.
Your situation
Informational only. Not legal, tax, or financial advice. The numbers below are benchmarks based on the inputs you provided; your actual outcome depends on your jurisdiction, plan terms, and individual circumstances. Always consult a licensed employment attorney before signing a separation agreement that waives statutory claims (ADEA, Title VII, WARN, state mini-WARN).
Severance benchmarks
Typical benchmark
$21,635
7.5 weeks · methodology: benchmarks are derived from publicly reported severance norms across us corporate layoffs. weeks/year scale with role level; tenure <1 year gets a floor; cap at 52 weeks. these are negotiation reference points, not promises.
| Band | Weeks | Gross |
|---|---|---|
| Typical | 7.5 | $21,635 |
| Good | 12.5 | $36,058 |
| Aggressive | 20.0 | $57,692 |
Tax breakdown (typical band)
| Gross | $21,635 |
| Federal supplemental | −$4,760 |
| State supplemental | −$1,428 |
| FICA — Social Security | −$1,341 |
| FICA — Medicare | −$314 |
| FICA — Additional Medicare | −$0 |
| Net cash | $13,792 |
Social Security withholding assumes a year-end layoff. If you're laid off earlier in the year and your salary exceeds the $184,500 Social Security wage base, your actual SS withholding will be higher and net cash lower than shown.
WARN Act
Not a group layoff
OWBPA review window
Individual exit (21-day review window) under the Older Workers Benefit Protection Act, plus 7-day revocation right.
Review window: 21 days · Revocation: 7 days after signing
COBRA cost
Monthly: $0
Annual: $0
Enter your employer-side monthly premium for an estimate.
Equity at termination
Forfeited unvested: $0
ISO exercise window post-termination: 90 days
- ISO holders: you typically have 90 days post-termination to exercise vested ISOs before they convert to NSOs.
Frequently asked
Are non-competes enforceable in California?
Generally no. Cal. Bus. & Prof. Code § 16600(a) provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void," except as provided in the chapter. Subdivision (b)(1), added by AB 1076 effective January 1, 2024, directs courts to read § 16600 "broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937" — meaning even narrowly tailored employment-context non-competes are void unless they fall within one of the statutory exceptions (sale of business under § 16601, partnership dissolution under § 16602, LLC dissolution under § 16602.5). A non-compete signed at hire by a California employee with a California employer is void from the moment it is signed.
I signed a non-compete with an out-of-state employer before moving to California — does it still apply?
In most cases, no, because of Cal. Bus. & Prof. Code § 16600.5, added by SB 699 effective January 1, 2024. Subdivision (a) provides that "any contract that is void under this chapter is unenforceable regardless of where and when the contract was signed." Subdivision (b) prohibits employers or former employers from attempting to enforce a void contract "regardless of whether the contract was signed and the employment was maintained outside of California." The statute also gives the employee a private right of action for injunctive relief and damages plus prevailing-party attorney's fees under subdivisions (e)(1) and (e)(2). The choice-of-law clause selecting another state's law in the original contract does not save the non-compete once the employee is working in California. Consult an employment lawyer for fact-specific advice, particularly if the employer has already sent an enforcement letter.
Did my employer need to send me a notice about my old non-compete?
Yes, if you are a California employee whose contract contained a non-compete clause and you were employed by the employer at any time after January 1, 2022. Cal. Bus. & Prof. Code § 16600.1(b)(1) required employers to provide written notice by February 14, 2024 that the non-compete clause is void. § 16600.1(b)(2) specifies the form: "a written individualized communication to the employee or former employee, and shall be delivered to the last known address and the email address." A generic blog post or HR newsletter does not satisfy the statute. Failure to send the notice is a violation of California's Unfair Competition Law under § 16600.1(c). If you never received such a notice from a California employer that had asked you to sign a non-compete, that fact may support a claim under the UCL.
Can I still be bound by a non-disclosure agreement even if the non-compete is void?
Yes, in most cases. California voids post-employment restraints on lawful work but generally enforces properly drafted non-disclosure (confidentiality) provisions protecting trade secrets and legitimately confidential information. Two key carve-outs limit the scope of California NDAs: the federal Speak Out Act (42 U.S.C. § 19402) prohibits pre-dispute NDAs covering sexual assault or sexual harassment claims, and California's Silenced No More Act (Cal. Code Civ. Proc. § 1001) extends similar limits to a broader set of workplace harassment and discrimination disputes. Beyond those carve-outs, an NDA in your severance agreement is typically enforceable in California even when the non-compete release in the same agreement is not.
What about non-solicit-of-customers or non-solicit-of-employees clauses?
After the 2024 amendments to § 16600 and the broad-reading rule codified at § 16600(b)(1), most California courts now treat post-employment customer non-solicitation and employee non-solicitation provisions as void restraints. Recent California appellate decisions have rejected the older "Loral exception" that some courts had carved out for narrow employee non-solicit clauses, as inconsistent with Edwards v. Arthur Andersen and the broad-reading rule. Trade-secret protection and customer-list-as-trade-secret arguments remain available to employers, but the bare non-solicit provision in a severance agreement is generally void if it extends post-employment. A fact-specific analysis is warranted, particularly when the employer relies on a customer-list-as-trade-secret theory.
Does the McLaren Macomb NLRB decision affect my severance NDA or non-disparagement clause?
Possibly, if your severance agreement is covered by the National Labor Relations Act. In McLaren Macomb, 372 NLRB No. 58 (2023), the NLRB held that proffering severance agreements with broad non-disparagement or confidentiality provisions that restrict employees from making statements about their employer, or about the agreement itself, can violate Section 7 of the NLRA — the right of employees to engage in concerted activity. The decision applies to employees covered by the NLRA (most private-sector non-supervisory employees), and it requires narrower, more carefully drafted non-disparagement and confidentiality clauses. The case docket is on nlrb.gov at /case/07-CA-263041. California employers covered by the NLRA must draft severance agreements that comply both with California non-compete law and with the NLRB's post-McLaren Macomb standards.
What if my employer says they will not pay severance unless I sign the non-compete release?
This is a fact-specific situation that warrants consulting an employment lawyer before signing or before refusing to sign. The legal posture is favorable to the California employee: the underlying non-compete is void under § 16600, so the release of that clause has no consideration value to the employer; and § 16600.5 provides a private right of action against an employer that attempts to enforce a void non-compete, including prevailing-party attorney's fees. That said, severance is generally not a legal entitlement (absent a written plan, contract, or specific statute), so the employer may have leverage even when the non-compete clause itself is void. The right move depends on the size of the severance, the employee's alternatives, and the rest of the release language. An employment lawyer's review of the actual document is the correct next step.
Sources
- Cal. Bus. & Prof. Code § 16600 — Non-competes void · CA Bus. & Prof. Code
- Cal. Bus. & Prof. Code § 16600.1 — Notice requirement (AB 1076, 2023) · CA Bus. & Prof. Code
- Cal. Bus. & Prof. Code § 16600.5 — Out-of-state non-compete prohibition (SB 699, 2023) · CA Bus. & Prof. Code
- Cal. Bus. & Prof. Code § 16601 — Sale-of-business exception · CA Bus. & Prof. Code
- Cal. Bus. & Prof. Code § 16602 — Partnership dissolution exception · CA Bus. & Prof. Code
- NLRB McLaren Macomb, 372 NLRB No. 58 — Case docket · Other