California Non-Compete Law: Rules, Exceptions and What Changed

Nika Bloom October 24, 2026 0 Comments

Non-compete agreements are void in California for almost all employees. Employers may not put one in a job contract, require a worker to sign one, or try to enforce one. That holds even if the contract was signed in another state. The only exceptions cover people who sell a business or leave a partnership or LLC.

This guide covers the rules as of October 2026 and what employers can still protect. It also explains the “stay-or-pay” law for contracts from 2027, and what to do if your contract has a non-compete clause.

What California non-compete law says

The core rule is short. Under Business and Professions Code section 16600, any contract that restrains someone from a lawful profession, trade or business is void to that extent. California has had a version of this rule since 1872.

For years, some employers argued that a narrow non-compete was fine. For example, they might limit it to one city, one year or a short list of rival firms. The California Supreme Court rejected that idea in Edwards v. Arthur Andersen in 2008. Since January 1, 2024, the statute itself says it must be read broadly, in line with that ruling. So a non-compete in an employment contract is void no matter how narrowly it is drawn, unless an exception applies.

The law also reaches agreements the worker never signed. Section 16600 is not limited to contracts where the restrained person is a party. That matters for deals between companies, such as two businesses agreeing not to hire each other’s staff.

The 2024 changes: notices, penalties and lawsuits

Two state laws took effect on January 1, 2024, and they turned a rule about unenforceable contracts into one with real penalties.

AB 1076 added section 16600.1. It makes it unlawful to put a non-compete clause in an employment contract or to require one. Employers also had to send written notice by February 14, 2024, telling affected workers their non-compete was void. That covered current staff and former staff employed after January 1, 2022. A violation counts as unfair competition under state law.
SB 699 added section 16600.5. It says a void contract is unenforceable no matter where or when it was signed. An employer that enters into or tries to enforce one commits a civil violation.

Under section 16600.5, a current, former or prospective employee can sue. The worker can ask a court for an injunction, actual damages or both. A worker who wins is also entitled to reasonable attorney’s fees and costs, which makes these cases more practical to bring.

The exceptions: selling a business or leaving a partnership

California allows non-competes in a few ownership situations. The logic is simple: a buyer who pays for a company’s goodwill can stop the seller from reopening across the street the next day.

Situation	Statute	What can be agreed
Selling the goodwill of a business, or all of your ownership interest in it	Section 16601	Seller agrees not to run a similar business in the area where the business operated.
Partnership dissolution, or a partner leaving	Section 16602	Partner agrees not to compete in the area where the partnership did business.
LLC dissolution, or a member leaving	Section 16602.5	Member agrees not to compete in the area where the LLC did business.

Each exception lasts only while the buyer or the remaining owners carry on a similar business in that area. Stock options or a small equity grant do not, by themselves, turn a job into the sale of a business.

What employers can still protect

A ban on non-competes does not mean anything goes. Employers keep several tools, and workers still have duties.

Loyalty during employment. The law targets restraints after the job ends. While you are employed, an employer can generally bar you from working for a competitor or setting up a rival business on the side.
Trade secrets. California’s trade secret law protects customer lists, formulas, source code and similar confidential information. Taking or using that information after you leave can lead to a lawsuit.
Confidentiality agreements. An agreement not to disclose genuine confidential information is usually valid. However, a clause written so broadly that it stops you from working in your field can be void under section 16600.

Non-solicitation clauses are a gray zone that courts have mostly closed. In Edwards, the court voided a clause that barred a former employee from serving certain clients. Later appeals court decisions applied similar reasoning to clauses that bar recruiting former coworkers. In practice, a former employer’s strongest claim usually rests on trade secret misuse, not on the clause itself.

Contracts signed outside California

Many workers move to California with a non-compete signed elsewhere. Since 2024, section 16600.5 bars a former employer from trying to enforce a void contract. That applies even if the contract was signed and the job held outside California.

A separate rule covers people who live and work in California. Under Labor Code section 925, an employer cannot make them accept another state’s law or courts as a condition of the job. This applies to disputes arising in California. The employee can void such a clause. The exception is a worker who was in fact represented by a lawyer while negotiating the contract.

That said, courts in other states do not always agree with California. A company based elsewhere may still sue in its home state. If that happens, the outcome can depend on that state’s law, so a lawyer’s advice matters most in cross-state cases.

Stay-or-pay clauses: the rule for 2027 contracts

A related law targets “stay-or-pay” terms, which make a worker repay money if they quit. Examples include training repayment agreements and quit fees. AB 692, passed in 2025, added section 16608 to the Business and Professions Code and was due to start on January 1, 2026.

That start date moved. AB 1697, signed on September 30, 2026, took effect at once as an urgency law. Under the amended section 16608, the ban applies only to contracts entered into on or after January 1, 2027. The original version is inoperative for all of 2026.

From 2027, an employer generally cannot require a worker to repay a debt, pay a fee or face renewed debt collection because the job ended. Under Labor Code section 926, a violation can cost actual damages or $5,000 per worker, whichever is greater, plus attorney’s fees. Several exceptions apply under strict conditions:

Tuition repayment for a transferable degree that is not required for the job, with prorated repayment.
Government loan forgiveness and grant-funded recruitment programs.
Approved apprenticeship programs.
Bonuses set out in a separate agreement, with at least five business days to consult a lawyer and a retention period of no more than two years.
Advance paid time off of up to 40 hours, if the worker quits.

The federal picture

There is no federal ban on non-competes. The Federal Trade Commission issued a nationwide rule in 2024. However, a federal court in Texas set it aside on August 20, 2024, before it took effect. The FTC dropped its appeals in September 2025 and removed the rule from the Code of Federal Regulations in February 2026. Its noncompete rule page states the rule is not in effect. The agency now reviews specific agreements case by case under existing competition law.

For California workers, the state rule was always stricter than the federal proposal. So the end of the FTC rule changed little here.

What to do if your contract has a non-compete

First, do not assume you are bound. If the clause keeps you out of your field after you leave, it is very likely void. The main exceptions are selling a business or leaving a partnership.

Then protect yourself on the other side. Return company devices and files, and do not take documents or customer data with you. Trade secret claims are where most former employees actually run into trouble.

If an employer threatens to enforce a void non-compete, keep the letter or email. Section 16600.5 lets you sue for damages and fees. A new job offer is also a good time to check the rest of your pay terms. Our guides to California overtime law and the California minimum wage in 2026 cover two other rules every contract has to follow. For more state explainers, see our Los Angeles and California guides.

This article is general information, not legal advice.

Frequently asked questions

Are non-compete agreements enforceable in California?

No, not for employees. They are void under section 16600, and since 2024 it is also unlawful to include or enforce one. The exceptions cover the sale of a business and the dissolution of, or exit from, a partnership or LLC.

Can I work for a competitor right after quitting in California?

Generally, yes. You can join a competitor or start your own business, but you cannot use your former employer’s trade secrets.

What if I signed my non-compete in another state?

California law says the employer may not try to enforce it, regardless of where it was signed. A court in another state may still apply its own law, so get advice if you are sued there.

Can my employer make me repay training costs if I leave?

For contracts signed on or after January 1, 2027, most such terms are banned, with exceptions such as qualifying tuition agreements. Contracts signed earlier fall outside that new rule.

Have a question about this topic? Ask in the comments below. Our editors read every comment and answer questions here, and we add useful answers to the guide.

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