Dive Brief:
- In-house attorneys would get snagged under a bill introduced in the California assembly for their role in presenting or enforcing noncompete agreements by subjecting them to disciplinary action including disbarment.
- “It is cause for suspension, disbarment, or other discipline for any licensee to enter into with an employee or prospective employee … or attempt to enforce any employee contract or other agreement that violates the … prohibition on contracts in restraint of trade,” the bill says.
- California has banned the use of noncompetes for some time but more needs to be done to curb them, says Kevin McCarty, the assembly member who introduced the bill. “Non-competes, while unenforceable in CA, are still being included in worker contracts,” McCarty said in a tweet. “#AB747 will prevent employers and attorneys from including these agreements in worker contracts.”
Dive Insight:
The bill’s main aim is to curb use of the agreements by imposing a $5,000 fine for each employee and prospective employee who is asked to sign a noncompete. That fine would be on top of any damages that the employer would face under an unfair business practice claim.
In a significant escalation, the fine and the disciplinary action against attorneys could also apply to the use of non-solicitation agreements, a still-unsettled legal area.
Although courts have generally ruled non-solicitation agreements, like noncompetes, are unenforceable in the state, the matter has yet to be taken up by California’s top court.
“It is still a legally unsettled issue,” a National Law Review analysis says.
Given the exposure the bill creates for them, attorneys would have to tread carefully if they get involved in complicated employment matters. Examples could include those that involve employees who do a lot of out-of-state travel for their job or live in a state that allows noncompetes but work in California, or that use an outside attorney to negotiate an employment contract that includes a choice-of-law or forum selection clause of another state.
In these choice-of-law matters, if the outside attorney is paid for or recommended by the employer, the employee wouldn't be considered individually represented by legal counsel, muddying their ability to side-step California’s ban.
“Instituting state bar discipline for attorneys involved in drafting provisions intended to comply with current state law in such situations is fairly draconian,” the National Law Review analysis says.
The bill is a long way from passage. It still needs to be taken up in committee, passed by the legislature and signed by the governor. But it’s indicative of the strong stand the state has taken against noncompetes and is consistent with the Biden administration’s similar strong stand against the agreements.
“These agreements can prevent someone from starting their own business, earning a liveable wage, or receiving an income at all,” McCarty said on Twitter. “[They’re] wrong and should be removed from employee contracts.”
