Finding the right people is one of the hardest parts of running a business. When a competitor already has the talent you need, it can be very tempting to make an offer. In California, that move is generally legal. The state has some of the strongest worker-mobility protections in the country, and non-compete agreements have been largely unenforceable here for well over a century.
But "generally legal" is not the same as "always safe." Even in California, hiring from a competitor can put your business in the crosshairs of a lawsuit if you are not careful about how you do it. And with several significant legal changes taking effect between 2024 and 2026, the rules have shifted enough that what you thought you knew may no longer be accurate.
This guide breaks down the current law, the real risks you face as a California employer, and the concrete steps you can take to protect your business when bringing on talent from the competition.
California's Non-Compete Ban Is Now Broader Than Ever
California Business and Professions Code Section 16600 has prohibited non-compete agreements in the employment context since 1872. Under that law, any contract that restrains a person from engaging in a lawful profession, trade, or business is void. That long-standing principle just got significantly stronger.
Effective January 1, 2024, Governor Gavin Newsom signed two new laws, Senate Bill 699 (SB 699) and Assembly Bill 1076 (AB 1076), that closed major loopholes employers had previously relied on.
What SB 699 Changed
SB 699 added Section 16600.5 to the Business and Professions Code, making it clear that a non-compete agreement is void and unenforceable regardless of where and when it was signed. That means if a competitor's former employee signed a non-compete agreement while working in Texas, Arizona, or anywhere else outside California, that agreement is still void once the employee is working in California. The old "choice of law" workaround, where out-of-state employers could argue their home state's law governed the agreement, is no longer a reliable defense.
SB 699 also created a private right of action, meaning that employees whose former employers attempt to enforce a void non-compete can now sue for damages, injunctive relief, and attorney's fees. Employers who try to enforce these agreements face civil penalties as well. This is a major shift: before SB 699, the worst outcome for an employer was that a court would simply refuse to enforce the agreement. Now there is real financial exposure.
What AB 1076 Changed
AB 1076 added Section 16600.1 to the Business and Professions Code and went a step further by requiring employers to affirmatively notify current and former employees hired after January 1, 2022, that any non-compete clause in their employment agreement is void. Employers who missed the February 14, 2024 notification deadline may face liability for injunctive relief, restitution, and civil penalties of up to $2,500 per violation. If you have not audited your employment agreements yet, now is the time.
What This Means for You as a Hiring Business Owner
If you are thinking about hiring someone away from a competitor, the fact that a candidate signed a non-compete agreement with their former employer should not stop you. That agreement is almost certainly void in California. But you still need to be thoughtful, because there are other legal risks that are completely separate from non-compete enforceability.
Where Your Real Liability Risk Lies: Four Scenarios to Watch
The ban on non-competes does not protect you from every claim a competitor might make. There are four specific scenarios where hiring from a competitor can create serious legal exposure for your business.
1. Your New Hire Brings Trade Secrets From a Former Employer
This is the most common and most serious risk. Under the California Uniform Trade Secrets Act (CUTSA) and the federal Defend Trade Secrets Act (DTSA), a business can sue both the former employee and the new employer if trade secrets are misappropriated. You do not have to actively encourage your new hire to share confidential information to be named in a lawsuit. If your new hire uses their former employer's trade secrets in the course of their work for you, and you benefit from it, your business can be held liable.
California law defines a trade secret as information that holds economic value from not being generally known to the public, that the owner has taken reasonable steps to protect. Common examples include customer and client lists (especially when maintained in proprietary databases), pricing strategies, product formulas, software code, and internal business processes. Crucially, under recent Ninth Circuit case law from 2025, trade secret plaintiffs must now prove their claimed trade secrets with "sufficient particularity" to separate them from matters of general industry knowledge. This gives you a potential defense, but only if you handle the situation correctly from the start.
To protect your business, have every new hire sign a detailed confidentiality agreement as part of their onboarding. Make clear in writing that they are not to bring, share, or use any confidential information from their prior employer. Document your hiring process carefully. If the role involves work that is adjacent to what the employee did previously, consider consulting an attorney before the hire is finalized.
2. Your New Hire Is Bound by a Non-Solicitation Agreement
While California renders non-compete agreements void, non-solicitation agreements occupy a different, more complicated area of the law. These are agreements that prohibit a former employee from soliciting their old employer's clients or from recruiting former colleagues to leave.
California courts have been increasingly skeptical of non-solicitation agreements in recent years, and many are now treated similarly to non-competes, particularly broad ones that would effectively prevent an employee from earning a living. However, narrowly drawn non-solicitation agreements that protect specific, identifiable customer relationships built through the former employer's efforts can still be challenged in court. If your new hire begins immediately contacting their former employer's clients, your business could be drawn into litigation even if the non-solicitation agreement is ultimately unenforceable.
The practical lesson is this: ask candidates whether they have signed any post-employment agreements, and if so, have your attorney review them before the employee starts. Do not assume that because non-competes are void, every restrictive covenant is unenforceable.
3. A "No Hire" Agreement May Already Be in Place in Your Industry
Some industries have historically used "no-hire" agreements between companies, under which competing businesses agree not to poach each other's employees. California law treats these agreements as illegal restraints of trade when they are used to prevent employees from seeking work. If you are aware of such an agreement and hire from a competitor anyway, the legal risk is on the companies that entered into the agreement, not on the employee or on you. But if your business is a party to such an agreement, you need to know about it before you hire.
4. The Employee Had an Ownership Interest in a Former Business
There is one significant exception to California's general rule against non-competes: when someone sells a business or their ownership interest in one. Under California Business and Professions Code Section 16601, a person who sells the goodwill of a business, or who sells their interest in a partnership or LLC, can be required to agree not to compete with the buyer within a defined geographic area and for a defined period of time.
If you are hiring someone who recently sold their ownership stake in a competing business, that person may have signed a legally enforceable non-compete as part of the sale. Hiring them could expose you to a claim from the buyer of the business. Before bringing on someone in this situation, make sure your attorney reviews any sale documents they signed.
The 2026 Update: What California's AB 692 Means for Your Hiring Practices
In addition to the non-compete changes from 2024, California's Assembly Bill 692 took effect on January 1, 2026, adding yet another layer to the state's worker-mobility framework. AB 692 prohibits employers from including "stay-or-pay" provisions in employment contracts. These are clauses that require an employee to repay training costs, signing bonuses, or other employment-related benefits if they leave before a set period of time.
The legislature treated these clauses as a form of economic coercion that functions similarly to a non-compete by making it financially painful for an employee to leave. Under AB 692, any such provision is void as an unlawful restraint of trade. Employees may bring a private right of action for violations, with minimum damages of $5,000 per affected worker, plus injunctive relief and attorney's fees.
For business owners who compete for talent, AB 692 actually works in your favor. Competitors can no longer use training-repayment agreements to trap employees financially, making it easier for qualified people to make a move. On the other hand, if you have been relying on similar provisions in your own employment agreements, this is the time to have them reviewed and revised.
How to Protect Your Business When Hiring From a Competitor: Best Practices
Knowing the risks is the first step. Taking the right steps before, during, and after the hiring process is what actually keeps your business out of court.
Before You Make the Offer
Start by doing your homework. Ask the candidate directly whether they have signed any agreements with their current or former employer, including non-disclosure agreements, non-solicitation agreements, or any agreement related to their current role. Have those documents reviewed by your employment attorney. If the candidate is coming from a senior role where they had access to significant proprietary information, take that seriously and document how you plan to manage it.
Consider sending a formal letter to the candidate confirming that you are not asking them to bring, use, or disclose any confidential information from their prior employer. This creates a written record of your good-faith hiring practices and can be a significant defense in any future litigation.
When You Onboard the New Hire
Your onboarding process should include a clear, written confidentiality agreement that specifically addresses their former employer's information. The agreement should state, in plain terms, that the employee is not to use, share, or rely upon any trade secrets, confidential client data, proprietary processes, or other protected information from any prior employer. Equally important, train your managers and HR team so that they understand what questions not to ask and what behavior to watch for.
After the Hire
Be thoughtful about what roles and responsibilities you assign to your new hire in the first months of their employment. Placing someone immediately in a role where they would naturally rely on their prior employer's confidential information is a predictable way to end up in litigation. Give the employee time to demonstrate that they are operating based on their general skills and experience, not on protected information they should not have brought with them.
Finally, update your own internal confidentiality, trade secret, and NDA policies on a regular basis. California courts look at whether a business has taken "reasonable measures" to protect its own information when evaluating trade secret claims. The same standard applies in reverse: your consistent documentation of good hiring practices demonstrates that your business is acting in good faith.
What to Do If a Competitor Threatens Legal Action
If a competitor sends you a cease-and-desist letter, files for a temporary restraining order, or otherwise signals that they plan to take legal action over your hire, do not wait to respond. The first hours and days after receiving that kind of communication can significantly affect how the situation unfolds.
Preserve all records related to the hiring process. That includes email correspondence with the candidate, the job posting, the offer letter, any agreements the candidate signed with your firm, and any agreements they shared from their prior employer. Do not delete anything, and do not instruct employees to delete anything.
Then call an experienced business litigation attorney. A firm with deep experience in both employer defense and business litigation will be able to assess the strength of the competitor's claims, identify your best defenses, and develop a strategy to protect your business. Waiting to seek legal counsel until litigation is filed almost always makes your position weaker and your costs higher.
The Bottom Line for California Business Owners
California gives you significant freedom to hire the people you want, including people who currently work for your competitors. The state's non-compete ban is real, it is broad, and with the 2024 legislation it is now backed by meaningful financial penalties for employers who try to enforce void agreements. That is a protection that works in your favor.
But freedom to hire is not the same as freedom from liability. Trade secret misappropriation claims, non-solicitation disputes, and the complex questions that arise when a new hire has deep access to a competitor's confidential information are live risks that every California business owner needs to take seriously. The businesses that get hurt are usually the ones that moved quickly without getting the right legal guidance first.
At LawPLA, we help California business owners protect their companies, their livelihood, and their legacy. Whether you're facing a threatened lawsuit over a recent hire, need to audit your employment agreements for compliance with California's 2024 and 2026 law changes, or simply want a clear strategy for competing aggressively for talent without creating legal exposure, we are here to help. Our employer defense team and business litigation attorneys work together to give you the most efficient path to the best possible outcome. Contact us today for a confidential consultation.
Frequently Asked Questions
In most cases, yes. California Business and Professions Code Section 16600, as strengthened by SB 699 and AB 1076 in 2024, makes non-compete agreements void and unenforceable for California employees, regardless of where the agreement was signed. The main exceptions involve the sale of a business or ownership interest. That said, you should always have the specific agreement reviewed by an attorney before proceeding, because there are related agreements, such as non-solicitation clauses, that may carry some risk.
Yes. While a competitor generally cannot enforce a non-compete agreement in California, they can sue you and your new hire for trade secret misappropriation if they believe the employee took confidential information with them. They may also seek to enforce non-solicitation agreements depending on the circumstances. A competitor may threaten litigation even if their legal position is weak, so having experienced legal counsel ready to respond quickly is important.
The safest approach starts with a clear conversation with the candidate about what agreements they signed and what information they have access to. Have those agreements reviewed by your attorney before the offer is accepted. Get a signed confidentiality agreement from your new hire as part of onboarding. And be thoughtful about how you integrate the person into their new role in the early months. Document every step of the process.
SB 699 and AB 1076, effective January 1, 2024, significantly strengthened California's non-compete ban by extending it to out-of-state agreements and creating private rights of action with financial penalties. AB 692, effective January 1, 2026, banned most "stay-or-pay" provisions in employment contracts, such as training repayment clauses and certain bonus clawback provisions, treating them as unlawful restraints on worker mobility.