California’s Noncompete Ban Expansion Reaches Sports
Two new laws in California expand the state’s ban on noncompete agreements in ways that will impact athletes, teams and sports companies doing business in the Golden State.
Governor Gavin Newsom recently signed Senate Bill 699 and Assembly Bill 1076 into law. Both laws concern how employers contractually block workers from joining a competitor business, sometimes for many months after employment ends, and both will go into effect on Jan. 1, 2024.
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SB 699 makes it illegal for an employer or former employer in California to enforce a noncompete clause even if the contract was signed in another state and if the employee works outside of California. California has long made it illegal to restrain employees and independent contractors in California from engaging in a lawful profession, but SB 699 effectively extends that prohibition across the country. SB 699 also supplies enforcement rights to employees who believe they have been wronged to demand monetary damages and other remedies.
AB 1076 obligates employers to notify current employees and former employees who were employed after Jan. 1, 2022, that any noncompetes in a contract void unless an exemption applies. The exemptions are narrowly defined and concern dissolution of corporations, partnerships and limited liability corporations.
For California companies with employees who work remotely in other states, these changes will render noncompetes not only unenforceable but also grounds for liability.
According to Mine!: How the Hidden Rules of Ownership Control our Lives, written by law professors Michael Heller and James Salzman, about 20% of U.S. workers are subject to noncompete clauses and related measures.
Sports professionals are among them.
In the legal battle between the PGA Tour and LIV Golf, much of the case centered on noncompetes in PGA Tour membership agreements. The PGA Tour relied on those noncompetes to suspend golfers who joined LIV Golf.
Athletes who sign endorsement and NIL deals, including with California companies, are also familiar with provisions that restrain competition. Their contracts usually contain language that bars the athlete from signing a similar contract with a competing business or ones in industry categories defined in the agreement. An athlete paid to endorse one sneaker company, for example, will usually be barred from endorsing another sneaker company or even any footwear or apparel-related company.
College coaches have also been bound by noncompetes. Illinois head football coach Bret Bielema is contractually prohibited from accepting a job offer to coach another school in the Big Ten. Former Arkansas head football coach Bobby Petrino had one as well.
Many pro teams also employ individuals who work from home in other states or who reside in other states to facilitate business travel in different parts of the country. Scouts sometimes reside in states different from their employing team. The same can be true of front-office personnel. That has attracted notice in the Boston Red Sox’s reported courtship of Chicago Cubs assistant general manager Craig Breslow, who often works remotely from his home near Boston. Other California-based companies in the sports industry, such as those in apparel, fitness, collectibles, broadcasting and media, frequently employ persons who reside elsewhere.
California’s new regime might face litigation. An employer could challenge the state’s attempt to reach into other states by invoking the U.S. Constitution’s Commerce Clause, which courts have interpreted to forbid states from burdening the economic activities of other states, or the Contract Clause, which prohibits states from impairing contractual obligations.
A California company might also require an employee in another state to accept a choice of law provision that says the contract is governed by a state that recognizes noncompetes; whether such a provision would be compatible with California law remains to be seen.
California isn’t alone in banning noncompetes. Minnesota, North Dakota and Oklahoma have bans as well, and many other states allow noncompetes in limited ways. As Sportico detailed earlier this year, the Federal Trade Commission has also proposed a national ban of noncompetes. This is an area of law in flux, and one that the sports industry should pay attention to.
