California Non-Compete Enforceability, Weekly Brief (5 October 2026): The Ban Holds, and Courts Are Closing the Workarounds

Executive Summary

California's ban on non-competes is intact and, over the past six months, has been applied more broadly rather than narrowed. Section 16600 of the Business and Professions Code voids any contract that restrains a person from engaging in a lawful profession, trade or business, and the 2024 amendments (SB 699 and AB 1076) extended that rule to agreements signed outside California and added notice duties and a private right of action (Wilson Sonsini). The federal backdrop is now settled in the opposite direction from a national ban: the FTC voted 3 to 1 on 5 September 2025 to dismiss its appeals and accept vacatur of its Non-Compete Clause Rule (FTC press release). So California law, not federal law, remains the operative constraint.

The complication is that employers have not stopped trying to restrain mobility, and courts keep drawing the line in new places. Three developments from this year matter most. First, a Court of Appeal decision in August 2026 held that a post-term franchise non-compete is void and that the rule-of-reason test from Ixchel does not reach it. Second, a published May 2026 decision confirms employers still have a real remedy for disloyalty that happens while the employee is still on the payroll. Third, a North Carolina court in June 2026 applied section 16600.5 across state lines and entered summary judgment against an employer that sued to enforce a non-solicit.

The practical answer: draft for the ban, not around it. Post-employment non-competes, and in most cases customer and employee non-solicits, are void. Protection should come from trade secret law, confidentiality terms, in-term loyalty duties and enforcement of access policies. One caveat on evidence: this brief rests on law-firm commentary, the FTC's own release and a CourtListener docket check. I could not retrieve the full text of the August 2026 opinion, and I could not run a commercial citator (Shepard's or KeyCite), so "good law" statements below are limited to what is stated in each source.

The statutory base: section 16600 plus three layers of 2023 to 2025 amendments

Core rule. Section 16600 voids contracts restraining a person from a lawful profession, trade or business. California courts have read it to bar post-employment non-competes and customer non-solicits, and a 2018 published decision extended it to employee non-solicits (Wilson Sonsini).

SB 699 and AB 1076 (effective 1 January 2024). SB 699 bars enforcement of a void non-compete regardless of where the employee worked or where the agreement was signed. It also gives current, former and prospective employees a private right of action for injunctive relief and actual damages, with attorneys' fees for prevailing plaintiffs (Wilson Sonsini). AB 1076 codifies Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), and required individualized written notice by 14 February 2024 to affected current employees and to former employees employed after 1 January 2022. Failure to give notice is unfair competition under section 17200 (Wilson Sonsini).

What the ban does not reach. The same commentary notes the amendments do not make in-term restrictions unlawful, do not touch confidentiality clauses protecting trade secrets, and leave the statutory exceptions (sale of a business, partnership or LLC dissolution) in place. It cites Techno Lite, Inc. v. Emcod, LLC, 44 Cal.App.5th 462 (2020), for the in-term point (Wilson Sonsini).

AB 692 (contracts entered on or after 1 January 2026). This adds section 16608 and voids contract terms that make a worker pay solely because the work relationship ends, or that impose a penalty, fee or cost on separation. It carves out tightly conditioned exceptions, for example for transferable-credential tuition repayment and certain early-employment payments with a retention period capped at two years. Violators face the greater of actual damages or $5,000 per worker, plus fees (Faegre Drinker, October 2025). This is my inference, not a source finding: AB 692 matters for non-compete drafting because "stay-or-pay" terms were a common substitute for covenants.

Pending legislation. My searches surfaced no 2026 bill that would loosen section 16600, and I did not find a 2026 enacted amendment. That is an absence of evidence from a limited search, not a confirmed negative; check leginfo before relying on it.

KEY TAKEAWAY: The statute now has three layers (the 1872 rule, the 2024 extraterritorial and notice amendments, and the 2026 stay-or-pay restriction), and each moves in the same direction.

Case law since May 2026: three decisions that mark the edges of the ban

Decision	Court and date	Holding relevant to non-competes	Status note
CBD Franchising, Inc. v. One Day Doors & Closets, Inc., No. B342711	Cal. Ct. App., 19 Aug. 2026	Post-term franchise non-compete void under § 16600; § 16601 sale-of-goodwill exception inapplicable	Described as unpublished by Faegre Drinker; not found on CourtListener search
Guild Mortgage Co. v. CrossCountry Mortgage LLC, D085036/D085273	Cal. Ct. App., 4th Dist., Div. 1, 27 May 2026	Duty of loyalty during employment supports tort claims; CUTSA does not displace the interference or Penal Code § 502 claims pleaded	Described as published by California Employment Law Report; decision date confirmed on CourtListener (docket search)
BioSkryb Genomics, Inc. v. AClarity Genomics Inc.	N.C. Business Court, 8 June 2026	§ 16600.5 applied extraterritorially; summary judgment on liability for employee on his counterclaim	Out-of-state trial-level order, per Seyfarth

CBD Franchising: the ban reaches franchisees, not only employees. A franchisor sought to enforce a nationwide 75-mile post-term non-compete against former franchisees who sold their franchise and then went into a competing business. The Court of Appeal held it void under section 16600 even though the Conways were not employees, because the effect was to restrain an individual from trade after the relationship ended (Faegre Drinker). The court limited the rule-of-reason approach from Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal.5th 1130 (2020), to restraints in ongoing business relationships, and it rejected the section 16601 argument because the goodwill was sold to a third-party buyer, not to the franchisor (Faegre Drinker). Because the commentary calls the decision unpublished, it is not citable as precedent in California courts under the usual publication rules (my general-knowledge point, not drawn from the source). Treat it as persuasive of how a panel reads Ixchel, and verify publication status on the court's docket.

Guild Mortgage: the loyalty duty is the employer's main tool. The court reversed a dismissal and held that employees owe undivided loyalty while employed, citing Labor Code section 2863. It also held that a manager's fiduciary status depends on the trust and discretion reposed in the role, not the title (California Employment Law Report). The same source reports the court declined to follow AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) on the view that employee obligations sound only in contract, and held for the first time in published authority that CUTSA does not displace Penal Code section 502 claims (California Employment Law Report). Citator flag: AMN is a foundational case for employee non-solicits. The commentary says Guild declined to follow it on the tort-versus-contract point only. The sources I read do not say AMN's non-solicit holding was disturbed, so I treat that holding as still good law, subject to a full KeyCite or Shepard's check.

BioSkryb: California's reach goes beyond the state line. Where the contract chose California law, the North Carolina court found enough contacts to honor that choice, found no conflict with North Carolina's fundamental policy, and held section 16600.5(d) applies beyond California's borders. The employer had dropped its own claims and was left defending the employee's counterclaim (Seyfarth). The authors describe it as consistent with a recent federal decision from Arizona; I did not read that decision.

KEY TAKEAWAY: Courts are refusing three escape routes (the franchise label, the sale-of-goodwill exception and out-of-state forum), while keeping loyalty-during-employment claims fully available.

Precedent and stare decisis assessment

Foundation is stable. Edwards remains the anchor: AB 1076 codified it, so the Legislature has now endorsed the no-narrow-tailoring rule that the case announced (Wilson Sonsini). A CourtListener search for Edwards with section 16600 among 2026 opinions returned Arterberry v. Peet's Coffee (Cal. Ct. App., 29 July 2026); I did not open it, so I draw no conclusion about how it treats Edwards.

The Ixchel boundary is the live doctrinal question. Ixchel applied a rule of reason to business-to-business restraints. CBD Franchising confines it to ongoing relationships (Faegre Drinker). Because that opinion is unpublished, the boundary is not yet settled by binding authority. Watch for a published appellate opinion or a California Supreme Court grant.

Within-appellate tension to monitor. Guild departing from AMN on tort duties is a narrow disagreement. Trial courts must now choose between the two lines in cases alleging employee disloyalty; this is my inference from the reporting, not a statement in a source.

Federal and multi-state context

FTC rule is dead. The FTC dismissed its appeals in Ryan, LLC v. FTC (5th Cir.) and Properties of the Villages v. FTC (11th Cir.) and acceded to vacatur after the district court found the agency lacked authority to issue the rule (FTC press release). I did not retrieve the FTC's current case-by-case enforcement activity, so I make no claim about it here.

States are filling the gap. Faegre Drinker names Tennessee, Washington and Virginia as states that have stepped in, and reports Virginia amended its Retail Franchising Act to bar post-term franchise non-competes with an exception for sale of the franchise (Faegre Drinker). Notably, the Virginia exception for sales to a third party is the opposite of the result California reached in CBD Franchising. I did not retrieve bill numbers for these states, and I did not complete a Texas or New York comparison, so those parts of the planned multi-state analysis are open.

Practical implications

For	Action	Basis
Employers	Remove post-employment non-competes and customer or employee non-solicits from California-connected agreements; confirm AB 1076 notices were sent	Wilson Sonsini
Employers	Keep in-term loyalty, confidentiality and non-diversion clauses; enforce computer-access policies; act fast on coordinated resignations	California Employment Law Report
Employers	Audit repayment, training-debt and penalty terms against section 16608	Faegre Drinker, October 2025
Franchisors	Do not rely on post-term covenants or the section 16601 exception where the goodwill passes to a third-party buyer	Faegre Drinker
Out-of-state employers	A California choice-of-law clause plus modest contacts can trigger liability under § 16600.5 for attempting to enforce	Seyfarth
Employees	May sue for injunctive relief, damages and fees if an employer enters into or tries to enforce a void covenant, but must not break loyalty duties before leaving	Wilson Sonsini; California Employment Law Report

Watch list and open items

Whether CBD Franchising is certified for publication or reviewed, which would settle the Ixchel boundary.
Any petition for review or rehearing in Guild Mortgage; I did not check the docket for post-decision history.
First appellate decisions applying AB 692 (section 16608), which I did not find.
Full citator run (KeyCite or Shepard's) on Edwards, AMN, Ixchel and Techno Lite; not performed here.
Bill numbers and status for out-of-state restrictions, and a Texas and New York comparison.