Key Takeaways

• The short answer is almost never in an employment context. B&P Code § 16600 voids non-compete clauses against employees in California, and 2024 amendments (AB 1076 and SB 699) made it unlawful for employers even to include or attempt to enforce
• The narrow exceptions live in § 16601, 16602, and 16602.5 — non-competes tied to the sale of a business, the dissolution of a partnership, or the sale of an LLC member interest. These can be enforceable for physicians, but only if structured correctly.
• For physician and dental practices held under a private equity or hedge fund-backed MSO structure, SB 351 (effective January 1, 2026) voids non-compete and non-disparagement clauses in MSO and asset-purchase agreements, with narrow carve-outs for bona fide sale-of-business non-competes otherwise permitted under California law.
• A non-compete that requires every physician to be a shareholder — but doesn’t tie the non-compete to a real transfer of goodwill in a sale — won’t be saved by § 16601. Wycoff v. Scripps Clinic and the Fillpoint line make this point.
• Replacement tools that are enforceable in California: well-drafted NDAs, trade-secret protection, and (within careful limits) non-solicitation provisions for current clients in connection with the sale of a business.

Are Non-Compete Clauses Enforceable for Physicians in California?

A California physician employment agreement cannot include an enforceable non-compete clause. Not in an offer letter, not in a partnership track, not as a condition of stock issuance, not in an exit package. The 2024 amendments to § 16600 made the rule strict and gave it teeth.

Where non-competes can still appear is in the sale of a business — when a physician is genuinely selling their ownership interest in a medical practice (including the goodwill of the practice) to a buyer who will continue the business. Section 16601 lets the buyer restrict the seller’s competition within the practice’s geographic area. But even there, the structure has to be real: a token share issuance to dress up an employment non-compete won’t be saved by § 16601.

And for physician practices structured under MSO arrangements with private equity or hedge fund backers, SB 351 added a new layer in 2026: non-compete clauses in MSO and asset-purchase agreements between PE/hedge funds and physician or dental practices are voided by statute, with the same narrow sale-of-business carve-out.

If you’re a physician being asked to sign a non-compete — at hiring, at promotion, at partnership, or as part of a practice sale or MSO partnership — the enforceability question is binary in California, and the wrong contract clause can either restrict the physician’s career unnecessarily or expose the employer to civil penalties under AB 1076. Bay Legal, PC drafts and reviews physician employment, partnership, and sale-of-business agreements across California. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

The Statutory Framework

B&P Code § 16600

“(a) Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

Section 16600, originally enacted in 1872, is California’s general bar on non-compete agreements. The 2024 amendments via AB 1076 added two new subsections to clarify how broadly the rule reads:

“(b)(1) This section shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in this chapter.”

“(c) This section shall not be limited to contracts where the person being restrained from engaging in a lawful profession, trade, or business is a party to the contract.”

The “no matter how narrowly tailored” language matters. Pre-2024, employers sometimes drafted geographic and temporal limits — a 10-mile radius, one-year duration — and argued the clause was reasonable. Edwards v. Arthur Andersen and now AB 1076 close that argument. Either the clause fits one of the statutory exceptions, or it’s void.

AB 1076 (Effective January 1, 2024) — New § 16600.1

AB 1076 added a new section making it unlawful to include a non-compete clause in an employment contract, or to require an employee to enter a non-compete agreement, unless the agreement satisfies one of the narrow statutory exceptions. The provision also imposed a one-time notification requirement: employers had to notify current and former California employees hired after January 1, 2022, by February 14, 2024, that any non-compete clauses they signed were void. Counsel can confirm whether any rolling-notice obligation has been read into the statute by subsequent guidance or interpretation for an employer with new California hires after that date.

A violation of § 16600.1 is treated as unfair competition under B&P Code § 17200, subject to the civil penalties available under that statute. The headline per-violation civil penalty for § 17200 violations has been $2,500 for many years, but these statutory caps can be updated by the Legislature; the current statutory text should be consulted in any enforcement scenario.

SB 699 (Effective January 1, 2024) — New § 16600.5

SB 699 added § 16600.5, which extends the prohibition to attempts to enforce a void non-compete:

• An employer is prohibited from enforcing a void non-compete clause “regardless of where and when the contract was signed.”
• The protection reaches California residents seeking to work in California, even where the original employer is in another state.
• Employees and former employees have a private right of action for injunctive relief, actual damages, and reasonable attorney’s fees and costs.

For physicians, the practical implication is significant. A physician who signed a non-compete while working at a Texas practice, then relocated to California, cannot have the Texas non-compete enforced against them in California — even if Texas law would normally permit enforcement. The California courts will treat the clause as void under § 16600.5.

The Statutory Exceptions That Still Work

Three California statutes carve out narrow exceptions to the § 16600 bar. Each one has specific requirements.

§ 16601 — Sale of a Business

The most important exception for physician practices. Section 16601 permits a non-compete clause when:

• The seller is selling either all of their ownership interest in a business or the goodwill of the business.
• The buyer intends to carry on a like business in the geographic area.
• The non-compete is limited to the geographic area in which the business operates.
• The non-compete is reasonable in duration — typically not more than a few years post-sale, though longer durations have been upheld depending on the goodwill transferred.

The structural requirement is that there has to be a real sale, and the non-compete has to track the goodwill being purchased. In Wycoff v. Scripps Clinic (cited in Fennemore analysis of recent California decisions), the court found that a physician’s nominal share ownership in a medical group did not constitute a sale of goodwill sufficient to support a § 16601 non-compete when the physician left. Every physician in the group was required to be a shareholder, the share value wasn’t tied to goodwill, and the practical reality was that the “shareholder” status was an employment dressing.

The Fillpoint, LLC v. Maas case (2012) shows the same point from a different angle. A three-year post-closing non-compete in a stock purchase agreement was enforceable under § 16601 — but a separate one-year post-termination non-compete in the seller’s parallel employment agreement was held unenforceable. The post-closing piece tied to the sale was fine; the post-termination piece tied to employment was not.

For a physician practice transaction:

• A genuine sale of a medical corporation (or of a physician’s ownership interest in a multi-physician practice) can include a § 16601 non-compete.
• The non-compete needs to be tied to the goodwill being purchased, not to the seller’s future employment with the buyer.
• The geographic scope should track the practice’s actual service area.
• The duration should be reasonable in light of the goodwill transferred.

§ 16602 — Dissolution of a Partnership

Section 16602 permits non-competes among partners when a partnership dissolves or when a partner ceases to be a partner. The non-compete must be limited in geographic scope to the area in which the partnership transacted business.

For physician practices structured as partnerships (less common in California now, but still seen in older arrangements), § 16602 provides a path for the remaining partners to restrict a departing partner’s competition. The partnership has to be a real partnership, not a sham arrangement, and the partner has to have actually been a partner (with the rights, obligations, and economic stake that go with partnership status).

§ 16602.5 — LLC Member Interest

Section 16602.5 provides a parallel rule for the sale or termination of a member’s interest in an LLC. Less relevant for physician practices directly (LLCs cannot render professional services in California), but it matters for MSO arrangements where the MSO is structured as an LLC and a member is selling their interest.

SB 351: The 2026 Overlay for Physician and Dental Practices

SB 351 (Cortese, Ch. 409, Stats. 2025), effective January 1, 2026, added a new layer specifically for physician and dental practices held under MSO arrangements with private equity groups or hedge funds.

SB 351 voids non-compete and non-disparagement provisions in MSO and asset-purchase agreements between PE/hedge funds and physician or dental practices. Two narrow carve-outs survive:

• Bona fide sale-of-business non-competes otherwise permitted under California law (i.e., § 16601 clauses tied to a real sale of goodwill) remain valid.
• Confidentiality clauses protecting material non-public information remain valid, unless they suppress legally required disclosures.

The practical drafting consequences for MSO arrangements:

• Non-compete language that worked in pre-2026 MSAs between PE/hedge fund-backed MSOs and physician practices is now likely unenforceable.
• The succession arrangements that some MSAs built around enforceable non-competes need to be rebalanced.
• Existing MSAs are not grandfathered — SB 351 reaches existing agreements.

The California Attorney General can enforce SB 351 directly with injunctive relief, equitable remedies, and attorney’s fees. We covered the broader SB 351 framework in detail elsewhere.

Mid-content CTA: If you’re a physician being asked to sign an MSO or asset-purchase agreement post-SB 351, or you’re an MSO operator wondering whether your existing non-compete language still works, the SB 351 analysis runs alongside the § 16600 analysis. Both matter. Bay Legal, PC reviews physician MSO arrangements, asset-purchase agreements, and employment contracts for SB 351 and § 16600 compliance across California. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

What Replaces a Non-Compete?

Most of what physician practices and medical groups historically tried to accomplish through non-competes can be accomplished through other tools that are enforceable in California.

Non-Disclosure and Confidentiality Agreements (NDAs)

NDAs that protect trade secrets, patient information, business strategies, financial information, and other confidential information are enforceable in California. The drafting craft is to define confidential information specifically and to avoid sweeping language that could function as a de facto non-compete (e.g., prohibiting “use of any information learned during employment”).

Trade Secret Protection

California’s Uniform Trade Secrets Act (Cal. Civ. Code §§ 3426–3426.11) provides robust protection for trade secrets — information that is the subject of reasonable efforts to maintain secrecy and that derives independent economic value from not being generally known. Patient lists, treatment protocols, custom workflows, pricing strategies, and similar information may qualify if the practice has actually treated the information as confidential.

Non-Solicitation of Customers / Patients (Limited)

The California rule on customer / patient non-solicitation is more restrictive than the rule on confidentiality. AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) struck down a non-solicitation clause that restricted former employees from soliciting their previous employer’s employees, holding the clause violated § 16600. Many practitioner-attorneys read AMN as broadly limiting customer non-solicitation as well, though some narrower forms tied to documented trade secrets (e.g., a documented confidential patient list) may still hold up. The post-2024 § 16600 amendments tighten this further.

In a sale-of-business context, a non-solicitation clause tied to the goodwill being purchased can sit alongside the § 16601 non-compete and benefit from the same exception. Outside the sale-of-business context, treat customer non-solicitation as high-risk.

Non-Solicitation of Employees (Highly Limited)

Per AMN Healthcare, employee non-solicitation clauses are generally unenforceable in California. The practical workaround is robust trade secret protection — if the employer’s employee information is a documented trade secret, a clause restricting the use of that trade secret may be enforceable.

Garden Leave

A “garden leave” provision pays the departing employee during a notice period (usually 30 to 90 days) during which the employee remains technically employed but doesn’t perform services. The California enforceability of garden leave is more favorable than for traditional non-competes because the employee is still being paid — but the analysis is fact-specific and not without risk.

Geographic-Limited Sale-of-Business Non-Competes

The § 16601 exception is the durable answer where a real sale is happening. The structure has to be real: a defined ownership transfer, payment for goodwill, the buyer’s intent to carry on the business in the area, and a non-compete tied to the geographic and temporal scope of the goodwill being transferred.

Common Pitfalls and Red Flags

1. Standard employment-contract non-compete language carried over from pre-2024 templates — unlawful to include under AB 1076.
2. Missed February 14, 2024, notification to current and former employees with non-competes — separate § 16600.1 violation.
3. Out-of-state hiring contracts with non-competes used for California-based work — § 16600.5 reaches these.
4. Token share issuance to support a § 16601 non-compete without a real sale and real goodwill transfer.
5. Post-termination non-competes that try to extend a sale-of-business non-compete beyond the closing-related period (the Fillpoint problem).
6. Geographic scope that’s broader than the practice’s actual service area.
7. Duration that’s longer than the goodwill transferred reasonably supports.
8. Customer / patient non-solicitation clauses outside the sale-of-business context.
9. Employee non-solicitation clauses outside narrow trade-secret-tied formulations.
10. MSA non-competes in PE/hedge fund-backed physician or dental MSO arrangements — voided by SB 351 effective January 1, 2026.

What to Do If You’re a Physician Asked to Sign a Non-Compete

Step one: confirm what’s actually being asked for. The terms get used loosely. “Non-compete” might mean an actual non-compete (likely void), a non-solicitation clause (mostly void but situation-dependent), a confidentiality clause (mostly fine), a trade secret protection clause (mostly fine), or a garden leave provision (situation-dependent).

Step two: identify the context. Are you signing as an employee? A partner? A seller of an ownership interest? A buyer? An MSO counterparty? Each context has different rules.

Step three: get the agreement reviewed before signing. Most physician contracts have been updated for the 2024 § 16600 amendments and the 2026 SB 351 rules, but not all. A poorly drafted clause is unenforceable, but it can still chill career choices if the physician doesn’t know it’s unenforceable.

Step four: keep records. Section 16600.5 gives current and former employees a private right of action with attorney’s fees. If an employer tries to enforce a void non-compete, the documentation matters.

Talk to a California Physician Contract Attorney

The non-compete question for California physicians has a clear default answer — almost always unenforceable in employment, narrowly available in sale-of-business contexts — but the specific contract clauses, the structural setup, and the post-2024 and post-2026 statutory amendments all bear on whether a particular provision will hold up. The cost of getting it wrong runs in both directions: the physician who treats an unenforceable clause as binding loses career flexibility; the employer who keeps unenforceable language in contracts exposes itself to § 16600.1 unfair-competition penalties and AB 1076 notification claims.

If you’re a physician being asked to sign — or an employer drafting — a non-compete, non-solicitation, confidentiality, garden leave, or sale-of-business agreement in California, attorneys at Bay Legal, PC review and draft physician employment, partnership, and asset-purchase agreements for § 16600 and SB 351 compliance across the state. Call (650) 668-8000 or schedule a consultation at baylegal.com/contact.

Frequently Asked Questions

Can a California physician employment contract include a non-compete clause?

No. B&P Code § 16600, as amended by AB 1076 (effective January 1, 2024), expressly voids non-compete clauses in California employment contracts “no matter how narrowly tailored.” AB 1076 also makes it unlawful for an employer to include a non-compete clause in an employment contract or to require an employee to sign one. Violations are treated as unfair competition under B&P § 17200, subject to that statute’s civil penalty provisions (the headline per-violation cap has been $2,500 for many years, with the current text controlling).

Are there any exceptions for physician non-competes in California?

Three narrow statutory exceptions exist: § 16601 (sale of a business or sale of all ownership interest, with goodwill purchased), § 16602 (dissolution of a partnership), and § 16602.5 (sale or termination of an LLC member interest). For physicians, the most common exception is § 16601 — non-competes in connection with a genuine sale of a medical practice (or a physician’s ownership interest in a multi-physician practice) where the buyer is purchasing goodwill and intends to continue the business in the same geographic area.

Does SB 351 affect physician non-competes in California?

Yes. SB 351 (effective January 1, 2026) voids non-compete and non-disparagement provisions in MSO and asset-purchase agreements between private equity groups or hedge funds and physician or dental practices, with two narrow carve-outs: bona fide sale-of-business non-competes permitted under California law remain valid, and confidentiality clauses protecting material non-public information remain valid (unless they suppress legally required disclosures). SB 351 reaches existing agreements as well as new ones.

Can my out-of-state employer enforce a non-compete against me in California?

No. SB 699 (effective January 1, 2024) added B&P § 16600.5, which prohibits employers from enforcing a non-compete clause that is void under California law “regardless of where and when the contract was signed.” The protection reaches California residents seeking to work in California, even when the original employment relationship was in another state where the clause would have been enforceable. Employees have a private right of action for injunctive relief, actual damages, and attorney’s fees and costs.

What can a California physician employer use instead of a non-compete?

Tools that are enforceable in California include well-drafted confidentiality and non-disclosure agreements protecting trade secrets and confidential information, trade secret protection under California’s Uniform Trade Secrets Act, garden leave provisions during a paid notice period, and (within careful limits) non-solicitation clauses tied to the sale of a business and the goodwill purchased. Customer and employee non-solicitation clauses outside the sale-of-business context are largely unenforceable post-AMN Healthcare and the 2024 § 16600 amendments.

This article provides general information about California law and is not legal, tax, or financial advice. Reading this article, contacting Bay Legal, PC, or sending information through baylegal.com does not create an attorney-client relationship. The information here focuses on California law and may not reflect the law of other jurisdictions. Statutes, regulations, agency guidance, and case law change; this article reflects the authors’ understanding as of the date of publication and may not reflect later developments. For advice about your specific situation, consult a licensed California attorney.