(2008) 44 Cal.4th 937
Supreme Court of California · Decided August 7, 2008
01. Facts
In January 1997, Raymond Edwards II, a certified public accountant, was hired as a tax manager in the Los Angeles office of Arthur Andersen LLP (44 Cal.4th at p. 942). Andersen made the employment offer contingent on Edwards signing a noncompetition agreement — required of all managers — that, for 18 months after his departure, prohibited him from performing professional services for, or soliciting, certain Andersen clients he had served (id. at p. 942). When Andersen later sought to transfer Edwards’s practice and conditioned release of the noncompete on a release of claims, a dispute arose over the agreement’s validity (id. at p. 942).
02. Procedural posture
The Supreme Court held the noncompetition agreement void under Business and Professions Code section 16600, reversing the Court of Appeal in relevant part (44 Cal.4th at p. 942).
03. Issue
Whether an employee noncompetition agreement that bars performing services for or soliciting a former employer’s clients is enforceable under Business and Professions Code section 16600, and whether California recognizes a “narrow-restraint” exception for limited restrictions.
Holding
Section 16600 voids contracts that restrain anyone from engaging in a lawful profession, trade, or business; Edwards’s noncompetition agreement was therefore invalid. California does not recognize the federal courts’ “narrow-restraint” exception — even a limited or partial restraint on practicing one’s profession is void unless it fits a statutory exception (such as those tied to the sale of a business).
05. Reasoning
The court read section 16600 according to its plain, broad terms, reflecting California’s strong public policy favoring employee mobility and open competition. It rejected the Ninth Circuit’s “narrow-restraint” gloss as inconsistent with the statute’s text and California precedent: the Legislature, not the courts, created the limited exceptions, and a covenant that restrains a former employee’s ability to practice his profession (even partially) falls outside them and is void.
Practice Pointer
Edwards is the cornerstone of California’s near-total ban on employee noncompetes. For employee-side counsel, treat post-employment covenants not to compete — and most client and customer non-solicitation clauses — as void under section 16600, and do not concede any “reasonableness” or narrow-restraint defense. Recent legislation has further strengthened section 16600, so confirm the current statutory provisions when advising clients.
06. Open questions
Edwards rejected the narrow-restraint exception but reserved questions at the margins (e.g., the treatment of trade-secret protections and the statutory sale-of-business exceptions); subsequent legislation (Bus. & Prof. Code §§ 16600.1, 16600.5) has since reinforced and expanded the prohibition, which counsel should consult for present-day agreements.
Cite this entry
Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937.
“Raymond Edwards II … was hired as a tax manager by the Los Angeles office of the accounting firm Arthur Andersen LLP.” — 44 Cal.4th at p. 942
Source: California Official Reports – [insert durable courts.ca.gov / Official Reports link at verification].