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California Supreme Court Rejects Validity of Most Non-Competition Agreements

On August 7, 2008, the California Supreme Court unanimously ruled in Edwards v. Arthur Andersen that the state legislature effectively restricted the ability of employers to prevent employees from working for competitors.

483868_leather_chair.jpgThe Opinion States: “We conclude that Andersen’s noncompetition agreement was invalid. As the Court of Appeal observed, “The first challenged clause prohibited Edwards, for an 18-month period, from performing professional services of the type he had provided while at Andersen, for any client on whose account he had worked during 18 months prior to his termination. The second challenged clause prohibited Edwards, for a year after termination, from ‘soliciting,’ defined by the agreement as providing professional services to any client of Andersen’s Los Angeles office.” The agreement restricted Edwards from performing work for Andersen’s Los Angeles clients and therefore restricted his ability to practice his accounting profession.”

With a few exemptions primarily related to the sale of a business, the court essentially voided all California non-competition agreements.

California Business and Professions Code Section 16600 states:

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.

Still in effect are the protections for the employer in the Uniform Trade Secrets Act which prevent employees from “stealing” the employer’s client list.

This case also takes on issues related to “employee release” agreements often signed upon termination of employment.

The Supreme Court held that employee release agreements in which the employee releases the employer from “any and all” claims do not waive statutory protections provided to the employee in Labor Code Section 2802.

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