September 01, 2006
Noncompetes Unlawful in California
Employee noncompete clauses are unlawful in California, according to a new ruling by the California Court of Appeals. In Edwards v. Arthur Andersen LLP, the Second District rejected decades of prior decisions -- chiefly in federal courts -- to hold that noncompetes are generally invalid and employees cannot be compelled to sign them as a condition of employment. The case is noteworthy because the type of restrictions stuck down were the type normally upheld as reasonable:
If you leave the Firm, for eighteen months after release or resignation, you agree not to perform professional services of the type you provided for any client on which you worked during the eighteen months prior to release or resignation. This does not prohibit you from accepting employment with a client.
For twelve months after you leave the Firm, you agree not to solicit (to perform professional services of the type you provided) any client of the office(s) to which you were assigned during the eighteen months preceding release or resignation.
You agree not to solicit away from the Firm any of its professional personnel for eighteen months after release or resignation.
Although the restrictions were narrow enough, the court held:
We conclude a noncompetition agreement between an employee and employer, prohibiting the employee from performing services for certain former clients, is invalid under Business and Professions Code section 16000 unless it falls within the statutory or "trade secret" exceptions to the statute. Such a noncompetition agreement is invalid even if the restraints imposed are narrow and leave a substantial portion of the market open to the employee.
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