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Supreme Court of California - 44 Cal. 4th 339, 44 Cal. 4th 937
Tags: Contracts, Public policy, Non-competes
See also: Comprehensive Technologies International, Inc. v. Software Artisans, Inc.
tl;dr:
Plaintiff was a CPA for Defendant company, but then received an offer for a different job while he was under an 18-month non-compete. Defendant enforced the non-compete and the other company retracted their offer.Video Summary
Case Summary
In the 2008 case Edwards v. Arthur Andersen LLP, the California Supreme Court tackled the issue of non-compete agreements' validity under California law. The case is significant because it shed light on California's stance against non-compete agreements and offered guidance for their enforceability.
Raymond Edwards, an employee at accounting firm Arthur Andersen LLP, signed a non-compete agreement as a job requirement. The agreement prevented him from working for specific competitors or approaching certain clients after leaving the firm. When Arthur Andersen's tax and consulting department was sold, Edwards was offered a job in the new firm, but only if released from his non-compete agreement. Andersen refused, and Edwards sued, arguing that the agreement was unenforceable under California law.
Initially, the trial court ruled in Andersen's favor, but Edwards appealed. The California Supreme Court overturned the lower court's decision, stating that the non-compete agreement was unenforceable. The court referred to California Business and Professions Code section 16600, which typically bans non-compete agreements, aside from limited exceptions. It stressed the importance of protecting employees' rights and promoting fair competition.
Edwards v. Arthur Andersen LLP clarified California's policy on non-compete agreements, helping employers understand their limits under state law while reinforcing the state's dedication to employee rights and fair competition.
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The legal case concerns the legality of noncompetition agreements and employment release agreements in California. The court ruled that noncompetition agreements for employees are generally prohibited under Business and Professions Code section 16600, unless they fall under a statutory exception. Additionally, a contract provision releasing "any and all" claims does not include nonwaivable statutory protections. The Court of Appeal affirmed and reversed the judgment in part. The court invalidated the noncompetition agreement between Andersen and Edwards because it restricted Edwards' ability to practice his accounting profession. The court rejected Andersen's request to adopt the narrow-restraint exception to section 16600 and left it to the Legislature to relax the statutory restrictions or adopt additional exceptions. The court found that the TONC was a typical broad release that did not waive indemnity rights, which cannot be waived under the Labor Code.
The plaintiff, a certified public accountant, refused to sign a "Termination of Non-compete Agreement" (TONC) after the defendant sold its accounting practice to HSBC. The plaintiff was subsequently terminated without severance benefits. The plaintiff's claim against the defendant is for intentional interference with prospective economic advantage, arguing that the noncompetition agreement was invalid and the release of employee indemnity rights in the TONC was null and void. The trial court found both the noncompetition agreement and the TONC valid, but the Court of Appeal reversed, ruling that both agreements were invalid and that Andersen's actions were wrongful. The Supreme Court majority agreed that the noncompetition agreement was invalid under Business and Professions Code section 16600 and that Andersen's demand for Edwards to sign the TONC as consideration for releasing the invalid provisions of the noncompetition agreement was a wrongful act. However, the majority disagreed with the Court of Appeal's conclusion that the TONC was invalid. The majority concluded that the phrase "any and all . . . claims" in the TONC did not include indemnity claims that are not subject to release under Labor Code sections 2802 and 2804.
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