California Supreme Court Settles Law Regarding Enforceability Of Non-Competition Agreements, Releases Of Claims
Upholding earlier California Court of Appeal decisions and
disagreeing with the federal Ninth Circuit Court of Appeals,
the California Supreme Court has ruled in Edwards v. Arthur
Andersen LLP, ___ Cal. 4th ___ , 2008 Cal. LEXIS 9618
(Cal. Aug. 7, 2008) (No. S147190), that non-competition
agreements in California are invalid under California Business
and Professions Code Section 16600 ("Section 16600"),
even if narrowly drawn, unless they fall within an express
statutory exception. The Supreme Court has further held that
contractual releases of "any and all" claims do not
encompass nonwaivable statutory claims and are not void,
reversing the existing Court of Appeal precedent.
Practical Impact
The California Supreme Court's decision on
non-competition agreements may have little practical impact, as
many California employers have adopted the more conservative
approach set forth in the Court of Appeal's opinion and
approved by the Supreme Court. However, employers should be
aware that non-competition agreements fashioned Ninth Circuit
precedent allowing such agreements in situations not covered by
statute are no longer valid. Prospective employers expecting a
challenge to a strategic hire should likewise consult with
counsel to evaluate whether the non-competition agreement in
question is valid.
The Supreme Court's ruling that releases of "any
and all" claims are no longer presumptively invalid should
provide relief to employers concerned about crafting
enforceable releases. Those who wish to proceed out of an
abundance of caution may still choose to include a clause
saying that the release is not intended to include claims that
cannot be waived as a matter of law. Employers should consult
with counsel to ensure their releases comply with the law and
protect their interests.
Factual Background And Claims
When Arthur Andersen hired plaintiff Raymond Edwards, it
required him to sign a non-competition agreement. This
agreement prohibited Edwards from working on accounts for or
soliciting some of Arthur Andersen's clients during his
employment with the firm and for certain periods thereafter.
Following the federal government's well-publicized
prosecution of Arthur Andersen, the firm sold the group in
which Edwards worked to HSBC. HSBC and Arthur Andersen required
Arthur Andersen personnel wishing to join HSBC to sign a
"Termination of Non-compete Agreement"
("TONC") under which Arthur Andersen would relieve
the employee from his or her...
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