- State Supreme Court Strictly Construes Statute Barring Noncompete Agreements
- September 11, 2008 | Author: Clint D. Robison
- Law Firm: Hinshaw & Culbertson LLP - Los Angeles Office
A tax manager with the accounting firm of Arthur Andersen was employed in the firm's tax group. The firm was indicted in 2002. HSBC USA purchased the tax group and asked the tax manager to sign a noncompete agreement preventing him from working for or soliciting clients if he should leave the company. The tax manager refused to sign the document because he believed that it required him to give up indemnity protections already due to him from Arthur Andersen. The employee was terminated for refusing to sign the agreement. He sued Arthur Andersen and HSBC for anti-competitive business practices, alleging a violation of Cal. Bus. & Prof. Code Section 16600, which prohibits contracts that "restrain" trade. Arthur Andersen argued that the term “restrain” in Section 16600 should make illegal only those contracts which totally prohibit employees from their business or profession. Arthur Andersen also argued for the adoption of the Ninth Circuit’s so-called “narrow restraint” exception to Section 16600, which allows for limited employment "restraints." The California Supreme Court rejected both of those arguments and held, 7-0, that noncompetition agreements, even if they are written narrowly, are invalid under 16600 unless they fall within a few limited exceptions. The decision highlights the division between California and states which enforce noncompetition agreements. California employers may still be able to address trade secret concerns with well drafted agreements.
Edwards v. Arthur Andersen LLP, ___ Cal. Rptr. 3d ___, 2008 WL 3083156 (August 7, 2008)