Calif. justices ban employee non-compete pacts

Chris Rizo Aug. 8, 2008, 10:26am

Justice Ming Chin

SAN FRANCISCO (Legal Newsline)-The California Supreme Court has unanimously upheld the state's ban on most employee non-competition agreements, ruling that employers cannot limit employees' right to solicit former clients or work for a competitor after they leave a company.

The high court's decision overturned an appeals court ruling that allowed companies to require workers to agree not to compete with their former employer so long as the restrictions were "narrowly tailored."

The case was originally brought by a former tax manager in the Los Angeles office of auditing firm Arthur Andersen LLP who refused to sign a non-compete agreement.

Arthur Andersen argued that its agreement was legal because it didn't prevent plaintiff Raymond Edwards II from working in his profession, but only prevented him from soliciting clients from the company.

When Arthur Andersen ended its U.S. operations after it was implicated in the Enron Corp. accounting scandal in 2002, court papers say Edwards sought a job with a subsidiary that was taking over the business.

Edwards was required to drop future claims against Andersen in order to be released from the non-competition agreement he had signed when he went to work for the auditing firm in 1997.

He refused and sued Andersen and its subsidiary for illegally interfering with his future economic interests.

In its ruling, the Supreme Court said his lawsuit could proceed because the original non-competition agreement was illegal.

"An employer cannot by contract restrain a former employee from engaging in his or her profession, trade or business," Associate Justice Ming Chin wrote for the court.

He said if the state Legislature "intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect."

The case is Edwards vs. Arthur Andersen, S147190.

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