Edwards v. Arthur Andersen LLP 2008
Public Policy > Non-compete Agreements Contracts – pgHandout – 10/20/09
Parties: Π – Accountant/employee ∆ - Employer Procedural History: - π sued ∆ for intentional interference under §16600 prohibiting non-compete clauses o π settled w/ all parties except Andersen - Trial court ruled in favor of ∆ as a matter of law - Court of appeal found for π that the noncompetition agreement was invalid and that the termination of noncompete was in violation of public policy - Appealed Facts: - π an employee who signed noncompete for 12 mo Ø to solicit clients and 18 mo Ø to solicit employees - Andersen spun off accounting group to HSBC o HSBC required Termination of non-compete to complete new offer of employment to π Required
Voluntary resignation Release any and all claims against Andersen Preserve trade secrets Refrain from disparaging Cooperation
∆ signed HSBC offer letter but not TONC Was fired by Andersen w/o severence & HSBC withdrew its offer Legal Issue: Should noncompetition agreements be generally allowed if they do not totally preclude an employee from working elsewhere? Holding: No. Noncompetition agreements should never be allowed in California as a matter of public policy except by the statutory exceptions Reasoning: - In 1872 California settled public policy to favor open competition and rejected common law “rule of reasonableness” around contractual restrains of a profession o §16600 provided exceptions, but all other restraint was void ∆ argued „restrain‟ means totally prohibiting an employee from working elsewhere π points out that 16600 exceptions and common law exceptions are the same ∆ noncompete ruled invalid b/c it restricted π ability to practice accounting profession - ∆ argued court to adopt “narrow-restraint” exception that had been created by 9th circuit o California courts reject this as a matter of public policy and leave it for the legislature to change statutes if desired
Disposition: Affirm in part, reverse in part Dissent/Concurrence: N/A