Recent Wins

California Supreme Court voids non-competition covenant, affirming California’s strong policy against such agreements

Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 (California Supreme Court). Emphasizing the strong public policy underlying Business and Professions Code section 16600, the Supreme Court rejected the so-called “narrow restraint” exception to California’s statutory bar on employee covenants not to compete with former employers. Section 16600 voids “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind . . . .” As GMSR urged on behalf of its employee client, the Supreme Court held that the statute means what it says: A noncompete that would in any way restrain an employee from working for another employer is void. Federal courts had interpreted California law to permit “narrow” restraints, but the Supreme Court said that the federal courts had gotten it wrong. It also disapproved previous California state-court decisions that even implied the existence of such an exception. This important decision reaffirms California’s public policy in favor of employee mobility, which encourages innovation and competition. It levels the playing field for employees who seek to maximize their talents and attainments. In addition, as GMSR had advocated, the Supreme Court kept alive the employee’s case on whether an employer can validly require an employee to sign a release of “any and all” claims against the employer as a pre-condition for the employer’s facilitating the employee’s transfer to a new job. Although the Supreme Court held that a release of “any and all claims” does not necessarily imply a release of claims that by law cannot be waived, the Court left it open for the employee to prove that the particular release his employer insisted he sign was invalid because the employer knew it was asking him to release claims that the Labor Code says cannot be waived.