Edwards v. Arthur Andersen (2008) ____ Cal.4^th_____

The California Supreme Court invalidated employee noncompetition agreements unless they fall within a statutory exception. 

The Plaintiff Edwards worked as an accountant with Arthur Anderson, with whom he had signed a noncompetition agreement.  When Arthur Andersen was indicted by the US Government in connection with the investigation of Enron Corporation, Arthur Anderson ultimately ceased operations.  The accounting division was purchased by HSBC, and when asked by HSBC to terminate the agreement as a condition for re-employment, he refused.  Arthur Anderson fired Edwards and terminated his benefits.

Plaintiff sued for intentional interference with prospective economic advantage and anticompetitive business practices.

Several states still consider employee noncompetition agreements permissible as long as they are reasonably imposed.  This was the case in common law of California, until 1872 when the state rejected the “rule of reasonableness” as a violation of public policy. That policy was ultimately codified in the Civil Code.

“Under the statute’s plain meaning, therefore, an employer cannot by contract restrain a former employee from engaging in his or her trade, profession or business unless the agreement falls within one of the exceptions to the rule.”  Those exceptions involve partnership agreements or the sale of shares of stock in a corporation.

Read Full Opinion here

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