California Supreme Court Settles Law Regarding Enforceability Of Non-Competition Agreements, Releases Of Claims

Upholding earlier California Court of Appeal decisions and

disagreeing with the federal Ninth Circuit Court of Appeals,

the California Supreme Court has ruled in Edwards v. Arthur

Andersen LLP, ___ Cal. 4th ___ , 2008 Cal. LEXIS 9618

(Cal. Aug. 7, 2008) (No. S147190), that non-competition

agreements in California are invalid under California Business

and Professions Code Section 16600 ("Section 16600"),

even if narrowly drawn, unless they fall within an express

statutory exception. The Supreme Court has further held that

contractual releases of "any and all" claims do not

encompass nonwaivable statutory claims and are not void,

reversing the existing Court of Appeal precedent.

Practical Impact

The California Supreme Court's decision on

non-competition agreements may have little practical impact, as

many California employers have adopted the more conservative

approach set forth in the Court of Appeal's opinion and

approved by the Supreme Court. However, employers should be

aware that non-competition agreements fashioned Ninth Circuit

precedent allowing such agreements in situations not covered by

statute are no longer valid. Prospective employers expecting a

challenge to a strategic hire should likewise consult with

counsel to evaluate whether the non-competition agreement in

question is valid.

The Supreme Court's ruling that releases of "any

and all" claims are no longer presumptively invalid should

provide relief to employers concerned about crafting

enforceable releases. Those who wish to proceed out of an

abundance of caution may still choose to include a clause

saying that the release is not intended to include claims that

cannot be waived as a matter of law. Employers should consult

with counsel to ensure their releases comply with the law and

protect their interests.

Factual Background And Claims

When Arthur Andersen hired plaintiff Raymond Edwards, it

required him to sign a non-competition agreement. This

agreement prohibited Edwards from working on accounts for or

soliciting some of Arthur Andersen's clients during his

employment with the firm and for certain periods thereafter.

Following the federal government's well-publicized

prosecution of Arthur Andersen, the firm sold the group in

which Edwards worked to HSBC. HSBC and Arthur Andersen required

Arthur Andersen personnel wishing to join HSBC to sign a

"Termination of Non-compete Agreement"

("TONC") under which Arthur Andersen would relieve

the employee from his or her...