The California Supreme Court issued its much-anticipated decision today in Edwards v. Arthur Andersen LLP. In Edwards, the Supreme Court reviewed a court of appeal decision relating to the validity of non-competition agreements and the permissible scope of employment releases.
The operative underlying facts in Edwards were as follows: Arthur Andersen sold its practice and, as a condition of employment with the purchaser, required all employees to execute a broad release of all claims against Andersen. As consideration, Andersen terminated the employees’ non-compete agreements, which they signed upon hire. The plaintiff refused to sign the general release and sued Andersen.
The court of appeal held that Andersen’s general release and non-compete were invalid. The Supreme Court certified the following issues: (1) Is a non-competition agreement between an employer and an employee that prohibits the employee from performing services for former clients invalid under Business and Professions Code section 16600, unless it falls within the statutory or judicially-created trade secrets exceptions to the statute? (2) Does a contract provision releasing “any and all” claims the employee might have against the employer encompass non-waivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?
In affirming in part and reversing in part the decision by the Court of Appeal, the Supreme Court first held that noncompetition agreements are invalid under Business and Professions Code section 16600 even if narrowly drawn, unless the agreement falls within applicable statutory exceptions. In doing so, the Court specifically rejected the “narrow-restraint” exception to Section 16600 adopted by the Ninth Circuit. Second, the Court held that a contract provision in a settlement agreement whereby an employee releases “any and all claims” does not encompass non-waivable statutory protections, such as the employee indemnity protection of Labor Code section 2802.
Click here to read the full opinion.
Keesal, Young & Logan Employment Group
