California Weakens Enforcement of Non-compete Agreements

The California Supreme Court has ruled that employee non-compete agreements are not valid unless the agreement involves the sale of the business.  The court's opinion in Edwards v. Arthur Andersen, L.L.P. involved a certified public accountant who had signed a non-compete agreement with a former employee.  In exiting his former employment, the employee was asked to sign a termination of non-compete agreement with other release provisions in it in which the employee refused to sign.  Subsequently the employee went to work for another employer.  The court held that because the non-compete agreements are generally invalid, that the consideration for demanding release of an invalid non-compete agreement could be considered a wrongful act and illegal under California law. 

The Edwards Decision is a significant clarification in California law and likely a trend in the unwillingness of courts generally to enforce questionable non-compete agreements in a down business climate. 
 

Comments

[Noncompete, trade secret, severance agreement]

This truly could be a landmark case, and one which other states, including Michigan, look to in defining the future of trade secret, noncompete, nonsolicitation, and other jurisprudence.

At the very least, this may provide guidance as to the risk to the company trying to offer a severance agreement or other agreement that contains a noncompete provision.