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Calif. Supreme Court upholds strict limits on noncompetes

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in Employment Law,Human Resources

If California employers were looking to the state Supreme Court to loosen restrictions on the scope of noncompete agreements, they will be disappointed. The court just concluded that agreements restricting the ability to practice one’s profession are generally invalid.

Recent case: Raymond Edwards worked for the accounting firm Arthur Andersen, which went out of business following the Enron accounting debacle. Edwards is a certified public accountant and was originally hired for the firm’s Los Angeles office. Thus, California law applied.

Before Arthur Andersen hired him, Edwards had to sign a noncompete agreement that prohibited him from working for or soliciting some Arthur Andersen clients for up to 18 months. When Arthur Andersen failed, it began to sell off its individual offices, including the one in L.A.

Edwards sued to void the noncompete agreement, claiming it violated Section 16600 of the Cartwright Act. He said it was a “contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind.”

The California Supreme Court unanimously agreed with Edwards and ruled that the noncompete agreement was invalid. (Edwards v. Arthur Andersen, No. S147190, California Supreme Court, 2008)

Final note: Be sure to have a California attorney review any standard noncompete, arbitration or other key agreements to make sure they comply with state law.

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