LawyersUSA

A non-compete agreement that prevented an employee from working for former clients after leaving the company is prohibited under a state statute, the California Supreme Court has ruled in a closely-watched case.

The statute voids any contract that "restrains" someone's right to engage in a lawful profession, trade or business of any kind.

The employee was an accountant and tax manager with the Los Angeles office of Arthur Andersen. He was required to sign a noncompetition agreement which said that if he left the company, he could not work for former clients for 18 months or solicit any client of the Los Angeles office for one year.

A dispute arose after the accounting practice was sold to another company and the employees were required to terminate their employment with Arthur Andersen.

The employer argued that the statute applied only if someone was completely prohibited from engaging in his or her trade.

But the court disagreed.

"The agreement restricts [the plaintiff] from performing work for Andersen's Los Angeles clients and therefore restricted his ability to practice his accounting profession…. The noncompetition agreement…was therefore invalid…." the court held.

The court also rejected the employer's argument that it should apply the 9th Circuit's "narrow-restraint exception" because the agreement only partially limits an employee from his or her profession.

"[The statute] is unambiguous, and if the legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect. We reject Andersen's contention that we should adopt a narrow-restraint exception to [the statute] and leave it to the legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under [the statute]," the court said.

California Supreme Court. Edwards v. Arthur Andersen, No. S147190. August 7, 2008. Lawyers USA No. 99310538. Click here for the full text of this opinion.