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The California Supreme Court has prohibited the use of most non-competition agreements.  In Edwards v. Arthur Andersen, the Court held that California Business and Professions Code Section 16600 prohibits all non-competition agreements except the quite limited statutory exceptions detailed in Sections 16601, 16602, and 16602.5.  The ruling falls in line with lower state court opinions and is grounded in the common law rule against restraint on trade.  
 
The Court refused to adopt the “narrow-restraint” exception promulgated by the Ninth Circuit.  This exception holds that a non-competition agreement only violates Section 16600 if it completely precludes an employee from practicing his or her trade or profession.  If the agreement limits the employee only from working with particular clients or within a certain geographic area, it could still be valid under the “narrow restraint” doctrine as long as it does not deny the employee the possibility of earning a livelihood.
  
The plaintiff in Edwards was a CPA who signed a non-competition agreement while working for Arthur Andersen LLP.  He was later offered employment by HSBC USA, Inc. on the condition that he be released from his Arthur Andersen non-competition agreement.  Andersen refused the release, fired him, and HSBC rescinded the offer.  Andersen argued in court for adoption of the narrow-restraint exception, claiming that its non-competition agreement only restricted Edwards from soliciting clients from the company and did not restrict his general ability to work in the profession. 
 
The Court instead strictly interpreted Section 16600 and struck down even narrowly drawn agreements, saying that if the legislature had “intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.”  This ruling will allow employers greater flexibility in hiring employees from competing firms, but many employers will want to review the legality of any existing non-competition agreements.  Additionally, employees who are fired for refusing to sign non-competition agreements will more easily be able to state claims for wrongful termination.

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