44 Cal. 4th 937, 81 Cal. Rptr. 3d 282, 189 P.3d 285 (2008)
In January 1997, Raymond Edwards II, a certified public accountant, was hired as a tax manager by the Los Angeles office of Arthur Andersen LLP.1 Andersen's employment offer was made contingent upon Edwards signing a noncompetition agreement.2 The agreement prohibited him from performing professional services of the type he provided for any client on which he worked during the eighteen months prior to termination.3 It also barred him from soliciting clients or professional personnel for limited periods after termination.4 Edwards signed the agreement.5
Between 1997 and 2002, Edwards continued to work for Andersen.6 He moved into the firm's private client services practice group.7 He was promoted to senior manager.8 In March 2002, the United States government indicted Andersen in connection with the investigation into Enron Corporation.9 In June 2002, Andersen announced that it would cease its accounting practices in the United States.10 In May 2002, Andersen internally announced that HSBC USA, Inc., through a new subsidiary, would purchase a portion of Andersen's tax practice including Edwards's group.11
In July 2002, HSBC offered Edwards employment.12 HSBC required him to execute a Termination of Non-compete Agreement before hiring any Andersen employees on the restricted list.13 The TONC required employees to voluntarily resign from Andersen.14 It required them to release Andersen from any and all claims arising from or relating to their employment.15 Employees also had to continue to preserve confidential information, refrain from disparaging Andersen, and cooperate with Andersen in any investigation or litigation.16 In exchange, Andersen would accept the resignation, agree to the employment by HSBC, and release the employee from the 1997 noncompetition agreement.17 Edwards signed the HSBC offer letter but did not sign the TONC.18 Andersen terminated Edwards's employment and withheld severance benefits.19 HSBC withdrew its offer of employment.20
On April 30, 2003, Edwards filed a complaint against Andersen, HSBC, and WTAS for intentional interference with prospective economic advantage and anticompetitive business practices under the Cartwright Act.21 Edwards settled with all parties except Andersen.22 The trial court sustained Andersen's demurrer to the Cartwright Act claim without leave to amend.23 It denied Andersen's motion for summary adjudication on the interference claim.24 The court severed trial on the enforceability of the noncompetition agreement and the TONC.25 It heard argument from both parties without taking evidence.26 The court decided all issues of law in favor of Andersen and entered judgment for Andersen.27 Edwards appealed.28 The Court of Appeal addressed the issues in the published part of its opinion.29 The Supreme Court of California granted review limited to the two issues concerning section 16600 and the release of any and all claims.30
Whether Business and Professions Code section 16600 prohibits employee noncompetition agreements?31
Business and Professions Code section 16600 provides that, except as provided in the chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.32 The statute is subject only to the statutory exceptions in sections 16601, 16602, and 16602.5.33
Yes. The noncompetition agreement Edwards signed in January 1997 as a condition of employment with Andersen prohibited him for eighteen months after termination from performing professional services of the type he provided for any client on which he worked during the eighteen months prior to termination.34 It also prohibited him for twelve months from soliciting any client of the Los Angeles office to which he was assigned.35 These restrictions directly limited Edwards's ability to practice his accounting profession with clients he had served while at Andersen.36
Therefore the restrictions constituted an invalid restraint under section 16600.37 The agreement does not fall within any of the statutory exceptions for the sale or dissolution of a business.38
The noncompetition agreement is invalid under section 16600.39
Related opinions on this issue
Joined by Justice Werdegar
Justice Kennard concurs with the majority that the 1997 noncompetition agreement was invalid under Business and Professions Code section 16600.40 The agreement barred Edwards from performing the same professional services for the same clients after leaving Andersen.41 She also agrees that Andersen's insistence on the TONC as consideration for release from the invalid agreement could constitute a wrongful act supporting the interference claim.42
Her concurrence emphasizes the statutory prohibition on restraints of trade and the resulting public policy implications for employee mobility in California.43
Whether a contract provision requiring an employee to release "any and all" claims is unlawful because it encompasses nonwaivable statutory protections such as the employee indemnity protection of Labor Code section 2802?44
A contract provision releasing any and all claims does not encompass nonwaivable statutory protections such as the employee indemnity protection of Labor Code section 2802.45 Courts interpret the release to make the contract lawful and operative.46 Labor Code section 2804 voids any waiver of those rights, rendering an implicit waiver unnecessary and ineffective.47
No. The TONC Edwards was required to sign before obtaining employment with HSBC released Andersen from any and all claims arising from or relating to his employment.48 Under the facts of the case this language does not waive Edwards's nonwaivable right to indemnification under Labor Code section 2802.49 The release is interpreted to incorporate the statutory prohibition on waiver so that it remains lawful and does not violate Labor Code section 2804.50
The TONC is not unlawful under Labor Code sections 2802 and 2804.51
Related opinions on this issue
Joined by Justice Werdegar
Justice Kennard dissents on the TONC issue.52 She would hold that the TONC was unlawful because its language expressly releasing losses and expenses arising from employment directly tracked and purported to waive the precise indemnity rights protected by Labor Code section 2802.53 This created an independently wrongful act supporting Edwards's claim for intentional interference with prospective economic advantage.54
She criticizes the majority for failing to recognize that the specific wording of the release went beyond a vague general release and instead targeted the exact claims the Labor Code preserves.55 In her view Andersen's conduct in insisting on the release was sufficiently wrongful to support the tort claim even if the release itself is ultimately void.56