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Edwards v. Arthur Andersen, LLP

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Citation. Edwards v. Arthur Andersen LLP, 81 Cal. Rptr. 3d 282, 44 Cal. 4th 937, 189 P.3d 285, 2008 Cal. LEXIS 9618, 156 Lab. Cas. (CCH) P60,653, 2008-2 Trade Cas. (CCH) P76,299 (Cal. Aug. 7, 2008)

Brief Fact Summary.

Edwards (Plaintiff), a Certified Public Accountant who had been employed by Arthur Andersen, LLP (Defendant), argued that the noncompetition agreement he had signed when hired was invalid because, in violation of state statute, it restrained his ability to practice his accounting profession.

Synopsis of Rule of Law.

A noncompetition agreement, even if it is narrowly drawn so it does not completely prohibit a former employee from participating in his or her profession, trade, or business, violates a statute that prohibits the restraining of a former employee from practicing a profession, trade, or business, unless the agreement falls within an exception to the applicable statute.

Facts.

Edwards (Plaintiff), a CPA, was employed by Arthur Andersen, LLP (Andersen) (Defendant) as a tax manager, and had signed as a condition of his employment a noncompetition agreement that prohibited him, for an 18-month period, from performing the same type of professional services he had provided while at the firm, for any client on whose account he had worked during 18 months prior to his termination.  The agreement also prohibited Plaintiff from soliciting any client of the firm’s office where he worked for a year after termination.  When another firm bought Plaintiff’s division, as a condition of obtaining employment at the new firm, all employees were required to sign a termination of non-compete agreement (TONC) that Andersen (Defendant) demanded as consideration to release employees from the noncompetition agreement.  Plaintiff would not sign the TONC, and Defendant terminated his employment.  Plaintiff sued Defendant for intentional interference with prospective economic advantage and anticompetitive business practices, claiming, inter alia, that the noncompetition agreement was not valid according to state statute (California Bus. & Prof. Code, § 16600), which states “[e]xcept as provided in this 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.”  He argued it was invalid because it restrained his ability to practice his accounting profession.  The trial court, finding that the noncompetition agreement was narrowly tailored and did not deprive Plaintiff of his right to practice his profession, rendered judgment for Defendant.  The state’s intermediate appellate court reversed, and the state’s highest court granted review.

Issue.

Does a noncompetition agreement, even if it is narrowly drawn so it does not completely prohibit a former employee from participating in his or her profession, trade, or business, violate a statute that prohibits the restraining of a former employee from practicing a profession, trade, or business, unless the agreement falls within an exception to the applicable statute?

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