Non-Solicitation Agreements: What IT Leaders Can Learn from Edwards vs. Arthur Andersen

IT leaders often have to sign non-compete and non-solicitation agreements when they take new jobs. These contracts can hinder their ability to find a new job when they leave their employer. That's why California's Supreme Court ruled earlier this month that such contracts are illegal.

By
Tue, August 19, 2008

CIO — If you work in California and were required to sign a non-solicitation agreement as a condition of joining your employer, you are most likely no longer bound by that agreement, according to a recent ruling of California's state supreme court. Employers invoke non-solicitation contracts to prevent employees from taking clients and co-workers away with them when they leave a company.

On August 8, the California State Supreme Court ruled in Edwards vs. Arthur Andersen that non-solicitation provisions in employment agreements are no longer legal in the Golden State. Employers, whether they're based in California or out of state, can no longer apply such provisions to California residents.

The court determined that non-solicitation clauses violate existing California public policy, specifically the policy found in section 16600 of California's Business and Professions Code. Section 16600 effectively bars non-competition agreements unless they're executed in connection with the sale of a business or the sale of a substantial amount of stock in a corporation, says John Lecrone, a partner with the law firm Davis Wright Tremaine. The policy states that contracts that restrain any Californian from "engaging in lawful profession, trade or business of any kind" are void. The justices found that non-solicitation agreements are too prohibitive.

Employers who require non-solicitation agreements to be signed or included in an employment contract violate California public policy and expose themselves to liability, says Lecrone.

The only circumstance in which a California employee remains bound by a non-solicitation agreement is if the non-solicitation provision is designed to protect a company's trade secrets or intellectual property, says Lecrone. In that situation, he says, an employer could write into an employment agreement that the employee shall not use the company's trade secrets or intellectual property to solicit key customers.

Lecrone says the state supreme court's ruling on non-solicitation agreements is significant because the court rejected a long line of Federal Ninth Circuit Court case law that held otherwise.

"Historically, the view from many courts for many years was that those non-solicitation agreements were okay because they didn't prevent someone from participating in a trade or occupation," says the attorney. Lecrone adds that non-solicitation agreements gave employers a way around the fact that they couldn't enforce non-compete agreements in California. "This is the first time California has said that's wrong."

Lecrone doesn't think other state courts are going to follow in California's footsteps. He notes, "Most other states allow non-compete and non-solicitation agreements as long as they're reasonable."

Our Commenting Policies