Calif. Supreme Court finds noncompete clauses invalid

The California Supreme Court on Thursday upheld a long-standing state law ruling that employers can't restrict employees from working for a competitor or soliciting former clients when they leave the company.

That may be good news for California-based tech employees who want to take their skills to another company, or head a start-up that may directly compete with their former employer. "Noncompete" contracts, in place largely to protect an employer's intellectual property, began being used by companies during the dot-com boom to prevent losing valuable workers in a competitive technology labor market.

Microsoft and Google battled over a noncompete clause in 2005, when Google hired Kai-Fu Lee, an expert in speech recognition technology, even though he had signed a noncompete agreement at Microsoft. Google unsuccessfully worked to move the case from Washington to California, in hopes that the noncompete clause would be ruled invalid. The case was eventually settled outside of court.

The California law has been in existence since 1872, forbidding "noncompete clauses" that restrict management employees' options in their next job or business. But the law has been interpreted differently throughout the state, and the 9th U.S. Circuit Court of Appeals in San Francisco has ruled in favor of allowing a company to limit their employees' future job choices, as long as it doesn't prevent them from working in the same field.

Thursday's ruling was a response to the Edwards vs. Arthur Andersen case, stating clearly that Edwards, a tax manager, signed an invalid noncompete clause. The court said in its final disposition (see PDF) that "Non-competition agreements are invalid...in California even if narrowly drawn."

[humanssssss]

"soliciting former clients when they leave the company" ... HP did this to my buddy. HP threatened to sue him if he contact former clients to switch to a competitor's product. He was too afraid. HP can go kiss his oss now. His clients trusted his advice and work. One client considered hiring him on but HP non-compete clause prohibit him to do it.

[alegr]

"non-compete" clause as rejected covers only the restriction to work at a competing business.

In my uneducated opinion, "soliciting former clients when they leave the company" would be abuse of proprietary business information (client list) and thus would be actionable.

[Galaxy5]

A former boss of mine at West Coast Imaging tried this with me and his current employees. He writes noncompetes into employee handbook and contracts.

As if living in the boonies, working for a violent religious zealot, and being forbidden to talk to people at other digital imaging companies wasn't bad enough for his employees' professional development, his philosophy was that if anyone went to another company, they were labelled a "traitor" (yes he used those words) and he actually sat down and forbade his employees to speak to these "traitors", even if they were friends!

I wonder if the employees could sue for relief, since the invalid non-competes ostensibly hindered their professional development and at-will status?

[benjaminstraight]

Non-compete causes are normally overbroad and an intimidation tactic used by companies. Good for CA.

[jb3177]

Does this set a precedent for other states?

[lynnmacey]

No. It is state law and settled by the top court in the state. The conflict was how different juristictions in the state interpreted the existing law. Looks like that is settled now.

[Get_Bent]

Why would it? This is a California state law; therefore, it applies only to residents of California. Even if your state had a similar law, it is subject to interpretation by your state's courts.

[Unmukt]

What about trade secret/ undisclosed information? Can't an Employer prohibit his employee to work with the competitor so that he may not take advantage of the trade secrets? Well, under WTO all members are supposed to enact a law protecting trade secret.