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Employers Beware! The California Supreme Court recently ruled that all non-solicitation clauses which "narrowly restrain" are now invalid.

Under California Business and Professions Code section 16600 ("section 16600") employers may prohibit departing employees from "engaging in a lawful profession, trade, or business of any kind" only in the context of (1) sale of a business; (2) dissolution of a partnership and (3) sale of disposition of a stockholder's stock in a corporation. In the past decade, however, some California courts have gone beyond these statutory exceptions and permitted non-solicitation clauses where the clause "narrowly restrains" a departing employee from working for a competitor. Many California employers have come to rely on this "narrow restraint doctrine" to enforce employment agreements that contain non-solicitation clauses.

In Edwards v. Arthur Anderson, Arthur Anderson argued an employment agreement signed by employee, Raymond Edwards, was enforceable because the non-solicitation clauses it contained fell under the "narrow restraint" exception to section 16600. The clauses in question prohibited Edwards, for an 18-month period, from performing professional services of the type that he had provided while at the firm, for any client on whose account he had worked during 18 months prior to his termination. Additionally, Edwards was prohibited from soliciting any client of the firm's Los Angeles office for a year after termination. The California Supreme Court disagreed with Arthur Anderson, finding that the agreement violated section 16600 because "the agreement restricted Edwards from performing work for Andersen's Los Angeles clients and restricted his ability to practice his accounting profession." As a result, the California Supreme Court overruled all prior lower court decisions suggesting that "narrow restraint doctrine" was lawful. The Court found that "section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect."

Also, in Edwards, the California Supreme Court upheld the often utilized practice of executing general releases when an employee leaves the company. Edwards argued that the release he signed was unlawful because the language "any and all claims" prohibited him from asserting his statutory right to indemnification under Labor Code section 2802. The Court held that contract provisions releasing "any and all" claims do not include "nonwaivable statutory protections, such as the employee indemnity protection" and therefore are not unlawful under Labor Code section 2804.

In light of this recent decision, it is advisable for all employers who use non-solicitation clauses in their employment agreements to promptly seek legal counsel. Additionally, Edwards confirms that employers may continue to execute general releases to departing employees without concern for liability.