Edwards v. Arthur Andersen LLP, 142 Cal. App. 4th 603 (2006)

Raymond Edwards II, the former tax manager for the Los Angeles office of the now defunct accounting firm Arthur Andersen LLP, had executed a non-competition agreement that prohibited him from performing professional services for 18 months post-employment for any client whose account he had handled during the final 18 months of his employment with Andersen. He also was prohibited from soliciting clients as well as other Andersen employees. In his lawsuit against Andersen, Edwards alleged intentional interference with prospective economic advantage arising from these noncompete/ non-solicitation covenants. The Court of Appeal rejected the “narrow restraint” exception to Business & Professions Code § 16600 (which strictly prohibits non-competes in California) and held not only that the non-compete and customer non-solicitation provisions were unenforceable but that their use created potential tort liability for Andersen. (The Court upheld the employee non-solicitation and the nondisparagement provisions of the Andersen agreement.) Finally, Andersen’s failure to carve-out Edwards’s statutory right to indemnity from a general release agreement that Edwards had signed also created potential tort liability for the company. Cf. Strategix, Ltd. v. Infocrossing West, Inc., 2006 WL 2589988 (Cal. Ct. App. 2006) (under Bus. & Prof. Code § 16601, seller of business may only be prohibited from soliciting its own customers and employees who were transferred to buyer as part of an asset sale).