Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008)

CPA Raymond Edwards II was hired in 1997 as a tax manager for the Los Angeles office of the now defunct accounting firm Arthur Andersen LLP (“Andersen”). As a condition of his employment, Edwards was required to execute a noncompetition agreement that prohibited his (1) “perform[ing] professional services” for 18 months post-termination on behalf of any client whose account he had handled during the final 18 months of his employment with Andersen; (2) soliciting for 12 months any of the clients he had serviced during his final 18 months at Andersen; and (3) soliciting other Arthur Andersen employees to work for another employer for 18 months posttermination. Edwards signed the agreement and remained employed through May 2002 when, in the wake of its Enron indictment and pending dissolution, Andersen sold a portion of its Los Angeles tax practice to Wealth and Tax Advisory Services (“WTAS”), a newly formed subsidiary of HSBC Bank. The closing of the HSBC transaction was conditioned in part on Andersen’s requiring its employees to sign a “Termination of Non-Compete Agreement” (“TONC”) drafted by Andersen, which in relevant part required that they voluntarily resign from Andersen and release the firm from “any and all” claims in exchange for Andersen’s agreement to forgo enforcement of the original noncompetition agreement. In turn, HSBC conditioned its planned hiring of former Andersen employees, including Edwards, on their execution of the TONC. Edwards signed and returned HSBC’s written employment offer, but he refused to sign the TONC (in large part because he was reluctant to sign a waiver that might affect his right to indemnification). As a result, Andersen terminated Edwards’s employment and withheld severance benefits, while HSBC withdrew its offer of employment to Edwards. In his lawsuit against Andersen, HSBC and WTAS, Edwards alleged, among other things, intentional interference with prospective economic advantage. On Andersen’s motion, the lower court severed the trial on the issue of the enforceability of the noncompetition agreement and the TONC and ruled in favor of Andersen, finding the agreement to be enforceable under the so-called “narrow restraint” exception to Cal. Bus. & Prof. Code § 16600. The court of appeal reversed the judgment, holding that the non-solicitation covenant violated Section 16600. The Supreme Court affirmed that portion of the lower court’s judgment, but held that the broad general release (“any and all claims”) was not invalid just because it failed to carve-out non-waivable statutory claims for indemnity under Cal. Lab. Code § 2802.