California Appellate Court Rules that Five-Year Employee Noncompete Agreement of Unlimited Geographic Reach is Enforceable as a Sanction Against Reticent Defendant

 In a recent decision, a California Second District Appellate Court upheld a trial court “issue sanction,” which effectively enforced, albeit temporarily, a five-year, unlimited geographic scope employee noncompete agreement against the defendant former employee. NewLife Sciences v. Weinstock, — Cal.Rptr.3rd –, No. B223212, 2011 WL 2739653 (July 15, 2011). While such noncompete agreements are normally void and unenforceable under California’s well-known statutory bar against employee noncompetes (see Cal. Bus. & Prof. Code § 16600), the court stated that the temporary enforcement of the employee noncompete was a permissible issue sanction against the former employee, who time and time again refused to appear for depositions or answer hundreds of deposition questions. The court did not appear to rule on plaintiff’s argument that the noncompete fell within the sale-of-business exception under Section 16601, even though the court acknowledged that argument in its opinion. Section 16601 makes enforceable a reasonable non-competition clause executed by any “person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity . . . .”  Section 16601 protects the purchaser of a business against competition from the seller.

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