California Supreme Court Rejects the Federal "Narrow Restraint Exception" And Holds That Employment Non-Competition Agreements Are Invalid Unless They Fall Within Limited Statutory Exceptions

On August 7, 2008, the California Supreme Court, in the highly anticipated decision Edwards v. Arthur Andersen LLP, decided that California Business and Professions Code section 16600 prohibits all employee non-competition agreements, unless the agreement falls within limited statutory exceptions. The Court held “[u]nder the statute’s plain meaning . . . an employer cannot by contract restrain a former employee from engaging in his or her profession, trade, or business unless the agreement falls within one of the exceptions to the rule.” In doing so, the Court provided a bright-line rule, expressly rejecting the federal “narrow restraint exception” used by some courts to construe section 16600 as permitting non-competition agreements, where one is barred from pursuing only a small or limited part of a business, trade, or profession.