Robert Milligan and Nicholas Waddles Published in the Daily Journal
"Unhealthy Competition"

Robert Milligan and Nicholas Waddles' article, "Unhealthy Competition," was published in the April 2, 2009 issue of the Daily Journal. In their article, the authors discuss how the California Supreme Court's decision in Edwards v. Arthur Andersen LLP reaffirmed that employee non-competition agreements are void in California unless they fall within narrow exceptions to Business and Professions Code Section 16600. According to the attorneys, "Notwithstanding the Edwards decision, it may be possible for employers to enforce non-competition forfeiture provisions in California by including them in retirement plans subject to the Employee Retirement Income Security Act (ERISA) of 1974.

Robert and Nick discuss a series of cases dating back as early as 1980, where the Ninth Circuit has examined the inclusion of non-competition forfeiture provisions in ERISA plans and has determined that such clauses are permissible under ERISA, with some limitation, and state law is pre-empted on this issue. They explain that based on these cases, "employers have a plausible argument that non-competition forfeiture provisions included in ERISA plans should be analyzed under ERISA and are not subject to Business and Professions Code Section 16600." Additionally, they note that "employers should consider including ERISA plan provisions providing that an employee forfeits employer contributions exceeding ERISA's minimum vesting rules if the employee violates a non-competition provision included in the plans."

Robert and Nick conclude that "these approaches are not without risk and counsel should be consulted before including any non-competition forfeiture provisions as there is always a possibility that notwithstanding ERISA preemption, a court may find that it does not apply based on the strong public policy of Section 16600."