My Employment Blogger

California Code Section 16600 says that:

Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.

The only exceptions to Section 16600 apply to the seller of a business and partners in a business, but not employees of a business, although California courts will enforce an employee non-compete agreement to protect an employer's trade secrets.

This would seem to leave little open for interpretation, but the federal courts in California until recently enforced non-compete agreements if they "narrowly constrained" the employee from competing. A California state court, which the federal courts must follow on matters of California state law, rejected that approach in Edwards v. Arthur Andersen. Now, Section 16600 means what it says.

The Edwards case prompted a number of commentaries, including those at Contracts Prof Blog, LawMemo.com and Oregon Business Litigation. The most important aspect of the case, however, noted by Law.com, was the procedural posture of the case and the loss of an employer tactical advantage.

That is, the Edwards case did not involve an employer suing to enforce a non-compete, which is the typical posture of these cases. Instead, the employee brought suit because he had been fired when he refused to sign the agreement. Edwards, and not his potential employer, brought the suit for what non-lawyers would call wrongful discharge. Edwards won.

By winning his wrongful discharge suit Edwards will be able to recover his lost wages and benefits and might even get his job back. More importantly for other employees in California, Edward's victory likely will prevent employers in the future from forcing employees to choose between signing an agreement that is void or getting fired. That is, before Edwards, employers could fire employees with almost no downside, because the only effect of Section 16600 was to make the agreement void. Thanks to Edwards, however, firing an employee under those circumstances will now amount to a wrongful discharge. Most employers will likely cease this practice to avoid wrongful discharge liability.

The purpose of this blog is to highlight discussions about employment law and to offer my take on them. My Employment Lawyer (MEL), organized around attorneys answering questions from employees in their state, has been one place for such discussions. In the last five years MEL has published over 2,500 answers.

Most of these answers respond to the specific questions raised by an employee. A good example is by Christopher Ezold, in Philadelphia, PA. An employee asked whether an employer could refuse to pay severance after signing an agreement that the employee had changed before signing. Here is Christopher's answer:

If you altered the severance contract to include new terms, and it was executed by an officer of the company, it is likely a valid contract. The severance pay is 'wages' under Pennsylvania's Wage Payment and Collection Law ("WPCL"). Furthermore, the $40k you are still owed is likely to be considered 'wages' under the WPCL. Therefore, if neither the $40k nor the $10k have been paid, you also likely have claims for breach of contract for both and for nonpayment of wages under the WPCL for both.


The WPCL claims include an extra 25% of the nonpaid wages as damages (about $12,500 in the case of the combined unpaid $50k) AND include as damages your attorneys' fees. The $50k claim can therefore present a $75k-$100k liability for the company.


Finally, their delaying of payment may put you at risk of tax penalties on the deferred compensation under the IRS new Sec. 409A regs. You should seek advice ASAP in order to avoid those penalties.

Nice job, Christopher. Totally helfpul.

I have two takes on this situation. First, I see this question too many times, from all over the country. Too many employers keep an employee's final pay or fail to pay an agreed upon wage. The employer has an unfair advantage of possession which, in a lawful society, means the employee cannot simply take money from the employer, even if lawfully owed. Instead, the employee has to sue the employer, which is never cheap or easy.

Second, Pennsylvannia, like many states, has neutralized the unfair advantage of possession by imposing a clear obligation to pay and penalizing the employer who violates that obligation. As a result, fewer employers are tempted to take unfair advantage of their employees.

If you have had a similar experience or possess some insight on unpaid wages or keeping an agreement, please comment. I look forward to hearing from you.