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.
