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Edwards v. Arthur Andersen LLP

Supreme Court of California

August 7, 2008, Filed

S147190

Opinion

 [***285]  [**288]  CHIN, J.—We granted review to address the validity of noncompetition agreements in California and the permissible scope of employment release agreements. We limited our review to the following issues: (1) To what extent does Business and Professions Code section 16600 1 prohibit employee noncompetition agreements; and (2) is a contract provision requiring an employee to release “any and all” claims unlawful because it encompasses  [*942]  nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?

CA(1)(1) We conclude that ] section 16600 prohibits employee noncompetition agreements unless the agreement falls within a statutory exception, and that a contract provision whereby an employee releases “any  [****3] and all” claims does not encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802. We therefore affirm in part and reverse in part the Court of Appeal judgment.

FACTS

In January 1997, Raymond Edwards II (Edwards), a certified public accountant, was hired as a tax manager by the Los Angeles office of the accounting firm Arthur Andersen LLP (Andersen). Andersen's employment offer was made contingent upon Edwards's signing a noncompetition agreement, which prohibited him from working for or soliciting certain Andersen clients for limited periods following his termination. The agreement was required of all managers, and read in relevant part: “If you leave the Firm, for eighteen months after release or resignation, you agree not to perform professional services of the type you provided for any client on which you worked during the eighteen months prior to release or resignation. This does not prohibit you from accepting employment with a client. [¶] For twelve months after you leave the Firm, you agree not to solicit (to perform professional services of the type you provided) any client of the office(s) to which you were assigned during  [****4] the eighteen months preceding release or resignation. [¶] You agree not to solicit away from the Firm any of its professional personnel for eighteen months after release or resignation.” Edwards signed the agreement.

Between 1997 and 2002, Edwards continued to work for Andersen, moving into the firm's private client services practice  [***286]  group, where he handled income, gift, and estate tax planning for individuals and entities with large incomes and net worth. Over this period he was promoted to senior manager and was on track to become a partner. In March 2002, the United States government indicted Andersen in connection with the investigation into Enron Corporation, and in June 2002, Andersen announced that it would cease its accounting practices in the United States. In April 2002, Andersen began selling off its practice groups to various entities. In May 2002, Andersen internally announced that HSBC USA, Inc. (a New York-based banking corporation), through a new subsidiary, Wealth and Tax Advisory Services (WTAS), would purchase a portion of Andersen's tax practice, including Edwards's group.

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44 Cal. 4th 937 *; 189 P.3d 285 **; 81 Cal. Rptr. 3d 282 ***; 2008 Cal. LEXIS 9618 ****; 156 Lab. Cas. (CCH) P60,653; 2008-2 Trade Cas. (CCH) P76,299

RAYMOND EDWARDS II, Plaintiff and Appellant, v. ARTHUR ANDERSEN LLP, Defendant and Respondent.

Subsequent History: Reported at Edwards II (Raymond) v. Arthur Andersen LLP., 2008 Cal. LEXIS 9750 (Cal., Aug. 7, 2008)

Prior History:  [****1] Court of Appeal Second Appellate District, Division Three, No. B178246. Superior Court of Los Angeles County, No. BC294853, Andria K. Richey, Judge.

Edwards v. Arthur Andersen LLP, 142 Cal. App. 4th 603, 47 Cal. Rptr. 3d 788, 2006 Cal. App. LEXIS 1320 (Cal. App. 2d Dist., Aug. 30, 2006)

CORE TERMS

non competition agreement, waive, profession, rights, indemnity rights, invalid, right of indemnity, nonwaivable, releasing, terminated, employees, prospective economic advantage, encompass, intentional interference, void, indemnity claim, public policy, courts, null and void, wrongful act, narrow-restraint, losses, contract provision, trial court, resignation, cases, trade secret, common law, provisions, restrained

Contracts Law, Defenses, Illegal Bargains, Labor & Employment Law, Conditions & Terms, Trade Secrets & Unfair Competition, Noncompetition & Nondisclosure Agreements, Evidence, Burdens of Proof, General Overview, Torts, Prospective Advantage, Intentional Interference, Elements, Wrongful Termination, Public Policy, Employer Liability, Contract Liability, Contract Indemnity, Public Policy Violations, Contract Interpretation, Ambiguities & Contra Proferentem