Non-Compete Clauses After Edwards v. Authur Andersen LLP
Over the last several years courts have been narrowing an employer's ability to restrict employee activities after termination, culminating with the California Supreme Court's decision in Edwards v. Authur Andersen LLP.
For years California employers have routinely had employees sign noncompetition agreements restricting the employee’s ability to contact the employer’s customers or engage in any kind of business whatsoever with the employer’s clients.
Over the last several years courts have been narrowing an employer’s ability to restrict employee activities after termination, culminating with the California Supreme Court’s decision in Edwards v. Authur Andersen LLP (2008) 44 Cal.4th 937. With Edwards, the California Supreme Court announced a general rule that all covenants not to compete are void (subject to some exceptions). Accordingly, prior to having employees sign noncompetition agreements all employers should review noncompetition agreements with a keen eye toward abiding by Edwards’ language.
In particular, employers should be mindful when crafting employee contracts that contains language prohibiting employees from contacting the employer’s customers following termination. Although such clauses may be enforceable if the employer demonstrates that such contacts are the result of the employee’s use of the employer’s trade secrets, this burden is not easily met. Moreover, if the employer cannot demonstrate that the employer’s customer list qualifies as a trade secret, the employer may be subject to liability for interference with a perspective economic advantage or for restraint of trade.
It is best to have a qualified labor and employment attorney review all employee contracts on an annual basis to make sure that the employer’s contract comports the with holding in Edwards, and to ensure that the contract comports with any other court decisions over the previous twelve months that effect employer/employee relations.
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