Employment News Alert: Second Appellate District Confirms Broad Non-Compete & Non-Solicitation Clauses Are Void

Ever since the California Supreme Court in Edwards v. Arthur Anderson LLP (2008) 44 Cal 4^th 937, ruled that non-competition clauses in employment agreements are invalid under California Business & Professions Code section 16600 even if narrowly drawn, an open question still remained as to the potential validity of such a clause where it was tailored to protect trade secrets or proprietary information. On October 20, 2009, the Court of Appeal, Second Appellate District answered that question in Dowell v. Biosense Webster, Inc.

Two employees of Biosense signed “Employee Secrecy, Non-Competition and Non-Solicitation Agreements,” providing that neither employee could solicit business from accounts, customers, or clients of Biosense with whom they had contact for a period of eighteen months after termination of employment. Both employees left Biosense to work for a direct competitor and began soliciting business. When Biosense attempted to enforce the non-solicitation portion of the agreement, the lower court entered judgment in favor of Biosense’s competitor based upon its determination that the clauses in question were invalid as an overbroad restriction under Business & Professions Code section 16600 and the Unfair Competition Law (Business & Professions Code section 17200, et seq.).

The Court of Appeal affirmed, concluding that both the non-compete and non-solicitation clauses at issue were void and unenforceable under both cited sections of the Code. The Court specifically found that the broadly worded non-compete clause prevented plaintiffs from rendering service to any competitor of Biosense. The Court also determined that the non-solicitation provisions prevented employees from soliciting accounts, customers or clients with whom they had contact with for twelve months before they left and for eighteen months after termination of employment. In discarding the possible trade secret exception to these types of restrictions, the Court stated that the non-solicitation provisions in question were tantamount to non-compete clauses in that they acted as an impediment to employees in the practice of their chosen professions.

In light of this decision, employers should reconsider any current non-solicitation provisions in their employment agreements. While the law has been clear for quite some time that non-compete clauses are void as a matter of law in California, this Court apparently did not distinguish between the non-compete and the non-solicitation provisions in the subject employment agreements. To be safe, employers should avoid the type of non-solicitation clause at issue in the Biosense case, which the Court found was not narrowly drafted to protect trade secrets but, rather, was so broad as to restrain employees from plying their trades.

This document is intended to provide you with general information about employment related issues. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact Ann Liroff at 415-546-7500 or aliroff@hbblaw.com or contact your regular Haight Brown & Bonesteel, LLP attorney.  This communication may be considered advertising in some jurisdictions.