Employers and their lawyers, fonts of ingenuity that they are, have come up with a variety of end-runs around California's prohibition on non-competes. Non-solicitation agreements, for example, have been held lawful to the extent necessary to protect a valid, protectable interest, such as a trade secrets.
Another example is an agreement not to compete with the employer's primary competitors - a "limited" non-compete. So, hypothetically, McPotroast might implement an agreement restricting employees from going to work for King Carnivorous, but the employee can work for anyone else.
Is that sort of arrangement illegal in California? The U.S. Court of Appeals for the Ninth Circuit has ruled said "no," predicting how the California Supreme Court would rule on the issue.
The Ninth Circuit's interpretation of California was wrong, says the Court of Appeal in the August 30, 2006 decision in Edwards v. Arthur Andersen.
The opinion surveys California non-competition law in some detail and the court then concludes even a limited non-compete is illegal unless necessary to protect trade secrets or unless one of the narrow statutory exceptions to the general rule applies:
In sum, we conclude the "narrow restraint" doctrine is a misapplication of California law. Noncompetition agreements are invalid under section 16600 even if narrowly drawn, unless they fall within the statutory or trade secret exceptions. Thus, the noncompetition agreement at issue here was invalid and violated California's public policy, unless, on remand, Andersen proves the trade secret exception applies.
The Court then held that requiring Edwards to sign the agreement established a required element of the tort of "interference with prospective economic advantage" (the "independently wrongful act" element.). As such, Edwards was permitted to proceed on this theory, exposing Andersen to the a panoply of tort damages, including punitive damages.
