The California Supreme Court in the 2008 case, Edwards v. Arthur Andersen LLP, ruled that a provision in an employment agreement that prevented an employee from competing with his former employer following the termination of his employment was an invalid restraint on trade in violation of section 16600 of the California Business and Professions Code. The Court held that subject to certain statutory exceptions, i.e., to protect the value of goodwill in connection with the sale of one’s business interest, section 16600 invalidated all contractual provisions that constituted a restraint on an employee’s ability to practice his or her trade or profession. What the Court has not addressed since that 2008 decision was whether provisions that acted as a restraint on trade in business contracts (i.e. exclusive distribution agreements, franchise agreements, etc.) would suffer a similar fate. On August 3, 2020, the California Supreme Court issued its decision in Ixchel Pharma, LLC v. Biogen, Inc., and ruled that non-compete provisions in business to business contracts were not per se invalid, but rather subject to a rule of reasonableness.
Continue Reading The Rule of Reasonableness: Non-Compete Provisions in California Business Contracts