In California, employee covenants not to compete or solicit customers or clients are void, subject to certain specific exceptions. Historically, those exceptions arose both from statute (e.g., permitting noncompetes in connection with the sale of a business) and from common law (e.g., permitting noncompetes that are “narrow restraints” or necessary to protect trade secrets). In 2008, the California Supreme Court in Edwards v. Arthur Andersen, 189 P.3d 285 (Cal. 2008), refused to recognize and adopt one of those common law exceptions to California’s general prohibition against noncompetition/solicitation agreements, which had developed in the federal courts. Before Edwards, some courts would enforce an employee noncompetition/solicitation agreement that was found to create only a “narrow restraint” on the former employee’s business or trade. The California Supreme Court rejected the narrow restraint exception because that exception was not expressly authorized by the California Legislature. However, the court in Edwards expressly declined to address the trade secret exception, which also developed at common law. Under the trade secret exception, a court may enforce an employee noncompetition/solicitation agreement that is necessary to protect the former employer’s trade secrets.
Some lower courts have read Edwards’ rejection of the narrow restraint exception as broadly rejecting, or at least casting doubt on, all other non-statutory exceptions to California’s prohibition against noncompetition/solicitation agreements, including the trade secret exception. There is language in Edwards that supports that view. The court held that “[n]on-competition agreements are invalid under section 16600 in California even if narrowly drawn, unless they fall within the applicable statutory exceptions of sections 16601, 16602, or 16602.5.” 189 P.3d 285, 296 (Cal. 2008). The court also noted that California courts “have been clear in their expression that section 16600 represents a strong public policy of the state which should not be diluted by judicial fiat.” Id., at 291-92.
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