Edwards v. Arthur Andersen LLP

Supreme Court of California · 2008 · Contracts

44 Cal. 4th 937 (2008)

Updated July 19, 2026

ContractsNoncompetition agreementsEmployment releasessection 16600noncompeterestraint of tradeemployee mobilityopen competition

Facts

Andersen hired Edwards as a tax manager on the condition that he sign a noncompetition agreement barring him for limited periods after departure from performing services for certain Andersen clients, soliciting office clients, and soliciting Andersen personnel. When HSBC sought to hire Edwards as part of its purchase of part of Andersen's tax practice, Andersen required Edwards to sign a "Termination of Non-compete Agreement" releasing Andersen from "any and all" claims arising from his employment in exchange for releasing him from the earlier noncompetition agreement. Edwards refused to sign the TONC, and Andersen terminated him and withheld severance benefits; HSBC then withdrew its job offer. Edwards claimed Andersen's conduct was independently wrongful because the noncompetition agreement violated section 16600 and the TONC unlawfully waived Labor Code indemnity rights.

Issue

Does Business and Professions Code section 16600 invalidate employee noncompetition agreements that merely restrain, rather than completely prohibit, a former employee's practice of a profession? Does a contract provision requiring an employee to release "any and all" claims unlawfully waive nonwaivable statutory protections, including the indemnity right under Labor Code section 2802?

Rule

Under Business and Professions Code section 16600, every contract restraining anyone from engaging in a lawful profession, trade, or business is void to that extent unless it falls within a statutory exception in sections 16601, 16602, or 16602.5; California does not recognize a judicial narrow-restraint exception for reasonable or limited employee noncompetition agreements. A contract provision releasing "any and all" claims does not encompass nonwaivable statutory protections, and courts should interpret such a release, where possible, to make it lawful, operative, and effective rather than void, including by treating applicable statutes as incorporated into the contract.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Nina Patel worked as a financial consultant for Harbor Stone Advisory, a fictional firm in San Diego, California. Her employment contract stated that for 12 months after leaving, she could not provide the same type of consulting services to any client whose account she had handled during her last year at the firm, but she remained free to work for anyone else in the industry.

If Nina leaves and challenges the clause under California law, which result is most likely?

Explanation. California Business and Professions Code section 16600 voids contracts that restrain a person from engaging in a lawful profession unless a statutory exception applies. The majority rejected a narrow-restraint or reasonableness approach, so a limited postemployment client-service ban is invalid even if it does not completely foreclose work in the field.