Until 2008, the scope of California’s statutory prohibition against noncompetition agreements, codified in California Business Code §16600, was subject to widely varying interpretations. California’s federal courts regularly enforced narrow restraints on trade, such as nonsolicitation provisions, which can have similar practical effects to general noncompetition provisions. In 2008, however, the California Supreme Court slammed the door shut on these employer-friendly interpretations, and held unequivocally that §16600 prohibits all restraints on trade, including nonsolicitation provisions. See Edwards v. Arthur Anderson, 44 Cal. 4th (2008).
In the aftermath of the Edwards decision, commentators observed that companies doing business in California would have to live with a new reality: California employees, unlike employees in other states, were off limits for restrictive covenant agreements. Many employers drafted new agreements tailored to their California employees, which prohibited only the use of trade secrets—the one restraint that remains legal under California law. As a practical matter, these agreements afforded few additional protections beyond what were already available under the California Uniform Trade Secrets Act.
