In a ruling that’s likely to send shock waves throughout the technology industry, the California Supreme Court upheld a 136-year-old state law against non-compete clauses in employment contracts. The ruling says that employers cannot restrict employees from working for a competitor or soliciting former clients once they leave the company.
Companies have used "non-compete contracts" en masse since the dot-com boom to protect their intellectual property and help retain workers in a competitive labor market. Workers have bristled against the notion that former employers can dictate who they can work for and what they can do in subsequent jobs.
The California Supreme Court’s ruling on Thursday was in regard to the case of Edwards vs. Arthur Andersen. Attorneys for Edwards, a tax manager, claim that the non-compete agreement that Arthur Andersen required Edwards to sign is invalid under California law. The court agreed and stated in its final disposition: "The noncompetition agreement that Edwards was required to sign before commencing employment with Andersen was therefore invalid because it restrained his ability to practice his profession."
California, the home of Silicon Valley and heart of U.S. technological production, is clearly on the forefront of technology law, and therefore this ruling is likely to have an impact on non-compete laws throughout the country.
As an employee, I am against non-compete contracts that restrict workers from obtaining gainful employment from any company they choose. However, as an employer, I recognize that companies must retain the right to prevent ex-employees from disseminating trade secrets to competitors. Until now, non-compete contracts have been an effective means of protecting intellectual property. Without these contracts, employers will likely resort to litigation against ex-employees that go to work for competitors. It’s a conundrum, one that will continue to play out in the courts.
Article published on August 8, 2008
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