I’m not sure where I heard it first, but I was once told that there federal employment laws to worry about, and then there are California’s employment laws to worry about. Indeed, California acts like a country of its own when it comes to several laws.
For employers in Connecticut with California-based employees (whether in sales, manufacturing or otherwise) an important decision released earlier this month reinforces that notion. In striking down a non-compete law, the California courts have re-emphasized that restrictive covenants in California are unlikely to be upheld.
In Edwards v. Arthur Andersen LLP, the California Supreme Court reaffirmed California’s strong public policy against covenants not to compete. The primary issue in the case was whether the Ninth Circuit’s "narrow restraint" exception was a proper interpretation of California law. Under the narrow restraint exception, employers could enforce non-competition agreements that did not "entirely preclude" an employee from practicing his or her trade. The Supreme Court summarily rejected this exception. The lesson for employers is that unless a covenant not to compete falls squarely within one of the statutory exceptions, it is not likely to be upheld by a California court.
Connecticut employers with California employees would be wise to review their restrictive covenants again in light of this decision.