Calif. Supreme Court finds noncompete clauses invalid

The ruling upholds an oft-misinterpreted state law, keeping the path clear for tech employees to freely join a competing company, or start their own.

The California Supreme Court on Thursday upheld a long-standing state law ruling that employers can't restrict employees from working for a competitor or soliciting former clients when they leave the company.

That may be good news for California-based tech employees who want to take their skills to another company, or head a start-up that may directly compete with their former employer. "Noncompete" contracts, in place largely to protect an employer's intellectual property, began being used by companies during the dot-com boom to prevent losing valuable workers in a competitive technology labor market.

Microsoft and Google battled over a noncompete clause in 2005, when Google hired Kai-Fu Lee, an expert in speech recognition technology, even though he had signed a noncompete agreement at Microsoft. Google unsuccessfully worked to move the case from Washington to California, in hopes that the noncompete clause would be ruled invalid. The case was eventually settled outside of court.

The California law has been in existence since 1872, forbidding "noncompete clauses" that restrict management employees' options in their next job or business. But the law has been interpreted differently throughout the state, and the 9th U.S. Circuit Court of Appeals in San Francisco has ruled in favor of allowing a company to limit their employees' future job choices, as long as it doesn't prevent them from working in the same field.

Thursday's ruling was a response to the Edwards vs. Arthur Andersen case, stating clearly that Edwards, a tax manager, signed an invalid noncompete clause. The court said in its final disposition (see PDF) that "Non-competition agreements are invalid...in California even if narrowly drawn."

 

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