Court Holds That An Employer May Rely On Employee's Promise Not To Compete
In Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), the California Supreme Court held that covenants not to compete were "invalid under section 16600 in California, even if narrowly drawn, unless they fall within the applicable statutory exceptions of section 16601, 16603, or 16602.5". Id. at 955. What has always troubled me about this statement is that none of the listed statutory exceptions concern an employee's agreement not to compete with his or her employer while employed.
Yesterday, the California Court of Appeal held that notwithstanding Edwards a promise not to compete with an employer while employed is not void. Techno Lite, Inc. v. Emcod, LLC, 2020 Cal. App. LEXIS 41. The case involved an appeal from the trial court's holding the defendants liable for fraud. The defendants argued that the false promise not to compete on which the fraud was based was void because it violated section 16600. Justice Nora M. Manella writing for the panel found it "obvious that no firmly established principle of public policy authorizes an employee to become his employer's competitor while still employed". Thus, "section 16600 is not an invitation to employees to bite the hand that feeds them."
Other portions of the Court of Appeal's opinion were not certified for publication and are subject to court rules limiting citation and reliance.