In the recently decided case of Edwards v. Arthur Andersen LLP, the California Court of Appeal may have dealt a death blow to the “narrow restraint” exception to California non-compete agreements, or noncompetition agreements.

In California, the general rule is that covenants not to compete are void under California Business and Professions Code Section 16600. However, the narrow restraint exception to non-compete agreements was developed primarily by the Ninth Circuit to allow certain noncompetition agreements to exist. In particular, noncompetition agreements which included a limited restriction and left a substantial portion of the market available to the employee were deemed to be valid in California. In very general terms, as long as the restriction was minimal on an employee’s ability to find work, a non-compete agreement would be valid under this “narrow restraint” exception.

The new holding from California’s Court of Appeal eliminates this “narrow restraint.”

Of course, Edwards does not remove the statutory exceptions to non-compete agreements: namely, where a person sells the goodwill of a business and where a partner agrees not to compete in anticipation of dissolution of a partnership. In these situations, the general concept is to prevent the business owner/seller/partner from reducing the value of the business sold by subsequently carrying on a new similar business.

So, what does IP have to do with all of this? Certain restrictive agreements always come into play between an employer and employee when IP is involved. For California employers and employees, it’s important to recognize that the Edwards case still leaves intact the trade secret exception to non-compete agreements. Therefore, in addition to the statutory exceptions discussed above, non-compete agreements in California may also be valid to the extent that protectable trade secrets are involved.

Whether a company has protectable trade secrets is a whole another issue, and various defenses are commonly used to argue that the alleged trade secret is really no secret at all.

For an expert on California labor and employment law, contact David Hagopian, one of the founding partners of Holdsworth & Hagopian.