California law strongly disfavors non-solicitation clauses, reflecting the state's deep commitment to employee mobility and open competition. Under California Business and Professions Code Section 16600, any contract that restrains someone from engaging in a lawful profession, trade, or business is generally void. This statutory provision reflects California's strong public policy favoring open competition and employee mobility. However, there are notable exceptions to this rule, which are crucial for legal practitioners to understand.

Key Case Law: AMN Healthcare and Edwards v. Arthur Andersen, LLP

Two pivotal cases illustrate the application of Section 16600: AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. and Edwards v. Arthur Andersen, LLP. In AMN Healthcare, the court invalidated a non-solicitation clause that restricted former employees from soliciting their former employer's clients. The court emphasized that such clauses are unenforceable unless they fall within a statutory exception.

Similarly, in Edwards v. Arthur Andersen, LLP, the California Supreme Court held that non-competition agreements are void unless they fit within a statutory exception. The court rejected the "narrow restraint" exception, affirming that Section 16600 invalidates any restraint on a person's ability to engage in their profession.

Exceptions to the Rule

While Section 16600 broadly invalidates non-solicitation clauses, there are specific exceptions where such clauses may be enforceable:

• Protection of Trade Secrets: Non-solicitation clauses may be upheld if they are necessary to protect trade secrets. Employers must demonstrate that the clause is essential to prevent the misuse of confidential information.
• Sale of a Business: Under California Business and Professions Code Sections 16601 and 16602, non-solicitation clauses may be enforceable in the context of the sale of a business. These provisions allow sellers to agree not to compete with the buyer, thereby protecting the buyer's investment.
• Dissolution of a Partnership: Section 16602.5 permits non-solicitation agreements in the context of partnership dissolution. This exception allows former partners to agree not to solicit the partnership's clients, ensuring a fair division of business interests.

Conclusion

Understanding the nuances of non-solicitation clauses in California is essential for legal professionals advising clients in employment and business transactions. While Section 16600 establishes a general rule of invalidity, the exceptions for trade secret protection, sale of a business, and partnership dissolution provide pathways for enforceability. Before including a non-solicitation clause, employers should consult legal counsel to determine if it can be enforced under California's strict legal framework.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.