Supreme Court of California Justia
Citation 44 Cal. 4th 937, 189 P.3d 285, 81 Cal. Rptr. 3d 282

Edwards v. Arthur Andersen

Filed 8/7/08

IN THE SUPREME COURT OF CALIFORNIA

RAYMOND EDWARDS II,
Plaintiff and Appellant,
S147190
v.
Ct.App. 2/3 B178246
ARTHUR ANDERSEN LLP,
Los Angeles County
Defendant and Respondent.
Super. Ct. No. BC 294853

We granted review to address the validity of noncompetition agreements in
California and the permissible scope of employment release agreements. We
limited our review to the following issues: (1) To what extent does Business and
Professions Code section 166001 prohibit employee noncompetition agreements;
and (2) is a contract provision requiring an employee to release “any and all”
claims unlawful because it encompasses nonwaivable statutory protections, such
as the employee indemnity protection of Labor Code section 2802?
We conclude that section 16600 prohibits employee noncompetition
agreements unless the agreement falls within a statutory exception, and that a
contract provision whereby an employee releases “any and all” claims does not

1
All further unlabeled statutory references are to the Business and
Professions Code.

1


encompass nonwaivable statutory protections, such as the employee indemnity
protection of Labor Code section 2802. We therefore affirm in part and reverse in
part the Court of Appeal judgment.

FACTS
In January 1997, Raymond Edwards II (Edwards), a certified public
accountant, was hired as a tax manager by the Los Angeles office of the
accounting firm Arthur Andersen LLP (Andersen). Andersen’s employment offer
was made contingent upon Edwards’s signing a noncompetition agreement, which
prohibited him from working for or soliciting certain Andersen clients for limited
periods following his termination. The agreement was required of all managers,
and read in relevant part: “If you leave the Firm, for eighteen months after release
or resignation, you agree not to perform professional services of the type you
provided for any client on which you worked during the eighteen months prior to
release or resignation. This does not prohibit you from accepting employment
with a client. [¶] For twelve months after you leave the Firm, you agree not to
solicit (to perform professional services of the type you provided) any client of the
office(s) to which you were assigned during the eighteen months preceding release
or resignation. [¶] You agree not to solicit away from the Firm any of its
professional personnel for eighteen months after release or resignation.” Edwards
signed the agreement.
Between 1997 and 2002, Edwards continued to work for Andersen, moving
into the firm’s private client services practice group, where he handled income,
gift, and estate tax planning for individuals and entities with large incomes and net
worth. Over this period he was promoted to senior manager and was on track to
become a partner. In March 2002, the United States government indicted
Andersen in connection with the investigation into Enron Corporation, and in June
2


2002, Andersen announced that it would cease its accounting practices in the
United States. In April 2002, Andersen began selling off its practice groups to
various entities. In May 2002, Andersen internally announced that HSBC USA,
Inc. (a New York-based banking corporation), through a new subsidiary, Wealth
and Tax Advisory Services (WTAS), would purchase a portion of Andersen’s tax
practice, including Edwards’s group.
In July 2002, HSBC offered Edwards employment. Before hiring any of
Andersen’s employees, HSBC required them to execute a “Termination of Non-
compete Agreement” (TONC) in order to obtain employment with HSBC.
Among other things, the TONC required employees to, inter alia, (1) voluntarily
resign from Andersen; (2) release Andersen from “any and all” claims, including
“claims that in any way arise from or out of, are based upon or relate to
Employee’s employment by, association with or compensation from” defendant;
(3) continue indefinitely to preserve confidential information and trade secrets
except as otherwise required by a court or governmental agency; (4) refrain from
disparaging Andersen or its related entities or partners; and (5) cooperate with
Andersen in connection with any investigation of, or litigation against, Andersen.
In exchange, Andersen would agree to accept Edwards’s resignation, agree to
Edwards’s employment by HSBC, and release Edwards from the 1997
noncompetition agreement.
HSBC required that Andersen provide it with a completed TONC signed by
every employee on the “Restricted Employees” list before the deal went through.
At least one draft of the Restricted Employees list contained Edwards’s name.
Andersen would not release Edwards, or any other employee, from the
noncompetition agreement unless that employee signed the TONC.
3
Edwards signed the HSBC offer letter, but he did not sign the TONC.2 In
response, Andersen terminated Edwards’s employment and withheld severance
benefits. HSBC withdrew its offer of employment to Edwards.
PROCEDURAL HISTORY
On April 30, 2003, Edwards filed a complaint against Andersen, HSBC and
WTAS for intentional interference with prospective economic advantage and
anticompetitive business practices under the Cartwright Act (Bus. & Prof. Code,
§ 16720 et seq.). Edwards alleged that the Andersen noncompetition agreement
violated section 16600, which states “[e]xcept as provided in this chapter, every
contract by which anyone is restrained from engaging in a lawful profession,
trade, or business of any kind is to that extent void.” He further alleged that the
TONC’s release of “any and all” claims violated Labor Code sections 2802 and
2804, which make an employee’s right to indemnification from his or her
employer nonwaivable.
Edwards settled with all parties except Andersen. The trial court sustained
Andersen’s demurrer to Edwards’s Cartwright Act claim without leave to amend,
concluding Edwards lacked standing to bring the action. It then denied
Andersen’s subsequent motion for summary adjudication on Edwards’s intentional
interference with prospective economic advantage cause of action, after
concluding that triable issues of fact existed on the meaning of the agreements,
and whether the agreements protected trade secrets. The court then granted

2
Edwards’s reasons for refusing to sign the TONC included the fact that he
believed it required him to give up his right to indemnification, which he felt was
particularly important in light of the government’s investigation into the company.
Edwards also believed several of Andersen’s clients for whom he did work would
sue Andersen and name him as a defendant, and if that were the case he wanted to
ensure he retained his right to indemnification.
4


Andersen’s motion to sever trial on the issue of the enforceability of the
noncompetition agreement and the TONC. (Code Civ. Proc. §§ 598, 1048, subd.
(b).) The court dismissed all claims against Andersen, except for those relating to
intentional interference with prospective economic advantage, which it concluded
presented pure questions of law.
The trial court heard argument from both parties, but took no evidence.
The court determined all issues of law in favor of Andersen on the merits, and
entered judgment in its favor. The court specifically decided that (1) the
noncompetition agreement did not violate section 16600 because it was narrowly
tailored and did not deprive Edwards of his right to pursue his profession; and (2)
the TONC did not purport to waive Edwards’s right to indemnification. Thus,
requiring him to sign these documents was not unlawful. Edwards appealed the
trial court’s decision.
At issue in the Court of Appeal was one of the elements required to prove a
claim for intentional interference with prospective economic advantage. In order
to prove a claim for intentional interference with prospective economic advantage,
a plaintiff has the burden of proving five elements: (1) an economic relationship
between plaintiff and a third party, with the probability of future economic benefit
to the plaintiff; (2) defendant’s knowledge of the relationship; (3) an intentional
act by the defendant, designed to disrupt the relationship; (4) actual disruption of
the relationship; and (5) economic harm to the plaintiff proximately caused by the
defendant’s wrongful act, including an intentional act by the defendant that is
designed to disrupt the relationship between the plaintiff and a third party. (Korea
Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153-1154.) The
plaintiff must also prove that the interference was wrongful, independent of its
interfering character. (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11
Cal.4th 376, 392-393.) “[A]n act is independently wrongful if it is unlawful, that
5
is, if it is proscribed by some constitutional, statutory, regulatory, common law, or
other determinable legal standard. (Korea Supply, supra, 29 Cal.4th at p. 1159.)
At issue here is the third element of the tort. In the Court of Appeal,
Edwards argued the independently wrongful acts requirement in this case was met
in several ways that are pertinent here: (1) the noncompetition agreement was
illegal under section 16600, making Andersen’s demand that he give consideration
to be released from it against public policy; (2) the TONC’s additional release of
“any and all” claims constituted a waiver of his indemnity rights in violation of
Labor Code sections 2802 and 2804; and (3) the TONC’s nondisparagement
clause violated Labor Code section 1102.5.
In the published part of its opinion, the Court of Appeal held: (1) the
noncompetition agreement was invalid under section 16600, and requiring
Edwards to sign the TONC as consideration to be released from it was an
independently wrongful act for purposes of the elements of Edwards’s claim for
intentional interference with prospective economic advantage; (2) the TONC
purported to waive Edwards’s indemnification rights under the Labor Code and
was therefore in violation of public policy and an independently wrongful act; and
(3) the TONC’s nondisparagement provision did not violate Labor Code section
1102.5 and so was not an independently wrongful act. As initially discussed, we
limited our review to resolve the first two issues.
DISCUSSION
A. Section 16600
Under the common law, as is still true in many states today, contractual
restraints on the practice of a profession, business, or trade, were considered valid,
as long as they were reasonably imposed. (Bosley Medical Group v. Abramson
(1984) 161 Cal.App.3d 284, 288.) This was true even in California. (Wright v.
Ryder (1868) 36 Cal. 342, 357 [relaxing original common law rule that all
6
restraints on trade were invalid in recognition of increasing population and
competition in trade].) However, in 1872 California settled public policy in favor
of open competition, and rejected the common law “rule of reasonableness,” when
the Legislature enacted the Civil Code. (Former Civ. Code, § 1673, repealed by
Stats. 1941, ch. 526, § 2, p. 1847, and enacted as Bus. & Prof. Code, § 16600,
Stats. 1941, ch. 526, § 1, p. 1834; Bosley, supra, 161 Cal.App.3d at p. 288.)3
Today in California, covenants not to compete are void, subject to several
exceptions discussed briefly below.
Section 16600 states: “Except as provided in this chapter, every contract
by which anyone is restrained from engaging in a lawful profession, trade, or
business of any kind is to that extent void.” The chapter excepts noncompetition
agreements in the sale or dissolution of corporations (§ 16601), partnerships (ibid.;
§ 16602), and limited liability corporations (§ 16602.5). In the years since its
original enactment as Civil Code section 1673, our courts have consistently
affirmed that section 16600 evinces a settled legislative policy in favor of open
competition and employee mobility. (See D’sa v. Playhut, Inc. (2000) 85
Cal.App.4th 927, 933.) The law protects Californians and ensures “that every
citizen shall retain the right to pursue any lawful employment and enterprise of
their choice.” (Metro Traffic Control, Inc. v. Shadow Traffic Network (1994) 22
Cal.App.4th 853, 859.) It protects “the important legal right of persons to engage
in businesses and occupations of their choosing.” (Morlife, Inc. v. Perry (1997) 56
Cal.App.4th 1514, 1520.)

3
Prior to oral argument, we granted Andersen’s request that we take judicial
notice of various documents providing information on the history of section 16600
and its predecessor statutes. (Evid. Code, §§ 452, 453, 459.)
7


This court has invalidated an otherwise narrowly tailored agreement as an
improper restraint under section 16600 because it required a former employee to
forfeit his pension rights on commencing work for a competitor. (Muggill v.
Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242-243 (Muggill);
Chamberlain v. Augustine (1916) 172 Cal. 285, 289 [invalidating contract with
partial trade restriction].) In Muggill, the court reviewed an adverse judgment
against a company’s retired employee whose pension plan rights were terminated
after the former employee commenced work for a competitor. (Muggill, at p.
240.) The retired employee had sued the former employer, seeking declaratory
relief on the ground that the provision in the pension plan that terminated the
retirement payments because the retiree went to work for a competitor was
“against public policy and unenforceable.” (Ibid.) Muggill held that, with
exceptions not applicable here, section 16600 invalidates provisions in
employment contracts and retirement pension plans that prohibit “an employee
from working for a competitor after completion of his employment or imposing a
penalty if he does so [citations] unless they are necessary to protect the employer’s
trade secrets [citation].” (Muggill, at p. 242.) 4 In sum, following the Legislature,
this court generally condemns noncompetition agreements. (See, e.g., Armendariz
v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 123, fn. 12
[such restraints on trade are “illegal”].)
Under the statute’s plain meaning, therefore, an employer cannot by contract
restrain a former employee from engaging in his or her profession, trade, or

4
We do not here address the applicability of the so-called trade secret
exception to section 16600, as Edwards does not dispute that portion of his
agreement or contend that the provision of the noncompetition agreement
prohibiting him from recruiting Andersen’s employees violated section 16600.
8


business unless the agreement falls within one of the exceptions to the rule.
(§ 16600.) Andersen, however, asserts that we should interpret the term “restrain”
under section 16600 to mean simply to “prohibit,” so that only contracts that
totally prohibit an employee from engaging in his or her profession, trade, or
business are illegal. It would then follow that a mere limitation on an employee’s
ability to practice his or her vocation would be permissible under section 16600,
as long as it is reasonably based.
Andersen contends that some California courts have held that section 16600
(and its predecessor statutes, Civil Code former sections 1673, 1674, and 1675)
are the statutory embodiment of prior common law, and embrace the rule of
reasonableness in evaluating competitive restraints. (See, e.g., South Bay
Radiology Medical Associates v. Asher (1990) 220 Cal.App.3d 1074, 1080 (South
Bay Radiology) [§ 16600 embodies common law prohibition against restraints on
trade]; Vacco Industries, Inc. v. Van Den Berg (1992) 5 Cal.App.4th 34, 47-48
(Vacco) [§ 16600 is codification of common law reasonable restraint rule].)
Andersen claims that these cases show that section 16600 “prohibits only broad
agreements that prevent a person from engaging entirely in his chosen business,
trade or profession. Agreements that do not have this broad effect — but merely
regulate some aspect of post-employment conduct, e.g., to prevent raiding
[employer’s personnel] — are not within the scope of [s]ection 16600.”
As Edwards observes, however, the cases Andersen cites to support a
relaxation of the statutory rule simply recognize that the statutory exceptions to
section 16600 reflect the same exceptions to the rule against noncompetition
agreements that were implied in the common law. For example, South Bay
Radiology acknowledged the general prohibition against restraints on trade while
applying the specific partnership dissolution exception of section 16602 to the
facts of its case. (South Bay Radiology, supra, 220 Cal.App.3d at p. 1080.) In
9
that case, the covenant not to compete was set forth in a partnership agreement to
which appellant doctor was a party. When appellant’s partnership with several
other doctors dissolved due to his inability to work following an accident, he
challenged the noncompete clause. The court found the partnership exception to
section 16600 applicable. (South Bay Radiology, supra, at pp. 1078-1080.)
Vacco involved the sale of shares in a business, an exception to section
16600 found in section 16601. The Court of Appeal upheld an agreement not to
compete made by a terminated employee who had sold all of his stock in the
business for $500,000 prior to his termination. In applying the exception to
section 16600, the court held that section 16601 “permits agreements not to
compete made by a party selling the goodwill of a business or all of the shares of
stock in a corporation.” (Vacco, supra, 5 Cal.App.4th at p. 47.) As the present
Court of Appeal recognized, “Fairly read, the foregoing authorities suggest section
16600 embodies the original, strict common law antipathy toward restraints of
trade, while the section 16601 and 16602 exceptions incorporated the later
common law ‘rule of reasonableness’ in instances where those exceptions apply.”
We conclude that Andersen’s noncompetition agreement was invalid. As the
Court of Appeal observed, “The first challenged clause prohibited Edwards, for an
18-month period, from performing professional services of the type he had
provided while at Andersen, for any client on whose account he had worked
during 18 months prior to his termination. The second challenged clause
prohibited Edwards, for a year after termination, from ‘soliciting,’ defined by the
agreement as providing professional services to any client of Andersen’s Los
Angeles office.” The agreement restricted Edwards from performing work for
Andersen’s Los Angeles clients and therefore restricted his ability to practice his
accounting profession. (See Thompson v. Impaxx, Inc. (2003) 113 Cal.App.4th
1425, 1429 [distinguishing “trade route” and solicitation cases that protect trade
10
secrets or confidential proprietary information].) The noncompetition agreement
that Edwards was required to sign before commencing employment with Andersen
was therefore invalid because it restrained his ability to practice his profession.
(See Muggill, supra, 62 Cal.2d at pp. 242-243.)
B. Ninth Circuit’s Narrow-restraint Exception
Andersen asks this court to adopt the limited or “narrow-restraint”
exception to section 16600 that the Ninth Circuit discussed in Campbell v.
Trustees of Leland Stanford Jr. Univ. (9th Cir. 1987) 817 F.2d 499 (Campbell),
and that the trial court relied on in this case in order to uphold the noncompetition
agreement. In Campbell, the Ninth Circuit acknowledged that California has
rejected the common law “rule of reasonableness” with respect to restraints upon
the ability to pursue a profession, but concluded that section 16600 “only makes
illegal those restraints which preclude one from engaging in a lawful profession,
trade, or business.” (Campbell, supra, 817 F.2d at p. 502.) The court remanded
the case to the district court in order to allow the employee to prove that the
noncompetition agreement at issue completely restrained him from practicing his
“profession, trade, or business within the meaning of section 16600.” (Campbell,
at p. 503.)
The confusion over the Ninth Circuit’s application of section 16600 arose
in a paragraph in Campbell, in which the court noted that some California courts
have excepted application of section 16600 “ ‘where one is barred from pursuing
only a small or limited part of the business, trade or profession.’ ” (Campbell,
supra, 817 F.2d at p. 502.) The Ninth Circuit cited two California cases that it
believed may have carved out such an exception to section 16600. (See Boughton
v. Socony Mobil Oil Co. (1964) 231 Cal.App.2d 188 (Boughton) [interpreting deed
restriction on land use] and King v. Gerold (1952) 109 Cal.App.2d 316 (King)
[rejecting manufacturer’s argument that clause not to produce its product after
11
license expiration was not an illegal restraint under section 16600].) Andersen
relies on those cases, citing them as the underpinnings of the Ninth Circuit’s
exception to section 16600, and urges the court to adopt their reasoning here.
As the Court of Appeal observed, however, the analyses in Boughton and
King do not provide persuasive support for adopting the narrow-restraint
exception. In Boughton, the restriction was not upon the plaintiff’s practice of a
profession or trade, but took the form of a covenant in a deed to a parcel of land
that specified the land could not be used as a gasoline service station for a
specified time period. (Boughton, supra, 231 Cal.App.2d 188.) Because the case
involved the use of the land, section 16600 was not implicated. Of note is the fact
that Boughton relied on King, an unfair competition case in which the court
applied a trade secret exception to the statutory rule against noncompetition
clauses. (King, supra, 109 Cal.App.2d 316.) In King, the plaintiff was not simply
engaged in the manufacture and sale of goods (house trailers) but was allegedly
using a trailer design substantially similar to his former employer’s, the inventor
of the design. (Id. at p. 318.)
Andersen is correct, however, that Campbell has been followed in some
recent Ninth Circuit cases to create a narrow-restraint exception to section 16600
in federal court. For example, International Business Machines Corp. v. Bajorek
(9th Cir. 1999) 191 F.3d 1033, upheld an agreement mandating that an employee
forfeits stock options if employed by a competitor within six months of leaving
employment. General Commercial Packaging v. TPS Package (9th Cir. 1997)
126 F.3d 1131, held that a bargained-for contractual provision barring one party
from courting a specific named customer was not an illegal restraint of trade
prohibited by section 16600, because it did not “entirely preclude[]” the party
from pursuing its trade or business. (General Commercial Packaging v. TPS
Package, supra, 126 F.3d at p. 1133.)
12
Contrary to Andersen’s belief, however, California courts have not
embraced the Ninth Circuit’s narrow-restraint exception. Indeed, no reported
California state court decision has endorsed the Ninth Circuit’s reasoning, and we
are of the view that California courts “have been clear in their expression that
section 16600 represents a strong public policy of the state which should not be
diluted by judicial fiat.” (Scott v. Snelling and Snelling, Inc. (N.D.Cal. 1990) 732
F. Supp. 1034, 1042.)5 Section 16600 is unambiguous, and if the Legislature
intended the statute to apply only to restraints that were unreasonable or
overbroad, it could have included language to that effect. We reject Andersen’s
contention that we should adopt a narrow-restraint exception to section 16600 and
leave it to the Legislature, if it chooses, either to relax the statutory restrictions or
adopt additional exceptions to the prohibition-against-restraint rule under section
16600.
C. Contract Provision Releasing “Any and All” Claims
Edwards was not terminated from Andersen for refusing to sign the
noncompetition agreement. Rather, Andersen made it a condition of Edwards’s
obtaining employment with HSBC that Edwards execute the TONC, releasing
Andersen from, among other things, “any and all” claims, including “claims that
in any way arise from or out of, are based upon or relate to [Edwards’s]
employment by, association with or compensation from” Andersen. As the Court

5
As noted, the Ninth Circuit’s reading of Boughton, supra, 231 Cal.App.2d
188, and King, supra, 109 Cal.App.2d 316 may be the source of that Circuit’s
narrow-restraint exception to section 16600. We are not persuaded that Boughton
or King provides any guidance on the issue of noncompetition agreements, largely
because neither involved noncompetition agreements in the employment context.
However, to the extent they are inconsistent with our analysis, we disapprove
Boughton v. Socony Mobil Oil Co., supra, 231 Cal.App.2d 188, and King v.
Gerold, supra,
109 Cal.App.2d 316.
13


of Appeal held, to the extent Andersen demanded Edwards execute the TONC as
consideration for release of the invalid provisions of the noncompetition
agreement, it could be considered a wrongful act for purposes of his claim for
interference with prospective economic advantage. An employer “cannot lawfully
make the signing of an employment agreement, which contains an unenforceable
covenant not to compete, a condition of continued employment . . . . [A]n
employer’s termination of an employee who refuses to sign such an agreement
constitutes a wrongful termination in violation of public policy.” (D’Sa v.
Playhut, Inc., supra, 85 Cal.App.4th at p. 929.)
More importantly here, however, are the provisions of the TONC that
purport to release Andersen from liability for claims arising out of Edwards’s
employment with that company. These are the provisions that Edwards contested
in the appellate court. As is a fairly typical practice, at the time of his separation
from Andersen, Edwards was asked to execute a broad general release in
Andersen’s favor. Section (1)(d) of the TONC provided that Edwards must
release and discharge Andersen from “any and all actions, causes of action,
claims, demands, debts, damages, costs, losses, penalties, attorneys’ fees,
obligations, judgments, expenses, compensation or liabilities of any nature
whatsoever, in law or equity, whether known or unknown, contingent or
otherwise, that Employee now has, may have ever had in the past or may have in
the future against any of the Released Parties by reason of any act, omission,
transaction, occurrence, conduct, circumstance, condition, harm, matter, cause, or
thing that has occurred from the beginning of time up to and including the date
hereof, including, without limitation, claims that in any way arise from or out of,
are based upon or relate to Employee’s employment by, association with or
compensation from [Andersen] or any of its affiliated firms, except for claims (i)
arising out of [Andersen’s] obligations set forth in this agreement or (ii) for any
14
accrued and unpaid salary or other employee benefit or compensation owing to
Employee as of the date hereof.” The trial court concluded that on the issue of
waiver of indemnity, the TONC was a typical broad release that did not request
indemnity rights be waived. The court added that “the Labor Code pretty much
tells us that right can’t be waived. As a matter of law, any provision in the release
that attempts to waive it would be void.” The court concluded that it did not have
to reach the question because the release did not require Edwards to “give up his
rights as a matter of law.”
The Court of Appeal disagreed. It concluded that the TONC’s plain
language did indeed implicitly waive Edwards’s Labor Code section 2802,
subdivision (a), indemnity rights, and that Andersen could not make Edwards’s
future employment contingent on his waiving the statutorily mandated rights. As
we explain, we disagree with the Court of Appeal on this point.
Labor Code section 2802, subdivision (a), provides for an employee’s right
to indemnity. That subdivision reads: “An employer shall indemnify his or her
employee for all necessary expenditures or losses incurred by the employee in
direct consequence of the discharge of his or her duties, or of his or her obedience
to the directions of the employer, even though unlawful, unless the employee, at
the time of obeying the directions, believed them to be unlawful.”
Labor Code section 2804 voids any agreement to waive the protections of
Labor Code section 2802 as against public policy. Labor Code section 2804
provides, “Any contract or agreement, express or implied, made by any employee
to waive the benefits of this article or any part thereof, is null and void, and this
article shall not deprive any employee or his personal representative of any right
or remedy to which he is entitled under the laws of this State.” (Italics added.)
Courts have interpreted Labor Code section 2804 to apply to Labor Code section
2802, making all contracts that waive an employee’s right to indemnification null
15
and void. (See Liberio v. Vidal (1966) 240 Cal.App.2d 273, 276, fn. 1.) Thus,
indemnity rights are nonwaivable, and any contract that does purport to waive an
employee’s indemnity right would be contrary to the law and therefore unlawful to
that extent.6
“California has a strong public policy that favors the indemnification (and
defense) of employees by their employers for claims and liabilities resulting from
the employees’ acts within the course and scope of their employment.” (Chin et
al., Cal. Practice Guide: Employment Litigation (The Rutter Group 2007) ¶ 3:1, p.
3-1.) Labor Code section 2802 codifies this policy and gives an employee a right
to indemnification from his or her employer. (See Grissom v. Vons Companies,
Inc. (1991) 1 Cal.App.4th 52, 59-60 [the purpose of Lab. Code, § 2802 is “to
protect employees from suffering expenses in direct consequence of doing their
jobs”]; Janken v. GM Hughes Electronics (1996) 46 Cal.App.4th 55, 74, fn. 24
[Lab. Code, § 2802 “shows a legislative intent that duty-related losses ultimately
fall on the business enterprise, not on the individual employee”].)
Edwards asserts that the TONC’s language releasing “any and all” claims
encompassed his statutorily nonwaivable right to indemnification under Labor
Code section 2802, thus amounting to an independent wrongful act that would
support his intentional interference with prospective advantage claim. The Court
of Appeal agreed with Edwards, concluding that although the TONC did not
reference the right to indemnity, it did not have to because those rights were
“necessarily encompassed within the clear terms of the broad release.” The Court
of Appeal found it especially telling that Labor Code section 2802 requires
indemnification for “all necessary expenditures or losses incurred by the employee

6
Webster’s Collegiate Dictionary (1991) at page 1459 defines “unlawful” as
“not lawful; contrary to law; illegal.” (Italics added.)
16


in direct consequence of the discharge of his or her duties,” and that the TONC
waives claims for losses, costs, and expenditures “of any nature whatsoever.”
Although the Court of Appeal noted that the TONC did not expressly waive
Edwards’s indemnity rights, the court cited Bardin v. Lockheed Aeronautical
Systems Co. (1999) 70 Cal.App.4th 494, 505 (Bardin), for the rule that “[a]
broadly worded release covers all claims within the scope of the language, even if
the particular claim is not expressly listed.” In Bardin, the appellant, Bethany
Bardin, applied for a job with the Los Angeles Police Department (LAPD). The
LAPD performed an investigation into Bardin’s background, in the course of
which it obtained information from her former employer, Lockheed Martin
Corporation (Lockheed). (Id. at pp. 497-498) When applying to the LAPD,
Bardin signed a “Release and Waiver” form that “released any former employer
from ‘any or all liability for damage of whatever kind, which may at any time
result to [appellant], . . . because of compliance with this authorization and request
to release information . . . .’ ” (Id. at p. 498.) When the LAPD did not offer her a
job, Bardin sued Lockheed, claiming it provided the LAPD with misleading
negative information that caused the LAPD to reject her employment application.
(Id. at pp. 498-499.) Bardin claimed that the release did not “expressly release
respondents from disseminating false or baseless statements,” but the court
disagreed, finding that the release “broadly and unambiguously releases a former
employer ‘from any and all liability for damage of whatever kind . . . .’ ” (Id. at p.
505.)
The language “any and all” is common to both the release in Bardin and the
release in the present case (and is common to most release agreements). In
addition, the remaining language in both releases is generally similar. But the
rights being released in each are entirely different. Unlike the rights at issue in
Bardin, the indemnity rights in the present case are nonwaivable under Labor
17
Code section 2802, and any waiver that attempts to waive those rights is unlawful.
Therefore, the fact that we must interpret those rights as within the scope of the
phrase “any and all,” makes Bardin inapposite here.
In contrast to Bardin, the TONC at issue here expressly excepted two types
of claims from release. The first were claims arising from the TONC itself. The
second was for “any accrued and unpaid salary or other employee benefit or
compensation owing to Employee as the date hereof.” The Court of Appeal
believed that indemnity rights did not fall within either of these exceptions, and
even if the right to indemnification did qualify as compensation, the release
remained invalid because its exception applied only to compensation owed as of
the date of the agreement, a clause that would have improperly waived Edwards’s
right to future indemnity claims under Labor Code section 2802. The court also
noted that because the release expressly excepted two types of claims, but did not
expressly exempt indemnification rights, the release intended to waive those
rights. As we explain, under Labor Code section 2802, a contract provision
releasing “any and all” claims generally does not encompass nonwaivable
statutory protections, and in particular does not implicitly apply to an employee’s
right to indemnification from the employer.
“Where the language of a contract is clear and not absurd, it will be
followed. [Citations.] But if the meaning is uncertain, the general rules of
interpretation are to be applied.” (1 Witkin, Summary of Cal. Law (10th ed. 2005)
Contracts, § 741; Civ. Code, §§ 1637, 1638; see also Sierra Vista Regional
Medical Center v. Bontá (2003) 107 Cal.App.4th 237, 245-246.) Here the
meaning is in dispute and uncertain; we must therefore decide what the phrase
“any and all” means. “If a contract is capable of two constructions courts are
bound to give such an interpretation as will make it lawful, operative, definite,
reasonable and capable of being carried into effect . . . .” (Rodriguez v. Barnett
18
(1959) 52 Cal.2d 154, 160; see also Jones v. Humanscale Corp. (2005) 130
Cal.App.4th 401, 411; Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, 278;
Civ. Code, §§ 3541 [“[a]n interpretation which gives effect is preferred to one
which makes void”], 1643 [“[a] contract must receive such an interpretation as
will make it lawful, operative, definite, reasonable, and capable of being carried
into effect”].)
The TONC did not expressly reference indemnity rights, and we should not
read it as encompassing a waiver of Edwards’s indemnity rights. Giving the
TONC such a reading is consistent with the tenets of contractual interpretation
because it makes the contract lawful, valid and capable of being carried into effect.
In addition, our conclusion makes it unnecessary to insert additional language or
terms into the contract, which is consistent with Code of Civil Procedure section
1858 and its mandate that when courts construe an instrument, a judge is “not to
insert what has been omitted, or to omit what has been inserted . . . .” “[I]t is one
of the cardinal rules of interpreting an instrument to give it such construction as
will make it effective rather than void.” (Toland v. Toland (1898) 123 Cal. 140,
143.) We apply this rule in holding that a contract provision releasing “any and
all” claims, such as that used in the TONC in the present case, does not encompass
nonwaivable statutory protections, such as the employee indemnity protection of
section Labor Code 2802. In so holding, we interpret the TONC such that it does
not violate Labor Code section 2804. As a consequence, the TONC is neither
unlawful nor null and void.
Even if we ignored the above principles of contract interpretation, we
would still find that releasing “any and all” claims does not implicate Edwards’s
nonwaivable right to indemnity. Andersen contends it did not except indemnity
rights from the release because it was aware that under Labor Code section 2804,
such rights are statutorily nonwaivable. Andersen asserts essentially that such an
19
exception was legally unnecessary. California case law arguably supports
Andersen’s contention. “ ‘ “[A]ll applicable laws in existence when an agreement
is made, which laws the parties are presumed to know and to have had in mind,
necessarily enter into the contract and form a part of it, without any stipulation to
that effect, as if they were expressly referred to and incorporated.” [Citation.]’ ”
(Torrance v. Workers’ Comp. Appeals Bd. (1982) 32 Cal.3d 371, 378, quoting
Alpha Beta Food Markets v. Retail Clerks Union (1955) 45 Cal.2d 764, 771.)
This means that when we interpret the TONC, we could presume that Andersen
knew Edwards’s indemnity rights were statutorily nonwaivable. It also means we
may treat the TONC as if it expressly includes the substance of Labor Code
section 2804: that no employee’s right to indemnification, to which he or she is
entitled under the law, can be waived. (Liberio v. Vidal, supra, 240 Cal.App.2d at
p. 276 & fn. 1.) Therefore, the waiver of “any and all” claims would not
encompass the right to indemnification, because we treat the TONC as expressly
incorporating the law that the employee cannot waive that right.7
Edwards suggests contract drafters could easily fix the overbroad release
problem by including the clause “except as otherwise prohibited by law” after
“any and all.” We fail to see what difference this would make. The phrase
“except as otherwise prohibited by law” is vague and essentially informs the
employee of nothing. In addition, it appears most practitioners already operate
with the understanding that the release does not encompass items “otherwise

7
Our holding that contracts ordinarily are presumed to incorporate statutory
requirements and that the TONC here was not per se unlawful, does not preclude
Edwards from offering proof on remand of facts that might prove the exception to
the general rule based on Andersen’s conduct. We express no opinion concerning
the merits of such a claim, which alleges a factual theory that is independent of the
legal theory the trial court resolved and that we review in this opinion.
20


prohibited by law.” If they do, they are null and void under the Labor Code.
Therefore, we believe that voiding all existing releases which include the language
“any and all” is inappropriate.
We conclude that a contract provision releasing “any and all” claims does
not encompass nonwaivable statutory protections, such as the employee indemnity
protection of Labor Code section 2802 and, accordingly, is not void under Labor
Code section 2804.
DISPOSITION

We hold that the noncompetition agreement here is invalid under section
16600, and we reject the narrow-restraint exception urged by Andersen.
Noncompetition agreements are invalid under section 16600 in California even if
narrowly drawn, unless they fall within the applicable statutory exceptions of
sections 16601, 16602, or 16602.5. In addition, we conclude that the TONC at
issue in this case did not purport to release Andersen from any nonwaivable
statutory claims and therefore is not unlawful under Labor Code sections 2802 and
2804.
We therefore affirm in part and reverse in part the Court of Appeal
judgment, and remand the matter for proceedings consistent with the views
expressed above.

CHIN, J.

WE CONCUR:

GEORGE, C.J.
BAXTER, J.
MORENO, J.
CORRIGAN, J.

21





CONCURRING AND DISSENTING OPINION BY KENNARD, J.

Plaintiff Raymond Edwards, a certified public accountant, was employed
by defendant Arthur Andersen in its Los Angeles office as a tax manager, and he
was eventually promoted to senior manager. When Edwards was hired in 1997,
Andersen insisted that he sign a noncompetition agreement that barred him from
leaving Andersen and (during the subsequent 18 months) performing the same
professional services for any of the same clients.
In the wake of the Enron scandal, Andersen sold its domestic accounting
practice to various purchasers. HSBC USA, Inc. (HSBC) agreed to purchase
Edwards’s practice group. As part of this purchase, employees in Edwards’s
practice group would resign from Andersen and they would be offered
employment at HSBC, where they would perform the same duties they had
previously performed at Andersen, but to do so, they first needed to sign a
“Termination of Non-compete Agreement” (TONC). The TONC was a general
release of claims against Andersen, in exchange for which Andersen would release
the employee from the noncompetition agreement, thereby freeing the employee to
advise the same clients on behalf of their new employer.
Edwards explains in his brief that he “was painfully aware that he was
exposed to potential liability by Andersen’s marketing of disallowed tax shelters,
and [therefore] he specifically raised the issue of waiver of his indemnification
rights when Andersen presented him with the release.” Andersen, however,
1



insisted that he sign the release. When Edwards refused to do so, Andersen
terminated him without paying severance benefits, and HSBC withdrew its offer
of employment.
Edwards sued Andersen, HSBC, and an HSBC subsidiary. After he settled
with HSBC and the subsidiary, and after the trial court sustained a demurrer to
Edwards’s claim under the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.),
his only remaining claim against Andersen was for intentional interference with
prospective economic advantage. One element of this tort is that the act of
interference be wrongful for a reason independent of the interference itself. (See
Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392-393.)
Among other things, Edwards asserted that the 1997 noncompetition agreement
was invalid under Business and Professions Code section 16600, and it was
therefore wrongful for Andersen to require him to sign the TONC as a condition
for releasing him from the invalid noncompetition agreement. Edwards also
asserted that releases of employee indemnity rights are “null and void” under
Labor Code sections 2802 and 2804, and it was therefore wrongful for Andersen
to include in the TONC a release of such rights.
The trial court held a bifurcated trial on the issue of the validity of the 1997
noncompetition agreement and the TONC. Without taking evidence, the court
found both agreements valid as a matter of law, and it granted judgment in favor
of Andersen. The Court of Appeal reversed, concluding that both the
noncompetition agreement and the TONC were invalid and that Andersen’s
actions were therefore wrongful.
The majority affirms in part and reverses in part the judgment of the Court
of Appeal. The majority agrees with the Court of Appeal that the noncompetition
agreement was invalid under Business and Professions Code section 16600 (maj.
opn., ante, at pp. 6-13) and concludes that “to the extent Andersen demanded
2

Edwards execute the TONC as consideration for release of the invalid provisions
of the noncompetition agreement, it could be considered a wrongful act for
purposes of his claim for interference with prospective economic advantage” (id.
at pp. 13-14). I agree.
The majority, however, disagrees with the Court of Appeal’s conclusion
that the TONC was invalid. (Maj. opn., ante, at pp. 13-21.) On this point, I
disagree with the majority.
The majority focuses on the TONC’s use of the words “any and all . . .
claims,” concluding that the phrase is ambiguous (maj. opn., ante, at p. 18) and
should be interpreted narrowly to make the release “valid and capable of being
carried into effect” (id. at p. 19). On that basis, the majority concludes that the
words “any and all” were not intended to encompass within the release’s scope
indemnity claims that under Labor Code sections 2802 and 2804 are not subject to
release. (Maj. opn., ante, at p. 19.) The majority finds persuasive Andersen’s
argument that the TONC did not need to include an express exception preserving
these indemnity claims because these indemnity rights are statutorily nonwaivable.
(Id. at pp. 19-20.) Thus, the majority reads the TONC “as if it expressly includes
the substance of Labor Code section 2804: that no employee’s right to
indemnification, to which he or she is entitled under the law, can be waived.”
(Maj. opn., ante, at p. 20.)
But the majority fails to analyze the language of the TONC that most
strongly supports Edwards’s argument. The TONC did not merely require
Edwards to release Andersen from “any and all” claims; it specifically required
Edwards to release Andersen from “any and all . . . losses [or] . . . expenses . . .
including . . . claims that . . . arise from . . . employment . . . .” (Italics added.)
This language closely tracks Labor Code section 2802, subdivision (a), which
requires an employer to indemnify an employee “for all necessary expenditures or
3

losses incurred by the employee in direct consequence of the discharge of his or
her duties . . . .” (Italics added.) Thus, although it is true that the TONC did not
use the words “indemnity claims” and did not mention Labor Code section 2802,
it unambiguously required Edwards to release the precise indemnity rights that
Labor Code section 2802 grants him.
Andersen argues in effect that the TONC was a standard release of “any
and all” claims, that the TONC failed to spell out a special exception preserving
indemnity claims, but that in light of Labor Code sections 2802 and 2804, the
exception was implied. That argument, however, mischaracterizes the TONC.
The TONC was not a vague general release whose only shortcoming was the
failure to include a special exception preserving indemnity claims; rather, the
TONC used language expressly releasing the precise indemnity claims that the
Labor Code preserves. Therefore, this court should not lightly dismiss the Court
of Appeal’s conclusion that Andersen may have wanted its employees to think
they had released their indemnity rights, although it knew that any release of such
rights was void. As the Court of Appeal explained, quoting from Latona v. Aetna
U.S. Healthcare Inc. (1999) 82 F.Supp.2d 1089, 1096: “ ‘[D]efendant’s argument,
that the Agreement cannot violate public policy because . . . it is simply a nullity,
ignores the realities of the marketplace. . . . Employees, having no reason to
familiarize themselves with the specifics of California’s employment law, will
tend to assume that the contractual terms proposed by their employer . . . are legal,
if draconian. . . . Thus, the in terrorem effect of the Agreement will tend to secure
employee compliance with its illegal terms in the vast majority of cases.’ ”
This latter point goes directly to the independent wrongfulness of
Andersen’s conduct, which is a critical issue for purposes of Edwards’s claim of
intentional interference with prospective economic advantage. Labor Code
section 2804 states that an agreement is “null and void” if it waives the indemnity
4

rights set forth in Labor Code section 2802, and it prescribes no other penalty.
Therefore, Andersen asserts that, even if the TONC is overbroad, Andersen’s
conduct in asking Edwards to sign the TONC was not wrongful; rather, the release
is merely “null and void” to the extent of its overbreadth. I disagree.
If Andersen had merely drafted a vague general release without specifically
describing indemnity claims, I would conclude, as does the majority, that
Andersen’s actions were taken in good faith and that the release’s broad language
should be read in light of existing law, making it “null and void” (Lab. Code,
§ 2804) to the extent the release’s provisions might be read to cover nonwaivable
rights. But instead Andersen drafted a release that expressly released specific
claims (employment-related losses and expenses) that Andersen knew were not
subject to release. As the Court of Appeal observed, Andersen’s actions suggest a
possible purpose of misleading employees into thinking they had waived rights
that could not be waived, thereby minimizing the number of indemnity claims
these employees might bring against Andersen.
In my view, Andersen’s insistence that Edwards sign the TONC was
sufficiently wrongful to support Edwards’s claim of intentional interference with
prospective economic advantage. I would therefore affirm the judgment of the
Court of Appeal in its entirety.
KENNARD,
J.
I CONCUR:
WERDEGAR, J.
5

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Edwards v. Arthur Andersen LLP
__________________________________________________________________________________

Unpublished Opinion


Original Appeal
Original Proceeding
Review Granted
XXX 142 Cal.App.4th 603
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S147190
Date Filed: August 7, 2008
__________________________________________________________________________________

Court:

Superior
County: Los Angeles
Judge: Andria K. Richey

__________________________________________________________________________________

Attorneys for Appellant:

Law Offices of Richard A. Love, Richard A. Love, Beth A. Shenfeld; Greines, Martin, Stein & Richland,
Marc J. Poster and Robin Meadow for Plaintiff and Appellant.

Kastner Banchero, Eric C. Kastner and Scott R. Raber as Amici Curiae on behalf of Plaintiff and
Appellant.

Feldman Gale, James A. Gale, Todd M. Malynn and Michael J. Weber for St Jude Medical, S.C., Inc.,
Pacesetter, Inc., and Advanced Bionics Corporation as Amici Curiae on behalf of Plaintiff and Appellant.

Law Offices of Jeffery K. Winikow and Jeffrey K. Winikow for California Employment Lawyers
Association as Amicus Curiae on behalf of Plaintiff and Appellant.

Mark A. Lemley; Morrison & Foerster and James Pooley for Professors and Writers of Learned Treatises
as Amicus Curiae on behalf of Plaintiff and Appellant.

__________________________________________________________________________________

Attorneys for Respondent:

Latham & Watkins, Wayne S. Flick, Yury Kapgan, Kristine L. Wilkes, Colleen C. Smith, Shireen M.
Becker; and Sharon A. McFadden for Defendant and Respondent.

Paul, Hastings, Janofsky & Walker, Paul Grossman and Jennifer S. Baldocchi for California Employment
Law Council and Activision, Inc., as Amici Curiae on behalf of Defendant and Respondent.

O’Melveny & Myers, Scott H. Dunham and Christopher W. Decker for Employers Group as Amicus
Curiae on behalf of Defendant and Respondent.



Counsel who argued in Supreme Court (not intended for publication with opinion):

Richard A. Love
Law Offices of Richard A. Love
11601 Wilshire Boulevard, Suite 2000
Los Angeles, CA 90025-1756
(310) 477-2070

Wayne S. Flick
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
(213) 485-1234


Petition for review after the Court of Appeal affirmed in part and reversed in part the judgment in a civil action. This case presents the following issues: (1) Is a non-competition agreement between an employer and an employee that prohibits the employee from performing services for former clients invalid under Business and Professions Code section 16600, unless it falls within the statutory or judicially-created trade secrets exceptions to the statute? (2) Does a contract provision releasing "any and all" claims the employee might have against the employer encompass non-waivable statutory protections, such as the employee indemnity protection of Labor Code section 2802?

Opinion Information
Date:Citation:Docket Number:Category:Status:Cross Referenced Cases:
Thu, 08/07/200844 Cal. 4th 937, 189 P.3d 285, 81 Cal. Rptr. 3d 282S147190Review - Civil Appealclosed; remittitur issued

RABY v. ARTHUR ANDERSEN LLP (S140841)
ALLIANCE PAYMENT SYSTEMS v. WALCZER (S155066)


Parties
1Arthur Andersen, Llp (Defendant and Respondent)
Represented by Wayne Scott Flick
Latham & Watkins
355 S Grand Avenue
Los Angeles, CA

2Arthur Andersen, Llp (Defendant and Respondent)
Represented by Kristine L. Wilkes
Latham & Watkins
600 W. Broadway, Suite 1800
San Diego, CA

3Edwards, Raymond (Plaintiff and Appellant)
Represented by Richard A. Love
Attorney at Law
5900 Wilshire Boulevard, 12th floor
Los Angeles, CA

4Edwards, Raymond (Plaintiff and Appellant)
Represented by Marc Joseph Poster
Greines Martin et al., LLP
5900 Wilshire Boulevard, 12th floor
Los Angeles, CA

5Kastner Banchero, Llp (Amicus curiae)
Represented by Eric C. Kastner
Kastner Banchero, LLP
2465 E. Bayshore Road, Suite 405
Palo Alto, CA

6Kastner Banchero, Llp (Amicus curiae)
Represented by Scott Robert Raber
Kastner Banchero, LLP
20 California Street, 7th Floor
San Francisco, CA

7Law Professors & Writers Of Learned Treatises (Amicus curiae)
Represented by James Henry A. Pooley
Morrison & Foerster, LLP
755 Mill Page Road
Palo Alto, CA

8Law Professors & Writers Of Learned Treatises (Amicus curiae)
Represented by Mark Alan Lemley
Stanford University School of Law
559 Nathan Abbott Way
Stanford, CA

9California Employment Law Council (Amicus curiae)
Represented by Jennifer Stivers Baldocchi
Paul Hastings et al., LLP
515 S. Flower Street, 25th Floor
Los Angeles, CA

10St. Jude Medical S.C., Inc. (Amicus curiae)
Represented by Todd Matthew Malynn
Feldman Gale, P.A.
880 W. First Street, Suite 315
Los Angeles, CA

11California Employment Lawyers Association (Amicus curiae)
Represented by Jeffrey Keith Winikow
Attorney at Law
1801 Century Park East, Suite 1520
Los Angeles, CA

12Employers Group (Amicus curiae)
Represented by Scott H. Dunham
O'Melveny & Myers, LLP
400 S. Hope Street
Los Angeles, CA

13Pacesetter, Inc. (Amicus curiae)
Represented by Todd Matthew Malynn
Feldman Gale, P.A.
880 W. First Street, Suite 315
Los Angeles, CA

14Advanced Bionics Corporation (Amicus curiae)
Represented by Todd Matthew Malynn
Feldman Gale, P.A.
880 W. First Street, Suite 315
Los Angeles, CA

15Activision, Inc. (Amicus curiae)
Represented by Jennifer Stivers Baldocchi
Paul Hastings et al., LLP
515 S. Flower Street, 25th Floor
Los Angeles, CA


Disposition
Aug 7 2008Opinion: Affirmed in part/reversed in part

Dockets
Oct 10 2006Petition for review filed
  Respondent Arthur Andersen LLP
Oct 11 2006Received Court of Appeal record
 
Oct 31 2006Answer to petition for review filed
  appellant, Raymond Edwards II attorney, Beth A. Shenfeld, retained.
Nov 8 2006Reply to answer to petition filed
  respondent, Arthur Andersen LLP
Nov 29 2006Petition for review granted (civil case)
  Votes: George, C. J., Kennard, Baxter, Werdegar, Chin, Moreno and Corrigan, JJ.
Dec 1 2006Request for extension of time filed
  Counsel for respondent requests extension of time to 1-29-07, to file the opening brief on the merits.
Dec 4 2006Association of attorneys filed for:
  attorneys of record for appellant Mark J. Poster, Esq., with the firm of Greines, Martin, Stein & Richland LLP,
Dec 11 2006Certification of interested entities or persons filed
  counsel for appellant Raymond Edwards attorney Richard A. Love
Dec 11 2006Certification of interested entities or persons filed
  counsel for respondent Wayne Scott Flilck of Latham & Watkins
Dec 12 2006Extension of time granted
  On application of respondent and good cause appearing, it is ordered that the time to serve and file the opening brief on the merits is extended to and including January 29, 2007.
Jan 17 2007Issues ordered limited
  In the matter of Raymond Edwards II v. Arthur Andersen LLP (S147190), review granted on November 29, 2006, the parties shall limit their briefing to the following issues: (1) To what extent does Business and Professions Code section 16600 prohibit employee noncompetition agreements; and (2) Does a contract provision releasing "any and all" claims encompass nonwaivable statutory protections, such as the employee indemnity protection of Labor Code section 2802? (See Cal. Rules of Court, rule 8.516(a)(1).) Moreno, J., was absent and did not participate.
Jan 26 2007Opening brief on the merits filed
  Respondent Arthur Andersen, LLP Attorney Wayne S. Flick
Feb 15 2007Request for extension of time filed
  Counsel for aplt. requests extension of time to March 27, 2007, to file the answer brief on the merits.
Feb 21 2007Request for judicial notice filed (granted case)
  counsel for respondent (Arthur Andersen)
Feb 22 2007Extension of time granted
  On application of appellant and good cause appearing, it is ordered that the time to serve and file the answer brief on the merits is extended to and including March 27, 2007.
Mar 27 2007Answer brief on the merits filed
  counsel for aplt.
Apr 13 2007Reply brief filed (case fully briefed)
  respondent Arthur Anderson
May 11 2007Received application to file Amicus Curiae Brief
  Employers Group in support of appellant Arthur Andersen LLP app/brief under same cover
May 11 2007Received application to file Amicus Curiae Brief
  California Employment Law Council and Activision, Inc., app/brief under same cover.
May 14 2007Received application to file Amicus Curiae Brief
  Kastner Bancherol LLP in support of respondent.
May 14 2007Received application to file Amicus Curiae Brief
  Law Professors and Writers of Learned Treatises in support of respondent.
May 14 2007Received application to file Amicus Curiae Brief
  S. Jude Medical, S.C., Inc., Pacesetter, Inc., and Advanced Bionics Corp.,
May 14 2007Received application to file Amicus Curiae Brief
  California Employment Lawyers Association [application/brief under same cover]in support of Appellant Raymond Edwards III
May 23 2007Permission to file amicus curiae brief granted
  California Employment Law Council in support of the respondent.
May 23 2007Amicus curiae brief filed
  The application of California Employment Law Council and Activision, Inc. for permission to file an amicus curiae brief in support of the respondent is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
May 23 2007Permission to file amicus curiae brief granted
  St. Jude Medical, S.C., Inc., Pacesetter, Inc., and Advanced Bionics Corporation in support of the appellant.
May 23 2007Amicus curiae brief filed
  The application of St. Jude Medical, S.C., Inc., Pacesetter, Inc., and Advanced Bionics Corporation for permission to file an amicus brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
May 23 2007Permission to file amicus curiae brief granted
  California Employment Lawyers Association in support of appellant.
May 23 2007Amicus curiae brief filed
  The application of California Employment Lawyers Assocation for permission to file an amicus curiae brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within twenty days of the filing of the brief.
May 23 2007Permission to file amicus curiae brief granted
  The Employers Group in support of appellant.
May 23 2007Amicus curiae brief filed
  The application of The Employers Group for permission to file an amicus curiae brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
May 23 2007Permission to file amicus curiae brief granted
  Law Professors and Writers of Learned Treatises in support of appellant.
May 23 2007Amicus curiae brief filed
  The application of Law Professors and Writers of Learned Treatises for permissionm to file an amicus curiae brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
May 23 2007Permission to file amicus curiae brief granted
  Kastner Banchero, LLP in support of appellant
May 23 2007Amicus curiae brief filed
  The application of Kastner Banchero, LLP for permission to file an amicus curiae brief in support of appellant is hereby granted. An answer thereto may be served and filed by any party within 20 days of the filing of the brief.
Jun 12 2007Response to amicus curiae brief filed
  to a.c brief of California Employment Law Council appellants Raymond Edwards II
Jun 12 2007Response to amicus curiae brief filed
  to a.c. brief of The Employers Group appellants Raymond Edward II
Apr 30 2008Case ordered on calendar
  to be argued on Tuesday, May 27, 2008, at 1:30 p.m., in San Francisco
May 1 2008Filed letter from:
  Wayne S. Flick, counsel for respondent Arthur Andersen, LLP, dated April 30, 2008, requesting continuance of oral argument to a later date.
May 2 2008Argument rescheduled
  The case has been moved from the late May calendar to the court's June calendar. It will now be argued on Wednesday, June 4, 2008, at 9:00 a.m., in Los Angeles.
May 9 2008Note: Mail returned and re-sent
  Oral argument calendar re-sent to Kristine L. Wilkes (counsel for Arthur Andersen, LLP) at address available on State Bar website (and now noted within case).
May 13 2008Note: Mail returned and re-sent
  Oral argument calendar re-sent to James Henry A. Pooley (counsel for amici Law Professors) at address available on State Bar website (and now noted within case).
May 27 2008Change of contact information filed for:
  counsel for aplt. Greines, Martin, Stein & Richland LLP. eff. 5-27-08
Jun 4 2008Cause argued and submitted
 
Jun 19 2008Change of contact information filed for:
  Attorney Wayne S. Flick Counsel for Respondent Arthur Andersen LLP
Aug 6 2008Notice of forthcoming opinion posted
 
Aug 7 2008Opinion filed: Affirmed in part, reversed in part
  We therefore affirm in part and reverse in part the Court of Appeal judgment, and remand the matter for proceedings consistent with the views expressed above. OPINION BY: Chin, J. --- joined by: George, C.J., Baxter, Moreno, and Corrigan, JJ. CONCURRING AND DISSENTING OPINION BY: Kennard, J. --- joined by: Werdegar, J.
Sep 9 2008Remittitur issued (civil case)
 
Sep 15 2008Received:
  Receipt for remittitur from Second Appellate District, Division three.

Briefs
Jan 26 2007Opening brief on the merits filed
 
Mar 27 2007Answer brief on the merits filed
 
Apr 13 2007Reply brief filed (case fully briefed)
 
May 23 2007Amicus curiae brief filed
 
May 23 2007Amicus curiae brief filed
 
May 23 2007Amicus curiae brief filed
 
May 23 2007Amicus curiae brief filed
 
May 23 2007Amicus curiae brief filed
 
May 23 2007Amicus curiae brief filed
 
Jun 12 2007Response to amicus curiae brief filed
 
Jun 12 2007Response to amicus curiae brief filed
 
Nov 20 2006California Chamber of Commerce Amicus Brief
Aug 30 2006Court of Appeals Opinion
Oct 30 2006Answer to Petition for Review
Brief Downloads
application/pdf icon
Arthur Andersen Opening Brief on the Merits.pdf (2466857 bytes) - Arthur Andersen Opening Brief on the Merits
application/pdf icon
CA Chamber of Commerce Amicus Brief.pdf (1326941 bytes) - CA Chamber of Commerce Amicus Brief
application/pdf icon
Ct of Appeals Opinion.pdf (121011 bytes) - Ct of Appeals Opinion
application/pdf icon
Edwards Answer to Petition for Review.pdf (14299029 bytes) - Edwards Answer to Petition for Review
If you'd like to submit a brief document to be included for this opinion, please submit an e-mail to the SCOCAL website
Dec 12, 2008
Annotated by admin.ah

Written by: Mindy Haverson

CASE BACKGROUND:
Defendant Arthur Andersen hired plaintiff Raymond Edwards II, a certified public accountant, to work as a tax manager in its Los Angeles office in 1997. As a condition of his employment, Edwards signed a non-compete agreement that prohibited him from performing services for clients with whom he had worked at Arthur Andersen for 18 months after leaving the firm and from soliciting former clients for 12 months after leaving the firm. Following the Enron scandal, Andersen sold off parts of its accounting practice, and the U.S. arm of HSBC purchased Edwards’s practice group. In order to commence employment with HSBC, former Andersen employees were required to sign a “Termination of Non-Compete Agreement” (TONC) that released “any and all” claims against Andersen. In return, Andersen released employees from their obligations under the non-compete agreement so that employees could continue to service their clients. Edwards, fearing liability from his involvement with Andersen, did not want to waive his indemnification rights pursuant to the “any and all” claims release. When Edwards refused to sign the TONC, Andersen terminated him without severance benefits, and HSBC revoked its employment offer. Edwards subsequently brought suit.

PROCEDURAL HISTORY:

  • Plaintiff Edwards filed a complaint alleging intentional interference with prospective economic advantage and anticompetitive business practices under the Cartwright Act on April 30, 2003. Edwards settled with all parties besides Arthur Andersen.
  • The trial court sustained Andersen’s demurrer to the Cartwright Act claim and concluded that Edwards lacked standing to bring the action, but denied Andersen’s motion for summary adjudication on the intentional interference claim. The trial court then heard arguments from both parties and decided all issues of law in Andersen’s favor.
  • The Court of Appeal held that the noncompetition agreement Edwards was forced to sign was invalid and affirmed in part, reversed in part, and remanded.
  • The Supreme Court and affirmed in part, reversed in part, and remanded the case.

WHY THIS CASE IS INTERESTING AND IMPORTANT:

  • This case is extremely significant for California employment law. California has long been known as a state in which non-compete agreements are void, and in Edwards v. Arthur Andersen, the Supreme Court not only held that the non-compete between Edwards and his employer was invalid, but also overruled the “narrow restraint” exception to the general rule against non-competes that had previously been upheld by the Ninth Circuit.
  • This case is also interesting because its context of corporate scandal resonates with the current financial crisis and the impact of negligence on the part of finance-related industries like credit rating agencies. 2002 was marked by corporate accounting scandals implicating companies such as Enron, Adelphia, WorldCom, and their external auditors, which preceded a downturn in the stock market. The Enron scandal led to the demise of Arthur Andersen, one of the “Big Five” accounting firms. Arthur Andersen, founded in 1913, was indicted and criminally convicted in 2002 and surrendered its Certified Public Accountants licenses. The firm thereby effectively relinquished its business, and the “Big Five” accounting firms were reduced to the “Big Four.”
Jan 9, 2009
Annotated by diana teasland

Written by Shawna M. Reeves

CASE BACKGROUND:
Arthur Andersen, LLP employed Raymond Edwards II, a certified public accountant, as a tax manager mainly in its Private Client Services practice group since 1997. When Andersen was indicted in connection with the Enron scandal in 2002, it ceased its accounting practices and sold off its practice groups. Edwards’ group was sold to HSBC USA, Inc. In order to be offered employment in HBSC, employees in this group were required to execute a Termination of Noncompete Agreement (TONC). Edwards refused to execute the TONC because he believed doing so would terminate his right to indemnification. As a result of Edwards’s noncompliance, Andersen terminated him and withheld severance benefits.

PROCEDURAL HISTORY:
Superior Court of Los Angeles County, No. BC294853 (Richey, J.):
Cartwright Act Claim: sustained Andersen’s demurrer because Edwards lacked standing.
Noncompetition Claim: held that the Andersen’s noncompetition agreement was valid under Cal. Bus. & Prof. Code § 16600 because it was narrowly tailored and did not deprive Edwards of his right to pursue his profession.
TONC Claim: held that the TONC did not purport to waive Edward’s right to indemnification and therefore that requiring Edwards to sign them was lawful.

Court of Appeal, 142 Cal. App. 4th 603 (Aldrich, J.): Cartwright Act Claim: upheld Andersen’s demurrer as properly sustained
Noncompetition Claim: held that the noncompetition agreement violated Bus. & Prof. Code § 16600
TONC Claim: held that requiring Edwards to sign the TONC was an independently wrongful act.

OPINION:
This decision arises out of an employee’s suit for intentional interference with prospective economic advantage and anticompetitive business practice under the Cartwright Act (Bus. & Prof. Code, § 16720 et seq). Specifically, Edwards alleged that Arthur Andersen’s noncompetition agreement violated Cal. Bus. & Prof. Code § 16600, that it’s Termination of Noncompete Agreement (TONC) violated Cal. Labor Code §§ 2802 and 2804, and that as a result of these independently wrongful acts, Arthur Andersen should be held liable for intentional interference. The California Supreme Court held that Andersen’s noncompetition agreement violated Bus. & Prof. Code § 16600, because it restrained Edwards’ ability to practice his profession and was not justified under the limited exceptions of §§ 16601-02.5. In doing so, the court abolished the notion that California courts had adopted a “narrow-restraint” exception. It further held that though the TONC presented a broad release of claims against Andersen, it did not, as a matter of standard contractual interpretation, require Edwards to release nonwaivable statutory claims of indemnity rights, and therefore did not violate Lab. Code §§ 2802 and 2804.

HOLDING:
The judgment of the intermediate appellate court was affirmed in part (regarding the Court of Appeal’s holding that the noncompetition agreement was invalid) and reversed in part (regarding the Court of Appeal’s judgment that the TONC was also invalid), and the matter was remanded for further proceedings.