Edwards v. Arthur Andersen LLP

Raymond Edwards (plaintiff) was hired as a certified public accountant by Arthur Andersen LLP (Andersen) (defendant). Andersen required Edwards to sign a noncompetition agreement, which provided that if Edwards left Andersen, Edwards was prohibited from providing professional services for any client for whom he did work at Andersen for 18 months, as well as from providing professional services to any client of Andersen’s Los Angeles office for 12 months. In 2002, after Andersen was indicted by the United States government in connection with the Enron investigation, Andersen announced that it was selling its tax practice to HSBC USA, Inc. (defendant). HSBC offered Edwards a job but required him to sign a Termination of Non-Compete Agreement (TONC), pursuant to which Andersen would release Edwards from his noncompetition agreement if he released Andersen from any and all claims arising from his employment. Edwards did not sign the TONC. Andersen subsequently terminated Edwards's employment, and HSBC withdrew its job offer. Edwards sued Andersen and HSBC for intentional interference with prospective economic advantage and anti-competitive business practices. Edwards based his suit on California Business and Professions Code section 16600, which stated that except for noncompetition agreements in the sale or dissolution of corporations, partnerships, and limited liability corporations, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Edwards argued that his noncompetition agreement with Andersen restrained him from practicing his profession. Andersen argued that some California courts and the Ninth Circuit have interpreted section 16600 to prohibit only broad noncompetition agreements that entirely prohibit someone from engaging in his or her profession. Under that interpretation, Andersen asserted that the noncompetition agreement here was valid because it was not a broad prohibition and only restricted some of Edwards's conduct after he left his employment at Andersen. The trial court entered judgment in Andersen's favor, finding that the noncompetition agreement did not violate section 16600 because it was a narrow restriction that left Edwards with the ability to pursue his profession. The California Court of Appeal reversed, holding among other things that the noncompetition agreement was invalid under section 16600. Andersen appealed to the California Supreme Court.