California has long been known as a state that bans post-employment non-compete and customer non-solicitation agreements for its employees, absent very limited exceptions related to the sale of a business and trade secret protection. Employee non-solicitation provisions were believed to be the last post-employment restrictive covenant that California law still generally allowed, assuming they were properly drafted. Now, because of two recent California court decisions, even inclusion of limited employee non-solicitation provisions needs to be reconsidered.
The legal landscape until November 2018
Within its Business and Professions Code, California has a specific legislative ban on provisions that restrain anyone from engaging in their lawful profession. In 2008, the California Supreme Court in Edwards v. Arthur Andersen LLP specifically held that post-employment non-compete and customer non-solicitation provisions were disallowed under California law regardless of their scope or reasonableness. Because of the California Supreme Court’s silence as to employee non-solicitation provisions, the legal consensus has largely been that California decisions pre-Edwards, which allowed limited employee non-solicitation provisions, were likely still good law. In particular, the 1985 California Court of Appeals decision Loral Corp. v. Moyes allowed a one year post-employment employee non-solicitation provision. Therefore, these provisions have remained staples of California employment agreements.