While the Bratz case continues to dazzle onlookers, an interesting thing happened in a more low profile case. In Richmond Technologies, Inc. v. Aumtech Business Solutions, et al. [pdf], the Northern District of California issued an order granting in part the plaintiff’s motion for temporary restraining order. The court recognized that “the non-solicitation and non-interference provisions in the Non-Disclosure Agreement are likely to be found unenforceable under California law [Business and Professions Code section 16600],” because they are more broadly drafted than necessary to protect trade secrets. Despite that finding, the court granted injunctive relief based on the possibility that the agreement could be reformed to render it enforceable.
The Richmond Technologies decision reminds us that not so long ago, in Edwards v. Arthur Andersen, the California Supreme Court instructed the federal courts in California that they are not to create their own exceptions to section 16600, which provides that agreements restraining anyone from engaging in a lawful profession, trade or business are “to that extent void.” While it is widely accepted in California state and federal courts that agreements will not be reformed or offending provisions severed to render the agreement enforceable, the Richmond Technologies court was willing to consider just that.
More specifically, the court was willing to read the NDA’s term “technical knowhow” as a term that could be construed to mean trade secrets so that the NDA barred only competition using trade secrets. It also found that a clause prohibiting use of confidential information was likely enforceable to the extent that the confidential information is protectable as a trade secret. In short, the court was willing to read the NDA more narrowly than its express terms in order to find that there was the possibility, at least sufficient at the TRO stage of litigation, that the NDA could be enforced. Not long after the TRO issued, the case was voluntarily dismissed by the plaintiff, which suggested the case settled.
In a similar decision, also in the Northern District of California, the court in Thomas Weisel Partners LLC v. BNP Paribas denied the defendant’s motion to dismiss the breach of contract action because the agreement on which the plaintiff sued contained a no-hire agreement that rendered the entire agreement void and unenforceable. The court agreed with the defendant that the no-hire provision was unenforceable but rejected dismissal as a “harsh remedy.” Instead, the court applied section 16600 (and, specifically, its language stating that a contract that restrains trade is “to that extent void”) to find that only the no-hire clause was void and unenforceable. In other words, the court was willing to sever the offending provision in order to save the balance of the agreement because, in its view, to do otherwise would lead to “absurd and inequitable” results.
While these orders do not signal the end of California’s rule against reforming overly broad restrictive covenants, they do suggest that there may be hope for California employers who want to address a former employee’s breach of an agreement that may not squarely stand up to section 16600 in all respects.