In 2008, the California Supreme Court decided Edwards v. Arthur Anderson LLP, 44 Cal.4th 937 (2008) ("Edwards"), which signaled the death knell for customer non-solicits in California. The Supreme Court found such clauses to be void and contrary to the public policy of the State under Business & Professions Code ("B&P") § 16600 as contractual restraints on competition. The Supreme Court held that there were no exceptions to B&P § 16600, which renders void "every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind" other than the statutory exceptions set forth in connection with the sale or dissolution of corporations (§ 16601), partnerships (§ 16602), and limited liability corporations (§ 16602.5).
Although, in Edwards, the Supreme Court expressly did not address the applicability of the "so-called" trade secret exception to § 16600, one court, in dicta, expressed doubt about "the continued viability of the common law trade secret exception to covenants not to compete." Dowell v. Biosense Webster Inc., 179 Cal.App.4th 564, 577 (2009).
Based on Edwards's expansive interpretation of B&P § 16600, any covenant not to solicit may be found to be a violation of California public policy. Likewise, a confidentiality agreement that purports to prohibit an employee from using company information described as confidential or a trade secret, but which does not meet the factual definition of "protectable confidential information" or a "trade secret," may be found to be an unlawful restraint of trade and a violation of California public policy.
Agreements that violate State public policy impose significant risks. An employer that terminates an employee because he or she has refused to sign an agreement that violates public policy will be liable for wrongful termination in violation of public policy, and the company could be subjected to tort damages, including punitive damages, among other remedies. Richard D'SA v. Playhut, Inc., 85 Cal App. 4th 927 (2000). There is also potential liability if an employer does not hire an employee who refuses to sign an agreement that violates the public policy or if an employer interferes with an employee's subsequent employment by asserting that the employee has signed an agreement that violates California public policy.
Since an employer's legitimate trade secrets are protected pursuant to the Uniform Trade Secrets Act (California Civil Code § 3426, et. seq.) and under statutory and common law unfair competition law – irrespective of whether the employee has signed a non-solicitation covenant – there is no compelling legal benefit to have a California employee sign an agreement that violates the public policy of the State. Employers with California operations should review their current employment agreements, confidentiality agreements, and non-solicitation agreements to determine whether they violate public policy, and should consider their actions carefully before taking any adverse employment action against an employee based on the employee's refusal to sign an employment agreement containing a non-solicitation provision, or any agreement with an overly expansive "confidentiality" or "trade secrets" definition.