Can You Enforce Your Non-Compete Clause?

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Employers should take a closer look at non-compete clauses in their employment agreements following the Central District of California’s decision earlier this month in Arkley v. Aon Risk Services Companies, Inc., (Case No. 2:12-cv-01966-DSF-RZ).  Arkley invalidated a non-compete clause in an employment contract under California law even though the contract contained a choice of law clause selecting Illinois law, which upholds such clauses.

Peter Arkley was CEO of Aon Risk Solution’s construction services group and left to join Alliant Insurance’s construction services group in 2011.   and two fellow defecting employees filed suit to prevent Aon from hindering their ability to work for their new employer.  Aon countered that its employment contracts had a provision preventing these employees from working at a competitor for two years.  Furthermore, Aon contended the non-compete clause was valid because the employment contracts contained a choice of law provision stating that Illinois law governed the agreements.  Illinois law, as opposed to California law, holds non-compete clauses valid in employment contracts.

Judge Fischer held that California law applied to the employment agreements because California’s “strong policy interest” in employee mobility outweighs Illinois’ stated interest of fostering predictability for companies.  The court further reasoned that California has a strong interest in “enforcing its laws to protect California-resident employees.”  The court acknowledged that the plaintiffs had many business connections with the state of Illinois.  However, because all three plaintiffs were residents of California and had their main offices in California before and after they switched jobs, the court held that California law applied to their employment contracts, making the non-compete clause invalid.

This case demonstrates that even a choice of law provision that selects a jurisdiction which upholds non-compete clauses may not make the clause enforceable, especially in California.