In 2008, the California Supreme Court held that non-competition agreements between employers and employees are unenforceable under California law. Edwards v. Arthur Andersen LLP, 44 Cal.4th 937, 945 (2008). The reason being that California public policy and Business and Professions Code section 16600 provide for a broad right for individuals “to pursue any lawful employment and enterprise of their choice” which an employer does not have the right to restrain (except in limited exceptions). Id. at 946-47.
However, the law is not clear as to whether this applies to such agreements between businesses. In the case of Ixchel Pharma v. Biogen, 930 F.3d 1031 (9th Cir 2019), the U.S. Court of Appeals for the Ninth Circuit asked the California Supreme Court to answer one of two questions to clarify this point:
Does section 16600 of the California Business and Professions Code void a contract by which a business is restrained from engaging in a lawful trade or business with another business?
Although we have yet to receive the answer from the California Supreme Court, the answer to this question may directly effect the legality of existing non-competition agreements, as well as provide guidance on negotiations between businesses in the future.