Court Says “No Way” To No-Hire

California is known for its hostility to covenants not to compete.  Legal antipathy to these kind of agreements didn’t start here, however. 

According to some, it began in Roman times.  Eugene McQuillen, Validity of Contracts in Restraint of Trade, The Am. L. Reg. 219 (April 1885).  The Dyer’s case, (1414) 2 Hen. V, fol. 5, pl. 26, is perhaps the earliest common law case dealing with that issue.  In that 15th century case, the defendant had entered into an apprenticeship agreement whereby his debt was to be forgiven if he did not engage in his trade for a half of a year.  The plaintiff, who apparently was a no-show at trial, filed an action and Judge Hull angrily responded with “A ma intent vous purres avec demurre sur ley que l’obligation est voide ce que le condition est encounter common ley et per Dieu se le plaintiff fuit icy il irra al prison tanque il ust fait fine au Roy (On my action, you could claim a demurrer, on the plea that the obligation is void, or that the contract is contrary to common law; and on Oath, if the plaintiff were present, he would be put in close confinement and pay a fine to the King) (emphasis added, translation by Thomas Tayler in The Law Glossary 27 (1877). 

California Business & Professions Code Section 16600 keeps the hate alive by providing that every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.   The legislature does make a few exceptions for non-compete agreements in connection with the sale or dissolution of a business. 

No one went to jail in Sricom, Inc. v. Ebislogic, Inc., 2012 U.S Dist. LEXIS 131082 (N.D. Cal. Sept. 13, 2012), but the contract wasn’t enforced either.  The case did not involve a direct covenant not to compete such as that at issue in the Dyer’s Case.  Rather, the plaintiff was attempting to enforce an agreement not to hire its consultants.  Citing the California Supreme Court’s reasoning in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), U.S. District Court Judge Lucy Koh  found that there was no room for a “rule of reasonableness” exception to Section 16600 for no-hire agreements.  Thus,the only question is whether under the literal terms of the statute “anyone is restrained from engaging in a lawful profession, trade, or business of any kind”.  Judge Koh found that the no-hire agreement unequivocally purports to restrain consultants from working directly with the defendants.  Therefore, Section 16600 voids the provision.

Why did Judge Hall write in French (or at least “law French”)?  At the time, trials in England were conducted in French (as a result of that suprise visit in 1066).  It wasn’t until the reign of Charles II that Parliament required that trials be conducted in English.  The 1632 Pleadings in English Act required that cases be “pleaded, shewed, defended, answered, debated and judged in the English Tongue” but that they be “entered and inrolled in Latin”.

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