Court Opinion

ID: 5452501
Source: CourtListenerOpinion
Date Created: 2022-01-08 19:18:54.228608+00
Date Added: 2024-06-11T08:32:30.587759
License: Public Domain

KENNARD, J., Concurring and Dissenting.
Plaintiff Raymond Edwards II, a certified public accountant, was employed by defendant Arthur Andersen LLP, in its Los Angeles office as a tax manager, and he was eventually promoted to senior manager. When Edwards was hired in 1997, Andersen insisted that he sign a noncompetition agreement that barred him from leaving Andersen and (during the subsequent 18 months) performing the same professional services for any of the same clients.
In the wake of the Enron scandal, Andersen sold its domestic accounting practice to various purchasers. HSBC USA, Inc. (HSBC), agreed to purchase Edwards’s practice group. As part of this purchase, employees in Edwards’s practice group would resign from Andersen and they would be offered employment at HSBC, where they would perform the same duties they had previously performed at Andersen, but, to do so, they first needed to sign a “Termination of Non-compete Agreement” (TONC). The TONC was a general release of claims against Andersen, in exchange for which Andersen would release the employees from the noncompetition agreement, thereby freeing the employees to advise the same clients on behalf of their new employer.
Edwards explains in his brief that he “was painfully aware that he was exposed to potential liability by Andersen’s marketing of disallowed tax shelters, and [therefore] he specifically raised the issue of waiver of his indemnification rights when Andersen presented him with the release.” Andersen, however, insisted that he sign the release. When Edwards refused to do so, Andersen terminated him without paying severance benefits, and HSBC withdrew its offer of employment.
Edwards sued Andersen, HSBC, and an HSBC subsidiary. After he settled with HSBC and the subsidiary, and after the trial court sustained a demurrer to Edwards’s claim under the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.), his only remaining claim against Andersen was for intentional interference with prospective economic advantage. One element of this tort is that the act of interference be wrongful for a reason independent of the interference itself. (See Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392-393 [45 Cal.Rptr.2d 436, 902 P.2d 740].) Among other things, Edwards asserted that the 1997 noncompetition agreement was invalid under Business and Professions Code section 16600, and it was therefore wrongful for Andersen to require him to sign the TONC as a condition for releasing him from the invalid noncompetition agreement. Edwards also asserted that releases of employee indemnity rights are “null and void” under Labor Code sections 2802 and 2804, and it was therefore wrongful for Andersen to include in the TONC a release of such rights.
*957The trial court held a bifurcated trial on the issue of the validity of the 1997 noncompetition agreement and the TONC. Without taking evidence, the court found both agreements valid as a matter of law, and it granted judgment in favor of Andersen. The Court of Appeal reversed, concluding that both the noncompetition agreement and the TONC were invalid and that Andersen’s actions were therefore wrongful.
The majority affirms in part and reverses in part the judgment of the Court of Appeal. The majority agrees with the Court of Appeal that the noncompetition agreement was invalid under Business and Professions Code section 16600 (maj. opn., ante, at pp. 945-950) and concludes that “to the extent Andersen demanded Edwards execute the TONC as consideration for release of the invalid provisions of the noncompetition agreement, such demand could be considered a wrongful act for purposes of his claim for interference with prospective economic advantage” (id. at p. 950). I agree.
The majority, however, disagrees with the Court of Appeal’s conclusion that the TONC was invalid. (Maj. opn., ante, at pp. 950-955.) On this point, I disagree with the majority.
The majority focuses on the TONC’s use of the words “any and all . . . claims,” concluding that the phrase is ambiguous (maj. opn., ante, at p. 953) and should be interpreted narrowly to make the release “valid and capable of being carried into effect” (id. at p. 954). On that basis, the majority concludes that the words “any and all” were not intended to encompass within the release’s scope indemnity claims that under Labor Code sections 2802 and 2804 are not subject to release. (Maj. opn., ante, at p. 954.) The majority finds persuasive Andersen’s argument that the TONC did not need to include an express exception preserving these indemnity claims because these indemnity rights are statutorily nonwaivable. (Id. at pp. 954-955.) Thus, the majority reads the TONC “as if it expressly includes the substance of Labor Code section 2804: that no employee’s right to indemnification, to which he or she is entitled under the law, can be waived.” (Maj. opn., ante, at pp. 954-955.)
But the majority fails to analyze the language of the TONC that most strongly supports Edwards’s argument. The TONC did not merely require Edwards to release Andersen from “any and all” claims; it specifically required Edwards to release Andersen from “any and all . . . losses [or] . . . expenses . . . including . . . claims that. . . arise from . . . employment. . . .” (Italics added.) This language closely tracks Labor Code section 2802, subdivision (a), which requires an employer to indemnify an employee “for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties . . . .” (Italics added.) Thus, although it is true that the TONC did not use the words “indemnity claims” *958and did not mention Labor Code section 2802, it unambiguously required Edwards to release the precise indemnity rights that Labor Code section 2802 grants him.
Andersen argues in effect that the TONC was a standard release of “any and all” claims and that the TONC failed to spell out a special exception preserving indemnity claims, but that in light of Labor Code sections 2802 and 2804, the exception was implied. That argument, however, mischaracterizes the TONC. The TONC was not a vague general release whose only shortcoming was the failure to include a special exception preserving indemnity claims; rather, the TONC used language expressly releasing the precise indemnity claims that the Labor Code preserves. Therefore, this court should not lightly dismiss the Court of Appeal’s conclusion that Andersen may have wanted its employees to think they had released their indemnity rights, although it knew that any release of such rights was void. As the Court of Appeal explained, quoting from Latona v. Aetna U.S. Healthcare Inc. (C.D.Cal. 1999) 82 F.Supp.2d 1089, 1096: “ ‘[Defendant’s argument, that the Agreement cannot violate public policy because ... it is simply a nullity, ignores the realities of the marketplace. . . . Employees, having no reason to familiarize themselves with the specifics of California’s employment law, will tend to assume that the contractual terms proposed by their employer ... are legal, if draconian. . . . Thus, the in terrorem effect of the Agreement will tend to secure employee compliance with its illegal terms in the vast majority of cases.’ ”
This latter point goes directly to the independent wrongfulness of Andersen’s conduct, which is a critical issue for purposes of Edwards’s claim of intentional interference with prospective economic advantage. Labor Code section 2804 states that an agreement is “null and void” if it waives the indemnity rights set forth in Labor Code section 2802, and it prescribes no other penalty. Therefore, Andersen asserts that, even if the TONC is over-broad, Andersen’s conduct in asking Edwards to sign the TONC was not wrongful; rather, the release is merely “null and void” to the extent of its overbreadth. I disagree.
If Andersen had merely drafted a vague general release without specifically describing indemnity claims, I would conclude, as does the majority, that Andersen’s actions were taken in good faith and that the release’s broad language should be read in light of existing law, making it “null and void” (Lab. Code, § 2804) to the extent the release’s provisions might be read to cover nonwaivable rights. But instead Andersen drafted a release that expressly released specific claims (employment-related losses and expenses) that Andersen knew were not subject to release. As the Court of Appeal *959observed, Andersen’s actions suggest a possible purpose of misleading employees into thinking they had waived rights that could not be waived, thereby minimizing the number of indemnity claims these employees might bring against Andersen.
In my view, Andersen’s insistence that Edwards sign the TONC was sufficiently wrongful to support Edwards’s claim of intentional interference with prospective economic advantage. I would therefore affirm the judgment of the Court of Appeal in its entirety.
Werdegar, J., concurred.