Mergers & Acquisitions 2022 Annual Review

2022 M&A ANNUAL REVIEW agreements signed as a condition of employment in California to be governed by California law. However, Section 925 includes an exception, subsection (e), which, on its face, allows an employee who was represented by counsel to select another state’s law, which, in 47 of the remaining 49 states, would allow for greater enforceability. ■ In 2018, the Delaware Chancery Court invoked Section 925(e) to enforce a non-compete against a California executive on the basis of a Delaware choice of law provision, although the court reversed its decision after the executive presented evidence that he had not been represented by legal counsel. 7 ■ In 2021, the federal court for the Southern District of New York applied a Delaware choice of law provision over the objection of a California executive, where the court found the executive had been represented by legal counsel. 8 ■ While they did not actually apply a non-California state’s law to enforce the non-compete under Section 925(e), at least two California courts in 2022 issued rulings indicating that they may have done so if the evidence that the California executive was represented by counsel had been more persuasive. One of those courts, the Ninth Circuit Court of Appeals, found that a California employee who is represented by legal counsel “is free to negotiate whatever forum-selection clause they want.” 9 Dealmakers will need to review the scope of a target company’s non-competes… and consider whether other protections, such as an NDA or other long-term employment incentives, may be necessary or appropriate. 3 For further discussion, please see our client alerts, D.C. Council Waters Down Non-Compete Ban and Illinois Ushers in New Restrictions. 4 For further discussion, please see our client alert, FTC Proposes Sweeping Ban of Employee Non-Competes. 5 Kodiak Building Partners, LLC v. Adams (Del. Ch. Oct. 6, 2022); for a discussion, please see our client alert, Delaware Court Refuses to Enforce or Blue Pencil Sale of Business Non-compete. 6 Blue Mountain Enterprises, LLC. v. Owen , 74 Cal. App. 5th 537 (2022) and Arthur J. Gallagher & Co. v. Petree , 2022 WL 1241232 (E.D. Cal. Apr. 27, 2022). 7 Nuvasive, Inc. v. Miles (Del. Ch. 2019). 8 Perry v. Floss Bar, Inc. , 2021 U.S. Dist. LEXIS 43429 (S.D. N.Y. 2021). 9 Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp ., 28 F.4th 956, 964 (9th Cir. 2022). Read more about non-competes including the following recent client alerts: D.C. Council Waters Down Non-Compete Ban and Illinois Ushers in New Restrictions, FTC Proposes Sweeping Ban of Employee Non-Competes .