Contract analysis

I. Issue Presented AMA has requested that this firm analyze whether the restrictive covenant provisions contained in Section 9 of the Employment Agreement between AMA and Gavin Aldrich, dated September 5, 2017, as amended by the First Amendment to Employment Agreement dated August 1, 2020 (collectively, the "Employment Agreement"), are enforceable under California law. This memorandum addresses the enforceability of

II. Summary of Restrictive Covenant Provisions

Section 9 of the Employment Agreement contains four separate restrictive covenant provisions. For convenience, those provisions are summarized in the table below: The Employment Agreement was originally executed on September 5, 2017, in connection with Aldrich's hiring as Vice President of Unscripted Programming. On August 1, 2020, the parties executed the First Amendment to Employment Agreement in connection with Al

III. Analysis We address each of the four restrictive covenant provisions in turn, beginning with the provision most clearly vulnerable to challenge and concluding with the provision most likely to be enforced. A. Non-Competition Clause (§ 9.1) — Almost Certainly Void

1. Governing Statute: California Business & Professions Code § 16600 The analysis of the non-competition clause begins and, in large measure, ends with California Business & Professions Code Section 16600. Section 16600 provides, in its entirety: "Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void

2. Key Precedent: *Edwards v. Kraft Quill CPAs LLP* The controlling California Supreme Court decision on the enforceability of non-competition agreements in the employment context is Edwards v. Kraft Quill CPAs LLP (2008) 44 Cal.4th 937. In Edwards, the Court addressed the enforceability of a restrictive covenant contained in an employment agreement that prohibited the employee from working for a competing firm or so

3. Section 9.1 Is Clearly a Restraint on Competition Prohibited by § 16600

Section 9.1 of the Employment Agreement prohibits Aldrich from accepting employment with, rendering services to, or holding any ownership interest in any "Competing Enterprise" for a period of eighteen months following termination. The definition of "Competing Enterprise" is broad: it encompasses any entity that derives twenty-five percent (25%) or more of its annual gross revenue from the production, licensing, or d

4. Upcoming Legislation Reinforcing Public Policy Although not yet in effect at the time of Aldrich's termination or the filing of the Aldrich Action, two pieces of pending California legislation will further reinforce the public policy underpinning Section 16600 and the Edwards holding: Assembly Bill 1076 (AB 1076): Effective January 1, 2024, AB 1076 will add Section 16600.5 to the Business & Professions Code. Secti

5. Conclusion on § 9.1 The non-competition clause in Section 9.1 of the Employment Agreement is void and unenforceable under California Business & Professions Code Section 16600, as interpreted by the California Supreme Court in Edwards v. Kraft Quill CPAs LLP. No statutory exception to Section 16600 applies to Aldrich's employment relationship with AMA, and the clause constitutes a classic post-termination restraint

1. General Principle California courts have generally drawn a distinction between non-competition clauses (which restrain the departing employee from competing in his or her chosen profession) and employee non-solicitation clauses (which merely restrict the departing employee from affirmatively targeting and poaching the former employer's workforce). While the line between the two is not always bright, the prevailing

2. Favorable Authority The leading case supporting the enforceability of employee non-solicitation clauses in California is Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268. In Loral, the California Court of Appeal upheld a covenant that restricted a departing employee from soliciting the employer's employees to leave the employer's service. The court reasoned that such a restriction "does not prohibit [the departing e

3. Potentially Adverse Authority We note, however, that the enforceability of employee non-solicitation clauses in California is not entirely settled. In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923, the California Court of Appeal questioned whether broader employee non-solicitation clauses might run afoul of Section 16600 in certain contexts. In AMN Healthcare, the clause at issue

Section 9.2 of the Employment Agreement prohibits Aldrich from directly or indirectly soliciting, recruiting, inducing, or encouraging any AMA employee with whom Aldrich worked within the twelve months preceding termination to leave AMA's employment. The duration of the restriction is twenty-four months. We assess Section 9.2 as likely enforceable for the following reasons: Reasonable scope: The clause is limited to

Section 9.2 is likely enforceable under California law, though not entirely free from challenge in light of the uncertainty introduced by AMN Healthcare. We recommend that AMA assert Section 9.2 in any cross-complaint filed in the Aldrich Action and that AMA include the employee non-solicitation restriction as a key component of its settlement negotiation position. AMA should be prepared for the possibility that the

1. General Principle Customer or client non-solicitation clauses occupy a more uncertain position under California law than employee non-solicitation clauses. California courts have been increasingly skeptical of such clauses, particularly where they function as de facto non-competition provisions by effectively precluding the former employee from working in his or her industry. The distinction turns on the practical

2. Adverse Authority The principal adverse authority is The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226. In Galante, the Court of Appeal struck down a client non-solicitation clause as overly broad and unenforceable under Section 16600. The clause at issue prohibited the departing employee from soliciting any client of the employer for a specified period following termination. The court found that the cla

3. Favorable Authority On the other hand, some California courts have upheld narrowly drawn client non-solicitation provisions, particularly where the clause is limited to clients with whom the departing employee had a direct and substantial relationship and where the scope of the restriction does not foreclose the employee from competing generally. See, e.g., Marlowe Corporation v. Cascade Capital Markets (N.D. Cal.

Section 9.3 of the Employment Agreement prohibits Aldrich from directly or indirectly soliciting or diverting any business from any "network, platform, or advertiser client" of AMA with whom Aldrich had "material contact" during the twenty-four-month period immediately preceding termination. We assess this provision as moderately to significantly vulnerable to challenge under California law for the following reasons:

Section 9.3 is moderately to significantly vulnerable to challenge under California law. A California court may well conclude that the clause, as drafted and as applied to Aldrich's specific circumstances, functions as a de facto non-compete and is therefore void under Section 16600. The breadth of the client universe, the concentrated structure of the unscripted television content buyer market, and the twenty-four-m

1. General Principle Confidentiality obligations are analytically and legally distinct from non-competition and non-solicitation provisions. A confidentiality obligation does not restrain the employee from engaging in a lawful profession, trade, or business; it merely prohibits the employee from using or disclosing the former employer's proprietary and confidential information. As such, confidentiality provisions do

Section 9.4 of the Employment Agreement provides that Aldrich shall not, during or after his employment with AMA, directly or indirectly use or disclose any "Confidential Information" of AMA without the prior written consent of AMA's President or General Counsel. "Confidential Information" is defined to include: • Proprietary content, including content in development and pilot stages; • Show formats, including format

3. CUTSA — Independent Statutory Protection In addition to the contractual confidentiality obligation in Section 9.4, AMA has an independent statutory basis for protecting its trade secrets under the California Uniform Trade Secrets Act ("CUTSA"), California Civil Code Section 3426 et seq. CUTSA defines a "trade secret" as: "information, including a formula, pattern, compilation, program, device, method, technique, o

4. Enforceability Not Affected by Section 16600

Section 9.4 is not a "restraint" on employment within the meaning of Section 16600. It does not prevent Aldrich from working in the unscripted television industry, from competing with AMA, or from using his general skills, knowledge, and experience. It prohibits only the use or disclosure of specific proprietary information belonging to AMA. This distinction is well recognized in California law. Even if Section 9.1 (

Section 9.4 is enforceable under California law. It should serve as AMA's primary contractual basis for any cross-claims against Aldrich in the Aldrich Action. Combined with independent CUTSA trade secret misappropriation claims, Section 9.4 provides AMA with the strongest available foundation for protecting its legitimate business interests—the protection of its proprietary content, financial models, talent agreemen

IV. Summary of Conclusions The following table summarizes our enforceability assessment and recommendations for each of the four restrictive covenant provisions in Section 9 of the Employment Agreement:

V. Recommendations Based on the foregoing analysis, we offer the following specific recommendations:

1. Do not attempt to enforce § 9.1 (non-compete). The non-competition clause in Section 9.1 is almost certainly void under California Business & Professions Code Section 16600 and the California Supreme Court's decision in Edwards v. Kraft Quill CPAs LLP. Attempting to enforce this provision would not only be unsuccessful but would also affirmatively undermine AMA's credibility with the court—the Honorable Catherine

2. Assert § 9.2 (employee non-solicitation) and § 9.4 (confidentiality) as the primary restrictive covenant bases for cross-claims. These two provisions have the strongest legal foundation under California law and are most directly relevant to the conduct at issue. The employee non-solicitation provision protects AMA's legitimate interest in workforce stability, and the confidentiality provision protects AMA's propri

3. Assert CUTSA trade secret claims as an independent cause of action. The CUTSA trade secret misappropriation claims do not depend on the enforceability of any contractual provision in the Employment Agreement. Even if every provision in Section 9 were invalidated, AMA would retain the right to pursue injunctive relief, actual damages, and exemplary damages under CUTSA based on Aldrich's misappropriation of trade se

4. Be prepared to narrow or abandon § 9.3 (client non-solicitation) in settlement. While Section 9.3 may have some value as a negotiating chip, it is the most vulnerable of the four restrictive covenant provisions and is unlikely to survive judicial scrutiny in its current form, given the breadth of client coverage and the concentrated structure of the unscripted television content buyer market. In settlement discuss

5. Address the choice-of-law issue (§ 14.3) separately. The Employment Agreement contains a New York choice-of-law clause in Section 14.3, and Aldrich's counsel may argue that the restrictive covenants should be governed by New York law, which is more permissive of post-employment restraints than California law. The choice-of-law question is analyzed in detail in the companion memorandum dated December 22, 2022. In s

6. Monitor upcoming legislation and conduct a compliance audit. AB 1076 (adding Cal. Bus. & Prof. Code § 16600.5) and SB 699 (adding Cal. Bus. & Prof. Code § 16600.7), both effective January 1, 2024, will further strengthen California's prohibition on non-competition agreements and will impose new obligations on employers, including an affirmative notification requirement. In anticipation of these legislative changes

§ 9.1 — Non-Competition | Prohibits Aldrich from accepting employment with, rendering services to, or holding any ownership interest in any "Competing Enterprise" | 18 months following the date of termination (regardless of whether termination is for cause, without cause, or by resignation) | A "Competing Enterprise" is defined as any entity that derives twenty-five percent (25%) or more of its annual gross revenue f

§ 9.2 — Non-Solicitation of Employees | Prohibits Aldrich from directly or indirectly soliciting, recruiting, inducing, or encouraging any employee of AMA to leave AMA's employment | 24 months following the date of termination | Limited to AMA employees with whom Aldrich worked, collaborated, or had a reporting relationship at any time during the 12-month period immediately preceding the date of termination

§ 9.3 — Non-Solicitation of Business Relationships | Prohibits Aldrich from directly or indirectly soliciting or diverting any business from any network, platform, advertiser, or other client of AMA | 24 months following the date of termination | Limited to clients with whom Aldrich had "material contact" during the 24-month period immediately preceding the date of termination; "material contact" is defined as any in

§ 9.4 — Confidentiality | Prohibits Aldrich from using or disclosing any "Confidential Information" of AMA | Indefinite; survives termination of employment regardless of reason | Covers proprietary content (including development-stage and pilot-stage programming), show formats (including format bibles, pitch decks, and sizzle reels), revenue data, talent agreements, compensation structures, audience analytics, strate

§ 9.1 — Non-Competition (18 months) | Almost certainly void under Cal. Bus. & Prof. Code § 16600 and Edwards v. Kraft Quill CPAs LLP (2008) 44 Cal.4th 937. No statutory exception applies. | Do not attempt to enforce. Acknowledge unenforceability in settlement discussions to build credibility with opposing counsel and the court. Redirect enforcement strategy toward § 9.4 and CUTSA claims.

§ 9.2 — Employee Non-Solicitation (24 months) | Likely enforceable under Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, though subject to some uncertainty following AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (2018) 28 Cal.App.5th 923. Clause is reasonably narrow and does not function as a de facto non-compete. | Assert in cross-complaint and settlement negotiations. Be prepared for potential judicial narr

§ 9.3 — Business Non-Solicitation (24 months) | Vulnerable. Significant risk of being struck down as a de facto non-compete under The Retirement Group v. Galante (2009) 176 Cal.App.4th 1226, given the breadth of client coverage and the concentrated structure of the unscripted television buyer market. | Be prepared to narrow or abandon in settlement discussions. Do not rely as a primary enforcement tool in the cross-c

§ 9.4 — Confidentiality (indefinite) | Enforceable. Not a restraint on trade or employment under § 16600. Well within the scope of protectable interests. Supported by AMA's reasonable secrecy measures. | Primary contractual basis for cross-claims. Supplement with independent CUTSA trade secret misappropriation claims. Seek injunctive relief and damages.