Although not directly holding non-solicitation agreements as illegal restraints of trade in violation of California law, two recent cases seem to be moving the Courts, and the law, in that direction.
In Donald Golden v. California Emergency Physicians Medical Group, et al., 896 F.3d 1018 (2018) the Ninth Circuit Court of Appeals held, if restrictions in a settlement agreement impose a “restraint of substantial character” on future employment, they run afoul of California Business and Professions Code Section 16600, as an illegal restraint upon a former employee even if they do not prevent the former employee from competing for business with the former employer.
The Court held that Section 16600 prevented any contract from imposing a “restraint of substantial character” on an individual’s employment, irrespective of whether it limited the individual’s ability to “compete”. The Appellate Court engaged in a de novo review of the lower court’s analysis of the degree to which the post-employment restrictions in the settlement agreement hampered plaintiff’s ability to practice medicine and reversed the lower court on the basis that the settlement agreement language clearly imposed a restraint of substantial character upon Dr. Golden’s ability to do so.
The Golden decision supports the view that, under Section 16600, post-employment restrictions will be considered to impose a “restraint of substantial character” on employment irrespective of their impact on the ability of the former employer to compete.
In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 2018 Cal. App. LEXIS 989 (Nov. 1, 2018), the Court of Appeal of California, Fourth Appellate District, also held that employee non-solicitation agreements are void under California Business and Professions Code Section 16600 when such agreements restrain an individual from practicing their chosen profession, and indicated, in dicta, that employee non-solicitation agreements may be void in general under Section 16600, regardless of the circumstances. However, the Court of Appeal stopped short of holding that all non-solicitation agreements are impermissible under California law. Yet, it expressed doubt over the continuing viability of older case law that applied a reasonableness standard to analyzing non-solicitation agreements.
California law has become extremely antithetical to non-solicitation agreements and companies should not assume they will be enforced by the Courts. Protection can still be provided through Trade Secret and Confidential Information Agreements that impose enforceable restrictions on former employees. If you are still using a non-solicitation agreement in your business, we suggest that you immediately contact your attorney to re-think your approach.
The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.
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