Using Non-solicitation Agreements in California is Asking for Trouble!

California’s Public Policy in Favor of Employee Mobility

California is already famous for prohibiting most types of non-compete agreements. A recent Court of Appeals Case in the Golden State now imperils the use of non-solicitation agreements as well.

AMN Healthcare vs. Aya Healthcare Services is a case in which AMN attempted to enforce a contractual non-solicitation provision against some former employees.

At issue was whether California’s Business & Professions Code, Section 16600, prohibited the enforcement of the non-solicitation clause against the former employees.  The court ruled that it did.

Section 16600 provides, “… every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

Excerpts from the court’s published opinion:

1. “AMN and Aya are competitors in the business of providing, on a temporary basis, healthcare professionals, in particular ‘travel nurses,’ to medical care facilities throughout the country. Individual defendants were former ‘travel nurse recruiters’ of AMN who, for different reasons and at different times, left AMN and joined Aya, where they also worked as travel nurse recruiters.”

2. “As a condition of employment with AMN, individual defendants each signed a Confidentiality and Non-Disclosure Agreement (CNDA), which included a provision preventing individual defendants from soliciting any employee of AMN to leave the service of AMN for at least a one-year period. Significant in the instant case, a travel nurse was deemed to be an employee of AMN while on temporary assignment through AMN.”

3. “The CNDA also included a non-solicitation of employee provision: ‘Employee covenants and agrees that during Employee’s employment with the Company and for a period of twelve months after the termination of the employment relationship with the Company, Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company or any Company Affiliate to leave the service of the Company or such Company Affiliate.’”

4. “Turning to the instant case, we conclude that the non-solicitation of employee provision in the CNDA is void under section 16600. Indeed, the broadly worded provision prevents individual defendants, for a period of at least one year after termination of employment with AMN, from either “directly or indirectly” soliciting or recruiting, or causing others to solicit or induce, any employee of AMN. This provision clearly restrained individual defendants from practicing with Aya their chosen profession — recruiting travel nurses on 13-week assignments with AMN.”

Impact on Employers of California Residents

The clause in excerpt #1, above, is similar to clauses I have seen in agreements from all over the USA.

This case provides a real-life illustration of how California courts interpret the prohibition on contracts that restrain people from carrying on their trade or profession.

If you employ people who reside in California, please consult with a California-licensed attorney who understands this area of the law.  You may need to modify your business practices and some of your agreement forms as well.

Michael Oswald

michael@msochartered.com

www.msochartered.com

Please note: the above post contains educational information. It is not intended as legal advice. Engage an attorney who is licensed in your state to get advice on dealing with any specific legal issue.

© 2018 Michael S. Oswald

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