California Courts Nix Non-Solicitation Clauses in Employment Agreements

Non-solicitation clauses in California employment agreements have been deemed illegal in California per two recent court decisions. This includes out-of-state employers with California employees. Orange County employment attorneys are encouraging companies to review their employment agreements and consider removing non-solicitation clauses that may be in conflict with state law. California nonsolicitation agreements

Non-solicitation agreements are provisions in employment contracts (sometimes standalone contracts) wherein an employee agrees he or she will not try to solicit customers or clients of the employer for his or her personal benefit or for that of a competitor if/when he/she leaves the firm. Non-solicitation agreements can also encompass an employee’s agreement not to solicit other employees to leave once he/she quits.

Restrictive Covenants in California Labor Code

California has some of the strongest worker rights provisions in the country. For instance, California Business and Professions Code section 16600 states that all employment contracts that would keep anybody from engaging in a lawful profession, business or trade is void.

Courts in California have long held that it is against public policy to restrict former employees’ right to work for competitors. Further, state courts have soundly rejected the argument put forth by the inevitable disclosure doctrine, which asserts employees who immediately go work for a competitor is going to inevitably disclose or use trade secrets of the former employer. In the 2008 case of Edwards v. Arthur Andersen LLP, the California Supreme Court ruled previous workers are entitled to solicit the clients of former employers – assuming they don’t do so using their former employer’s trade secrets or confidential information while doing so.

This ruling marked a shift from the 1985 ruling by a California Court of Appeal in Loral Corp. v. Moyes, in which justices declined to void as unenforceable an employee agreement restriction indicating the employee was not allowed now or in the future to damage, interfere, impair or disrupt the business of the former employer by interfering with or “raiding” its employees, business relationships, agents, representatives, customers, vendors, etc. The clause created an express exception for being employed by or engaging with a competing business. The court didn’t expressly allow employment contracts with non-solicitation agreements, but rather ruled the one in question wasn’t an obvious, unenforceable restriction on fair trade. 

New Cases Underscore Bar to Non-Solicitation Agreements

In 2018, a California appellate court ruled in AMN Healthcare, Inc. v. Aya HealthCare Services, Inc., that a poorly-written employee non-solicitation clause was void because it was against public policy for the fact that it unlawfully restricted trade. The court was asked to determine whether an employer-drafted contractual provision barring workers from recruiting other employees for at least 18 months after their departure from the firm was lawful in accordance with public policy. A recruiter of traveling nurses had left the company and went to work for a competitor, soliciting two of the previous employer’s traveling nurses to work with the new company. Trial court granted summary judgment in favor of defendant former recruiter – and awarded attorney fees – as the non-solicitation agreement was unenforceable as a matter of public policy because it placed unreasonable restraint on trade. Recruiters are solicitors by nature of their trade.

Still, some wondered whether the ruling would be interpreted as solely applicable to the facts of the case in question, or if more broadly, solely to the recruiting profession.

This point was better clarified just last month in a ruling by the U.S. District Court for the Northern District of California in Barker v. Insight Global, LLC. This time, the court reached the same conclusion despite weighing different facts in the context of a different industry. In this case, the non-solicitation agreement barred employees from soliciting co-workers for competitor employment for a full year after leaving the company. As our Orange County employment attorneys understand, a former employee filed the California employment lawsuit alleging this non-solicitation agreement was void and unenforceable. The judge – reversing her own previous ruling in the case – stated she was swayed by the legal reasoning laid forth in AMN, which she said was solid interpretation of California law post-Edwards.

Contact the employment attorneys at Nassiri Law Group, practicing in Orange County, Riverside and Los Angeles. Call 949.375.4734.

Additional Resources:

AMN Healthcare, Inc. v. Aya HealthCare Services, Inc., Nov. 1, 2018, California Court of Appeal, Fourth Appellate District, Division One

More Blog Entries:

Orange County Employment Attorney Talks Claims for Employer Retaliation, Feb. 26, 2019, Orange County Employment Attorney Blog

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