California Court Blocks Use of Employee Non-Solicit Clause
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UPDATED: Dec 12, 2018
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A California Court of Appeal has affirmed a trial court ruling that invalidated an employer’s non-solicitation clause in its employment agreements and prohibited the employer from enforcing such clauses.
As the court noted, plaintiff AMN Healthcare and defendant Aya Healthcare are competitors in the business of providing temporary healthcare professionals, including “travel nurses,” to medical care facilities.
Additional defendants in the case were former travel nurse recruiters for AMN who left the company and joined Aya.
The recruiters had each signed a Confidentiality and Non-Disclosure Agreement (CNDA), which included a provision preventing them from soliciting any employee of AMN to leave the service of AMN for at least a one-year period after they left AMN.
Non-solicitation clauses are common in employment agreements, and are not to be confused with non-compete agreements.
I’ve discussed employee non-competes in several posts, including this one.
With common types of non-solicitation clauses, an employee (or former employee) is prohibited from trying to recruit other employees to join a new employer.
Some non-solicitation clauses also apply to clients, vendors, contractors, and others.
A non-compete clause, on the other hand, prohibits an employee from working for a competing company.
Breach of Contract
In the recent California case, AMN sued, claiming breach of contract and misappropriation of confidential information, including trade secrets.
AMN claimed that its former employees solicited and induced some travel nurses to leave AMN and go to work for Aya.
The defendants claimed that the non-solicitation provision was an improper restraint on the individual defendants’ ability to engage in their profession, in violation of California Business and Professions Code section 16600.
Restraint of Trade
Under this law,
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.
The court found that the non-solicitation provision was an unlawful restraint of trade in violation of section 16600 because it
prevented the individual defendants from engaging in their lawful trade or profession — soliciting and recruiting travel nurses on temporary assignment with AMN — for at least one-year posttermination.
The court noted that California has long had a strong public policy favoring employee mobility between jobs.
For example, employee non-competes are almost never enforced in California.
Non-solicit clauses in employment contracts are usually enforced by courts, including in California.
For example, in the case of Loral Corp. v. Moyes a California Court of Appeals found that an employment agreement that prohibited an employee or former employee from interfering with or “raiding” its employees was not “a significant restraint on his engaging in [a] profession, trade or business…”
But this case offered a special situation.
The individual defendants’ jobs were specifically to recruit and solicit travel nurses. Thus, the non-solicitation clause affected their ability to earn a living more than it would have for employees in other lines of work.
There is now a split in authority on this issue that may need to be resolved by the California Supreme Court.