Employee Non-Solicit Clauses Void Under California Business & Professions Code

In a recent decision, AMN Healthcare Inc. v. Aya Healthcare Services, Inc. (Cal. Ct. App. 2018), the California Court of Appeals declared that standard employee non-solicit clauses of the type common in employee NDAs (non-disclosure agreements) or PIIAs (proprietary information and invention assignments) are void under California Business & Professions Code sec. 16600. Not only that, but the court upheld state-wide injunctive relief against the employer that brought the suit, and awarded attorneys’ fees to the defendants (the former employees of the plaintiff).

This case demonstrates that there’s not only scant upside to advancing a non-solicit breach claim in California; there are huge potential downsides.

The non-solicit clause at issue in the case is as follows:

Employee covenants and agrees that during Employee’s employment with the Company and for a period of [one year or] eighteen 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.

The employer, a traveling nurse recruitment agency, brought suit against individual recruiters that went to work for another, competing nurse recruitment agency. Notably, the nurses themselves were deemed to be employees of the agencies that recruited them, hence falling within the ambit of the non-solicit clause.

The court ruled that the fact that an anti-solicit clause doesn’t prohibit employment is irrelevant given section 16600’s prohibition against any “restraints” on trade. Clauses impeding the mobility of employees “of any kind” are a restraint, even if otherwise deemed “reasonable”, and are therefore outlawed unless an independent statutory exception applies (none does in this context).

In addition to the breach of contract claim, the employer brought tort-based claims, such as breach of fiduciary duty and intentional interference with contract and prospective advantage, predicated on the employee’s breach of the confidentiality obligations of the NDA for “non-trade secret” information (i.e. traveling nurse identities). The theory goes, by breaching the obligation to refrain from unauthorized use and disclosure of confidential information, the employees also violated their fiduciary duties to the employer and tortiously interfered with contract.

The appeals court rejected this reasoning. “[S]ection 16600 precludes an employer from restraining an employee from engaging in his or her ‘profession, trade, or business,’” the court held, “even if such an employee uses information that is confidential but not a trade secret.”

Finally, the court laid out in helpful detail a ready roadmap for counsel representing employees accused of breaching non-solicit clauses. First, secure a slam-dunk ruling of unenforceability. Then win injunctive relief to prevent the employer from ever enforcing the clause against any other staff in California again. Finally, use that win as a basis for securing an award of attorneys’ fees under Cal. Code of Civ. Proc. sec. 1021.5 (for actions that “resulted in the enforcement of an important right affecting the public interest”).

In short, employee non-solicit clauses in employment agreements are not worth enforcing. And presenting an unlawful clause itself can be both an unfair business practice under Cal. Prof. & Bus. Code 17200 and an unfair labor practice under California Labor Code sec. 432.5. For this reason, employers of California residents should think twice before enforcing or utilizing such clauses in their employees’ agreements.

If you have any questions, or need advice on the implications for your business please feel free to contact us here.

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