With the California Court of Appeal’s recent decision in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., the state may have left even less wiggle room for employers who might still have and want to enforce non-solicitation agreements in their employment contracts.
In its Business and Professions Code § 16600, California already expressed a strong public policy of protecting the rights of its citizens to pursue any lawful employment of their choosing, “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.”
That being said, some courts had relied on a reasonableness standard when interpreting Section 16600 (e.g., Loral Corp. v. Moyes, 174 Cal.App.3d 268, 276 (1986)), allowing that some limited restrictions which tended to promote rather than restrain trade, might not violate the statute.
The Case: AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal.App.5th 923 (2018)
AMN Healthcare, Inc. and Aya Healthcare Services, Inc. are competitors that recruit and provide temporary medical professionals to healthcare facilities throughout the U.S., including “travel nurses.”
While employed at AMN, four travel nurse recruiters signed an agreement as a condition of employment aimed at preventing them from soliciting AMN employees for one year after leaving the company.
After the recruiters left AMN for Aya and recruited some of its travel nurses, AMN sued their former employees along with AYA claiming that they violated the Confidentiality and Non-Disclosure Agreements. The trial court granted Aya’s subsequent motion for summary judgment, finding that AMN’s policies ran afoul of Section 16600.
On appeal, the Court found that the agreements constituted a restraint on trade under Section 16600 because it restricted employees’ ability to practice their profession. This decision clarified that Loral Corp. and its reasonableness standard were likely no longer good law. The court reasoned that had the legislature actually intended to create a reasonableness standard, they would have written it into the text of the statute. This decision thus strengthens the presumption that non-solicitation agreements in California are invalid.
Keep the Workplace Working
Since California courts take such a strong stand on non-solicitation agreements, California employers might be left wondering how they could possibly guard against employee raiding. One possible way to address this problem would be to address the underlying problem that many employers worry about with employee raiding by creating a robust confidentiality of company information policy. While this is not an option for all employers, some companies may also find it worth the time and effort to avail themselves of one of the exceptions to Section 16600, which is to give certain employees partial ownership over the company as described in Bus. & Prof. Code, § 1660. Taking such a step preserves the ability of employers to enforce agreements not to compete.
