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Non-Solicits of Employees in California: Impermissible or Valid?

 

Recently, the topic of non-soliciting of employees and whether they violate California law arose on the lawyer mom website in which I participate. The issue is confusing because California has such a strong public policy against non-competes which aren’t valid in California. Very generally speaking, however, the courts have accepted limited agreements not to solicit a company’s employees as falling outside the non-compete milieu. It’s important to note, though, that many court rulings on this topic deal with situations where soliciting employees violates a trade secret provision. So what about the cases where this is not a factor? The most positive case for the idea that it is OK to limit soliciting of current employees when an employee leaves is Loral Corp. v. Moyes 174 Cal. App. 3d 268 (1985). But even here there is some limiting language. The court stated:

The impact of Business and Professions Code section 16600 on nondisclosure, nonsolicitation and noncompetition promises has already been determined. (7) The basic rule in this state is that contracts precluding a former employee from obtaining new employment with a competitor are [174 Cal. App. 3d 276] invalid under section 16600. “This section invalidates provisions in employment contracts prohibiting an employee from working for a competitor after completion of his employment or imposing a penalty if he does so (Chamberlain v. Augustine, 172 Cal. 285, 288 …; Morris v. Harris, 127 Cal. App.2d 476, 478 …), unless they are necessary to protect the employer’s trade secrets….” (Muggill v. Reuben H. Donnelley Corp. (1965) 62 Cal.2d 239, 242 [42 Cal. Rptr. 107, 398 P.2d 147].) As Muggill indicates, reasonably limited restrictions which tend more to promote than restrain trade and business do not violate the statute. (Great Western etc. v. J.A. Wathen D. Co. (1937) 10 Cal.2d 442, 446, 448-449 [74 P.2d 745]; Keating v. Preston (1940) 42 Cal. App.2d 110, 123 [108 P.2d 479]; Centeno v. Roseville Community Hospital (1979) 107 Cal. App.3d 62, 69-70, fn. 2 [167 Cal. Rptr. 183]; cf. Grogan v. Chaffee (1909) 156 Cal. 611, 614 [105 P. 745].) Section 16600 does not invalidate an employee’s agreement not to disclose his former employer’s confidential customer lists or other trade secrets or not to solicit those customers. (Gordon v. Landau (1958) 49 Cal.2d 690, 694 [321 P.2d 456], and cases there cited; see Annot., Statutes Prohibiting Restraint on Profession, Trade, or Business as Applicable to Restrictions in Employment or Agency Contracts, 3 A.L.R.2d 522.) Thus, the statute invalidates an agreement penalizing a former employee for obtaining employment with a competitor, but does not necessarily affect an agreement delimiting how he can compete. (5b) Our question then is whether a noninterference agreement not to solicit former coworkers to leave the employer is more like a noncompetition agreement which is invalid, or a nondisclosure or nonsolicitation agreement which may be valid.” Id. at 276.

The court further stated: “The [non-solicit] presumably was sought by plaintiffs in order to maintain a stable work force and enable the employer to remain in business. This restriction has the apparent impact of limiting Moyes’ business practices in a small way in order to promote Conic’s business. This noninterference agreement has no overall negative impact on trade or business. We hold that this contract, as construed, is not void on its face under Business and Professions Code section 16600.” 174 Cal. App. 3d at 280.

But with respect to the practical implications of these types of provisions, note the following statement in the Moyes opinion: “This restriction only slightly affects Conic employees. They are not hampered from seeking employment with Aydin nor from contacting Moyes. All they lose is the option of being contacted by him first. It does not restrain them from being employed by Aydin, contrary to defendant’s argument. (9) Equity will not enjoin a former employee from receiving and considering applications from employees of his former employer, even though the circumstances be such that he should be enjoined from soliciting their applications. (Cf., Aetna Bldg. Maintenance Co. v. West, supra, 39 Cal. 2d 198 at p. 204.)” Id.

A good comparison of agreements regarding the non-soliciting of employees as opposed to clients is here (federal perspective) and here (California perspective).

Overall, the principle to keep in mind is that the more reasonable the agreement, the more likely its chance to succeed. Also, these agreements are generally analyzed from a contract perspective where different principles govern than those in employment law. So if you’re going to use an attorney to create such an agreement, or use an attorney to advise you on signing such an agreement, make sure they have some contractual expertise as well.