It's Time to Revisit Your Employee Non-Solicitation Provision

In a landmark decision by the California Court of Appeal in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. (“AMN Healthcare”), the court ruled that an employment contract provision which prohibited former employees from soliciting employees for one year following their termination was void.

Background

AMN Healthcare and Aya Healthcare are staffing competitors which provide nurses to healthcare facilities on a temporary basis. The defendants, former nurse recruiters for AMN, resigned and joined Aya where they continued to work as nurse recruiters. The defendants had signed confidentiality and nondisclosure agreements with AMN, which, inter alia, prohibited the soliciting of any AMN employee for one year post-termination. AMN sued to enforce the non-solicitation provision after the recruiters resigned.

The Ruling

In November 2018, the court in AMN Healthcare found that the non-solicitation provisions in the recruiters’ employment agreements violated California Business and Professions Code §16600. Section 16600 embodies California’s strong public policy in favor of competition and employee mobility by invalidating any contract that prevents a person from engaging in his or her profession, with limited exceptions. The court held that, because the defendants were in the business of recruiting, any restriction on their ability to do so would restrain their right to engage in their profession in violation of Section 16600.

The Court of Appeal also dismissed AMN Healthcare’s argument that the identity of its employees was confidential information (and was used improperly to recruit AMN employees) by finding that the identity of employees is not a protectable trade secret. The court also affirmed the trial court’s injunction preventing AMN Healthcare from using or enforcing any employment agreement that prevents its former employees from soliciting any AMN Healthcare employee.

Wider Implications

Although it could be argued that the court’s ruling should be limited to its facts because a non-solicitation provision necessarily restrains a recruiter’s ability to engage in their profession, the decision called into question the viability of non-solicitation provisions in employment agreements more broadly. The Court questioned the continued validity of Loral Corp. v. Moyes, a 1985 Court of Appeal case which used a reasonableness standard to find that a non-solicitation clause was permissible.

The AMN Healthcare court stated that the reasonableness standard in Loral conflicted with the California Supreme Court’s interpretation of 16600 in Edwards v. Arthur Andersen LLP which characterized Section 16600 as “unambiguous.” The AMN Healthcare court reasoned that “if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have language to that effect…”  Thus, AMN Healthcare expressed doubt about whether any employee non-solicitation provision, no matter how reasonable or narrowly drafted, would be permissible under Section 16600.

What CA Employers Should Note

In light of AMN Healthcare, California employers should not assume that post-employment restrictions on employee solicitation are lawful. Employers should re-evaluate their continued use and enforcement of these provisions in their employment agreements.

If you include non-solicitation provisions in your employment agreements and would like to discuss their viability going forward, please contact an MLG attorney.  

Author: Caitie Emmett, Associate.

The Maier Law Group helps companies ensure that their policies and practices comply with the relevant workplace regulations.  Please contact us at info@maierlawgroup.com for more information.

This article has been prepared for general informational purposes only and does not constitute advertising, solicitation, or legal advice. If you have questions about a particular matter, please contact the Maier Law Group directly.