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Non-solicitation Provision Overturned in California

Graphic with reference to California Business and Professions Code, referenced in a case upholding an employee non-solicitation provisionIt is common knowledge that California generally prohibits post-employment non-compete provisions. However, people know far less about law pertaining to post-employment non-solicitation provisions.

In this post, I will describe existing post-employment non-compete and non-solicitation case law. Then I will discuss a recent case that may signal a new direction.

Background – Non-competition Provisions Disfavored

Business and Professions Code Section 16600 is the statutory basis for California’s post-employment non-compete prohibition:

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.

Courts routinely have held that, subject to certain exceptions (such as to protect trade secrets), post-employment non-compete provisions violate Section 16600. Accordingly, California courts do not enforce such provisions.

Background – Non-solicitation Provisions OK

Here is an example of a straightforward post-employment non-solicitation provision that I took from a Proprietary Information and Inventions Agreement:

While employed by company and for two years thereafter, I will not take any action that may cause any employee, customer or supplier of Company to terminate or adversely alter his, her or its relationship with Company.

For the purposes of this post, the relevant portion is the prohibition against causing any employee to terminate or adversely alter his or her relationship with the employer.

California courts typically have upheld post-employment non-solicitation provisions. For example, in Loral Corp v. Moyes, the Court of Appeal for the Sixth District wrote wrote in 1985:

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.

The restriction 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.

Recent Case – New Direction?

On November 1, 2018, the California Court of Appeal for the Fourth District decided AMN Healthcare v. Aya Healthcare Services.

In that case, the court overturned a post-employment prohibition against soliciting a former employer’s employees. The reason: The former employee’s profession was recruiting travel nurses for temporary assignments.

Not being permitted to contact travel nurses who currently work for AMN could limit the amount of compensation a recruiter would receive with his or her new agency….

In that respect, the decision is not surprising. When an individual’s work consists of soliciting personnel, California law lets that individual do that work.

What is surprising, however, is the court’s comment that, in light of more-recent cases, Loral Corp. v. Moyes may no longer be good law. If the Court is correct, then virtually any post-employment prohibition against soliciting employees will be unenforceable.

It will be interesting to see whether and how the California Supreme Court addresses this issue.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Categories
Contracts, Employment