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Invalidity of “No Poach” and Non-Solicitation-of-Employee Agreements

California is strict when it comes to protecting the rights of individuals to seek employment and conduct their trade or business. In many states, employers can obtain agreements from their employees whereby the employee agrees not to work for a competitor in a certain geographic area for one or two years. These are typically called “Noncompete Agreements.” In California,  and in a growing number of states such as Maryland, such noncompete agreements are illegal and unenforceable. See Cal. Bus. & Prof. Code, § 16600 which states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” There are a couple of limited exceptions.

Section 16600 is not limited to noncompete agreements. As one court recently noted, §16600 uses the words “every contract” that “restrain[s]” a person “from engaging in a lawful profession, trade, or business.” Thus, §16600 is not even limited to employment contracts. See Golden v. California Emergency Phy. Med. Group, Case No. 16-17354 (US Court of Appeals 9th Cir. July 24, 2018) (applying California law). In that case, parts of a settlement agreement were held to be void because those parts were a significant restraint on the physician’s ability to be hired.

So-called “no poach” or “no switch” agreements are also invalid under §16600. These “no poach” agreements are common in the franchising industry — among chain restaurants, for example. The agreements are made among the franchise locations and, basically, the franchisees agree not to poach or solicit or hire or recruit employees working or who had worked for another franchise. Often the franchise owner would require these “no poach” agreements and violation of the provisions would be grounds for terminating the franchise agreement.

Recently, §16600 was used to strike down a nonsolicitation-of-employees agreement. See AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., Case No. D071924 (Cal. App. 4th Dist. November 1, 2018). AMN Healthcare (“AMN”) is in the business of providing “temp nurses” or “traveling nurses” to various health care companies around the country. AMN required that its “traveling nurses” sign an agreement, part of which prohibited any employee of AMN from soliciting any employee of AMN to leave the employment of AMN for at least a one-year period. Any “traveling nurse” was considered an “employee” even if the assignment with AMN was short.

In the case, a former employee of AMN began working for a competing company as a recruiter and, eventually, hired some of AMN’s former travel nurses. AMN then sued the former employee and the former traveling nurses for violation of the nonsolicitation agreement. The former employee and traveling nurses argued that the nonsolicitation agreement was a restraint on their ability to engage in their employment and trade. The trial court agreed, and such was affirmed by the Court of Appeals.

With respect to the former AMN recruiter, the nonsolicitation agreement significantly limited the recruiter’s ability to work. The court held that this was a significant restraint since “[n]ot 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 after leaving AMN.” As for the traveling nurses who once worked for AMN, the court held that the restriction was unreasonable since it was a one-year restriction and, mostly, the nurses worked for 13 weeks.

If your business has nonsolicitation agreements with employees and others, you should have those agreements reviewed by a good San Diego corporate attorney to ensure that they meet the requirements of California law.

Contact San Diego Corporate Law

For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has been named a “Rising Star” four years running by and “Best of the Bar” by the San Diego Business Journal. Contact Mr. Leonard via email or by calling (858) 483-9200.

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