In a decision that could affect Massachusetts companies with employees in California, a California appellate court voided a non-solicitation clause in former employees’ agreements.
It is well known that under California law, post-employment non-competition agreements are unenforceable, except in very limited circumstances. California courts have been slightly more forgiving of non-solicitation provisions, both as to employees and customers. Employee non-solicitation provisions occasionally have been upheld when tested against a reasonableness standard. For this reason, many employers continue to include employee non-solicitation provisions in their agreements for California-based employees. That approach is now called into question.
In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), a California appellate court considered the enforceability of an employee non-solicitation provision. The plaintiff, AMN, provides temporary healthcare professional staffing services, including by providing “travel nurses” to its customers. Defendants, individuals who formerly recruited and placed travel nurses at AMN, had signed employment agreements in which they agreed, for at least one year after termination, “not [to] directly or indirectly solicit or induce, or cause others to solicit or induce,” any employee of the company. “Employees” included travel nurses on temporary assignments. When the former recruiters joined another healthcare professional staffing agency, AMN sued to enforce the agreements.
The trial court refused to enforce the employee non-solicitation provision, and the appeals court agreed, finding that the “broadly worded” non-solicitation provision was an unlawful restraint of trade in violation of Cal. Bus. & Prof. Code § 16600, because it would significantly impede the performance of the recruiters’ new job – recruiting travel nurses for temporary staffing assignments. In effect, the non-solicitation clause was a non-compete in disguise. Going one step further, the court cast doubt on the continued viability of the most significant California case upholding a non-solicitation provision, Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985), which enforced a non-solicitation provision that prevented “raiding” of employees. The court in AMN Healthcare placed particular emphasis on the fact that the target employees were in the business of recruiting, and so could not perform their job if the non-solicitation was enforced. If they were in a different line of work, the provision may have fared better.
While the full impact of this decision remains to be seen, Massachusetts companies with employees in California should be aware that even more run-of-the-mill employee non-solicitation provisions—beyond “no raiding” clauses—may not hold up in a California court.