Generally speaking, non-competition provisions have long been illegal in California employment contracts. As stated in the California Business and Professions Code (BPC):
“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.” (Section 16600).
For the past 30+ years, clauses that prohibit a former employee from soliciting current employees to leave the company have been considered an exception to this rule. In Loral Corp. v. Moyes (1985), the California Court of Appeal ruled that these non-solicitation clauses were an exception to BPC §16600, and considered legal and valid. Due to the ruling in Loral, non-solicitation clauses have been accepted and widely used by employers throughout California.
However, the rulings in two recent cases have shifted the validity of non-solicitation agreements.
In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., the California Court of Appeal ruled that “the nonsolicitation of employee provision was an unlawful restraint on trade in violation of section 16600 because it prevented individual defendants from engaging in their lawful trade or profession”. In AMN, an employer brought suit against former employees for breach of contract (non-solicitation agreement). The Court decided that in accordance with §16600, “the interests of the employee in his [or her] own mobility and betterment are deemed paramount to the competitive business interests of the employers.”
Second, the issue was considered by the United States District Court (N.D. California) in Barker v. Insight Global, LLC; a case in which a former employee is suing his former employer, claiming that the non-solicitation agreement in place was void. The Court relied upon the recently decided AMN case and affirmed that “California law is properly interpreted . . . to invalidate employee nonsolicitation provisions.”
These recent decisions by the California Court of Appeal and United States District Court combine to effectively render non-solicitation agreements illegal with few exceptions.
Kunzler Bean & Adamson attorneys are available to answer any additional questions you might have regarding the this change in the law regarding non-solicitation agreements.
This article is provided for informational purposes only. It is not intended as legal advice, nor does it create an attorney/client relationship between KBA and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. This article may be considered attorney advertising in some states.