legal updates

Reasonable Restriction: Recent Changes to California Non-Solicitation Agreements

A common tool that employers utilize to maximize their competitive edge is a non-solicitation agreement to prevent former employees from soliciting current employees. Non-solicitation agreements are entered into between an employer and an employee, and are generally useful once the employment has ended.

If an employee signs a non-solicitation agreement and later terminates his or her employment, pursuant to the agreement, for a specific period of time (usually one year), the former employee is prevented from recruiting his or her former employer’s employees. This assists companies in ensuring that their former employees are not recruiting talented employees to leave their employment and work for a competitor.

In November 2018, an appellate court in California clarified the standard for employee non-solicitation agreements in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. In this case, the court analyzed whether the employer’s non-solicitation provision was an “improper restraint on individual [employees’] ability to engage in their profession.”

Material Facts:

The plaintiff in AMN was the former employer, a company in the business of providing hospitals with “travel nurses” who work in the healthcare profession on a temporary basis. These travel nurses are placed on temporary employment contracts that only last for periods of 13 to 26 weeks.

The defendants in this case were four (4) former employees of AMN and Aya Healthcare, a competitor of AMN, who is also in the business of staffing hospitals with travel nurses. The former employees (the defendants) worked as travel nurse recruiters. Each of the four (4) defendants left their employment with AMN to work at Aya.

AMN required that their employees sign a Confidentiality and Non-Disclosure Agreement (CNDA), which included a non-solicitation agreement, which prevented the employees from “soliciting any employee of AMN to leave the service of AMN for at least a one-year period.” The travel nurses that AMN placed on temporary jobs were also considered employees, so the former recruiters were prohibited from recruiting AMN’s travel nurses for a period of at least one year following the termination of the recruiter contracts.

So, even though the travel nurses could only work for a fraction of a year, AMN asserted that the former employees were not permitted to recruit the travel nurses that they had met while working at AMN.

Analysis:

Since the former recruiters were “in the business of recruiting and placing[,] on a temporary basis[,] medical professionals [] [and] primarily nurses[] in medical facilities throughout the country,” the employer’s non-solicitation clause, which prevented the recruiters from recruiting any nurses who had contracted with AMN during the past year, was unreasonable. Thus, the court found that the non-solicitation clause “restrained individual defendants from engaging in their chosen profession…” in violation of California Business and Professions Code section 16600.

Broadly worded client and customer non-solicitation clauses have been found to be void in California because they typically prevent employees from rendering any services in their chosen profession during the time period listed in the non-solicitation clause. However, employee non-solicitation clauses have received broader protections and have generally been found enforceable by California courts.

Here, AMN travel nurses were typically placed on 13-week assignments, but they were occasionally granted an extension, which would extend their assignments to 26 weeks. As a result, AMN’s employee non-solicitation clause would “at a minimum equate to a period of four such assignments for a given nurse.” The court found that this was undisputed evidence in support of the finding that AMN’s non-solicitation clause was an unreasonable restriction on the recruiters’ “ability to engage in their profession, trade, or business.”

Current Status of Non-Solicitation Agreements:

In general, employee non-solicitation agreements are still valid, but must be drafted with some specificity, and cannot be unduly restrictive on the signers’ ability to engage in their chosen profession. The 2019 Barker v. Insight Global, LLC case follows on the heels of AMN Healthcare. Barker agreed that non-solicitation clauses should not restrain former employees from engaging in their chosen profession.

The California Supreme Court has yet to publish a ruling on non-solicitation agreements following the AMN and Barker cases.

Former employers are prohibited from preventing former employees from working in their “lawful profession, trade, or business of any kind.” Thus, employers should create employee non-solicitation agreements that consider the job description of their employees. If a clause is found to restrain former employees in a manner similar to the clause in AMN, it is likely invalid.