California Courts Hold that Employee Non-Solicitation Clauses and Contracts Violate the Law
A Northern District of California Court has held January 2019 that “California law is properly interpreted to invalidate… employee nonsolicitation provisions.” Barker v. Insight Global, LLC, Case No. 16-cv-07186-BLF, at *5 (N.D. Cal. Jan. 11, 2019). The Barker Court followed the holding of a California Court of Appeal case issued toward the end of 2018, AMN v. Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (Ct. App. 2018).
In the AMN case, AMN employees were required to sign Confidentiality and Nondisclosure Agreements that contained a clause which disallowed former AMN employees from soliciting current employees to other employment for a period of one year. Id. at 927. The AMN case plaintiffs argued that the clause violates California Business and Professions Code Section 16600. Specifically, the AMN case plaintiffs argued that the clause “restrain[s] a former employee from engaging in his or her profession, trade or business[,] unless the agreement falls within one of the exceptions to [§ 16600].” Id. at 938 (internal quotation and citation omitted) cited in Barker v. Insight Global, LLC, Case No. 16-cv-07186-BLF, at *4 (N.D. Cal. Jan. 11, 2019). California Business and Professions Code Section 16600 provides that “[e]xcept 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.” Cal. Bus. & Prof. Code § 16600.
What does this mean? It means currently, nonsolicitation clauses in employment agreements, confidentiality agreements, non-disclosure agreements, and similar new hire documents and acknowledgments, are invalid and prohibited. This is true even if a nonsolicitation clause or contract limits the time period in which employee solicitations are prohibited. This means employers should review their agreements and make necessary changes.
It also means employees separating from a company, who have signed such an agreement containing a nonsolicitation provision, can ask other current employees to leave along with them without the fear of violating a valid nonsolicitation clause. Employers who challenge this practice by outgoing employees will have unmeritorious claims for breach of contract regarding the nonsolicitation clause. Employees will be free to work where they wish (assuming it is a lawful profession and business). Id.