California Court of Appeals Casts Doubt on Continued Validity of Employee Non-Solicitation Provisions

Last week, the Court of Appeal for California’s Fourth Appellate District ruled that an agreement prohibiting former staffing company recruiters from soliciting their former employer’s employees is unenforceable under California Business & Professions Code section 16600. The court reasoned that the employee non-solicitation provision was too onerous on the recruiters’ ability to practice their profession i.e., recruiting employees. In rendering the decision, the court called into question long-standing precedent that upheld employee non-solicitation provisions, which are routinely included by California employers in employment and confidentiality agreements with their employees.

The facts of this case are worth mentioning, as they are potentially distinguishable from prior precedent. AMN Healthcare, Inc. (“AMN”) and Aya Healthcare Services, Inc. (“Aya) are competing top healthcare staffing agencies that provide temporary workers, namely travel nurses, to medical facilities nationwide. The travel nurses were considered employees of AMN. In 2015, AMN brought suit in a California Superior Court against four of its recruiters, who solicited away AMN’s travel nurses after jumping ship to Aya, in violation of an eighteen-month employee non-solicitation provision in their signed Confidentiality and Non-Disclosure Agreements. During the proceedings, the trial court granted summary judgment against AMN and enjoined AMN from enforcing its employee non-solicitation agreement against any former California employees.

California’s Fourth Appellate District affirmed. It found that AMN’s “broadly worded provision” prevents the individual defendants “for a period of at least one year after termination of employment with AMN, from either directly or indirectly soliciting or recruiting, or causing others to solicit or induce, any employee of AMN.” The court held that the scope and time frame of the provision was an unlawful restraint on trade because it would prohibit the recruiters from “practicing with Aya their chosen profession” i.e., it would prevent the recruiters from being able to solicit and place traveling nurses at medical facilities. The court’s emphasis on the burden on these employees’ profession (i.e., recruiters) may be instructive to the future of non-solicitation clauses.

In rendering its decision, however, the court expressly “doubt[e]d the continuing validity” of Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985), a California Sixth Appellate District opinion, which is long-standing and frequently-cited precedent upholding use of non-solicitation provisions. In Moyes, the former employee at issue was an executive officer who was restrained from “raiding” other executives from his former company after he became the president of a competitor. The Moyes decision rested, in part, on its use of a reasonableness standard to uphold the non-solicitation provision in that case, finding that the provision “only slightly affects” the former executive. The Fourth Appellate District opined that Moyes‘ reliance on a reasonableness standard conflicted with the California Supreme Court’s 2008 decision in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (2008), which rejected a “reasonableness” standard when applying Section 16600.

Notwithstanding, the Fourth Appellate District distinguished Moyes on its facts by noting that the non-solicitation provision in AMN restrained the recruiters from practicing their profession – recruiting – whereas the executive in Moyes was not in the profession of recruiting other executives, at least not in the same direct way. The court also emphasized the lower court’s “broad discretion” in granting the injunction in this case, which implies that not all courts would be so inclined.

It is too soon to forecast the implications of this case in other California courts, which may or may not follow a similar approach.