Another California Court Raises Doubts on Employee Non-Solicitation Provisions

Last November, we discussed the potential impact of a recent California appellate court decision, AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (2018), which called into question long-standing California precedent enforcing certain employee non-solicitation provisions.  However, we noted it was too soon to forecast the implications of that case.

Though it is still early, it appears the tide may be turning, as a California federal district court recently issued a decision that relied upon AMN’s holding and found that the employee non-solicitation provision in the plaintiff’s contract were unenforceable under California law.

In Barker v. Insight Global, LLC, Judge Freeman in the Northern District of California followed AMN and reconsidered and reversed her prior ruling dismissing an employee’s attempt to void his employment agreement.  John Barker, a former employee of a staffing services company, Insight Global LLC, asserted that his prior employment agreement, including the non-solicitation provisions, was unlawful.  Judge Freeman initially granted Insight Global’s motion to dismiss Barker’s claims related to the non-solicitation provisions of his prior employment agreement.  However, after the AMN decision, the court granted a motion for reconsideration and reversed its decision.

As we previously explained, the AMN court departed from frequently-cited precedent in Loral Corp. v. Moyes, 174 Cal. App. 3d 268 (1985), which upheld the enforceability of non-solicitation provisions in certain circumstances in California.  Instead, the AMN court analyzed Edwards v. Arthur Anderson LLP, 44 Cal. 4th 937 (2008) and opined that it conflicted with Loral, noting that Loral’s “use of a reasonableness standard in analyzing the nonsolicitation clause . . . [] appears to conflict with Edwards’s interpretation of [California Business & Professions Code] section 16600, which . . . prevents a former employer from restraining a former employee from engaging in his or her ‘lawful profession, trade, or business of any kind.’”

“[C]onvinced by the reasoning in AMN that California law is properly interpreted post-Edwards to invalidate employee nonsolicitation provisions,”  Judge Freeman  also noted that she was not persuaded that AMN’s secondary ruling—that the nonsolicitation provision therein was invalid under Loral based upon those employees’ particular job duties—“abrogates or limits” AMN’s primary ruling.  Indeed, Judge Freeman found the overall analysis in AMN “to be persuasive.”

These recent developments indicate that the landscape for non-solicitation provisions in California is rapidly evolving.  Employers should consult with counsel on how to best address any risks and concerns these new opinions may create.  We will, of course, continue to monitor further guidance from the courts on this critical employee mobility issue.