California’s Court of Appeal Strikes a Blow to the Enforceability of Non-Solicitation Agreements

For many years, non-solicitation agreements were a staple of employee/employer contracts. California courts generally held that they were enforceable, so long as they were reasonable. That changed in November 2018, when the California Court of Appeal ruled in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. 2018 WL 5669154 (Cal. Ct. App. 2018) that non-solicitation agreements between a company and its former employee were unenforceable under California Business and Professions Code § 16600.

The parties in the case, AMN Healthcare, Inc. (“AMN”) and Aya Healthcare Services, Inc. (“Aya”), employed nurse recruiters, whose job it was to recruit and provide temporary healthcare workers to medical care facilities throughout the country. AMN required its recruiters to sign confidentiality and non-disclosure agreements (“NDA”), which prohibited its employees from disclosing confidential information to third parties or soliciting other AMN employees for one year after they left the company. The lawsuit involved former AMN recruiters who joined Aya and solicited AMN’s travel nurses. AMN sued Aya and the recruiters for (in part) violating the NDA.

The case was decided in favor of Aya and the recruiters, finding that the NDA was void as against public policy under California Business and Professions Code § 16600. The court also awarded Aya and its former employees over $160,000 in attorneys’ fees. In its rationale, the Court of Appeal stated that if the NDA had been enforced, former AMN recruiters would be limited in which nurses they could recruit and that such restriction “could limit the amount of compensation a recruiter would receive with his or her new agency.”

The decision in the AMN Healthcare case should give pause to any company considering enforcing an existing agreement against a former employee or considering the implementation of a non-solicitation agreement for its current or future employees.

Agreements with employees must be carefully crafted to protect the employer, while avoiding any violations of law. The attorneys at Vogt, Resnick & Sherak, LLP are well versed in these areas of the law and are able to help you navigate this complex and ever changing practice area.

 

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