by Michelle R. Ferber and Julie Ann Giammona
In AMN Healthcare Inc. v. Aya Healthcare Services, Inc., the Court of Appeal for the Fourth Appellate District held that non-solicitation agreements are void unless they fall within one of the three statutory exceptions found in Business & Professions Code Sections 16601 – 16602.5 relating to the sale of goodwill in a business, dissolution of a partnership and/or dissolution or sale of a limited liability company. The court’s determination departed from previous reasoning by several other courts which had generally concluded that non-solicitation agreements were enforceable if the agreement was reasonable and narrowly tailored. However, the AMN Healthcare court determined that non-solicitation provisions violate the specific language of Business & Professions Code Section 16600 which provides that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
The non-solicitation provision at issue in AMN Healthcare was contained within a non-disclosure agreement that all employees were required to sign upon commencement of employment. The agreement prohibited any former employee for a period of one year following their termination of employment from directly or indirectly soliciting, inducing, or causing others to solicit or induce, any employee of AMN to leave. AMN Healthcare is factually distinguishable from Loral Corp. v. Moyes, (a 1985 case that allowed enforceability of a non-solicitation agreement), because in AMN Healthcare, “individual defendants were in the business of recruiting and placing on a temporary basis medical professionals.” The court noted that any restraint on their ability to solicit was necessarily a restraint on their profession since the defendants’ business was actual recruiting. Notwithstanding this factual distinction, the AMN Healthcare court went further in its holding by specifically rejecting any argument that the prohibition of Section 16600 does not apply to non-solicitation agreements that are reasonable and narrowly tailored, regardless of what profession is at issue.
Given the rejection of the reasonableness standard by the AMN Healthcare court, it is important to use extreme caution moving forward when attempting to implement non-solicitation agreements. It is likely that the non-solicitation agreements will be void, absent falling within one of the above-mentioned exceptions under Business and Profession Code Sections 16601-16602.5. At this point, Ferber Law recommends that employers conduct a thorough review of any agreements that contain non-solicitation language and remove such language. Ferber Law has the expertise and knowledge to assist you with this process and welcomes your inquiries.
DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.