California law prohibits contracts that restrict anyone from engaging in a profession, trade, or business of any kind. California courts have routinely interpreted this law broadly, subject to very limited exceptions. Particularly, the court in Loral Corporation v. Moyes[1], established a long-standing exception that non-solicitation clauses that prohibit employees, upon termination of their employment, from soliciting other employees to join a new business are enforceable. Essentially, California case law has upheld "anti-raiding" provisions as an exception to the general rule restricting anyone from engaging in a profession, trade, or business.
However, a recent California court decision has left the legality of this exception anything but clear. In AMN Healthcare, Inc. v. Aya Healthcare Service, Inc[2], the Sixth District Court of Appeal held non-solicitation clauses within traveling nurse recruiters' employment agreements to be invalid. In this case, the parties to this litigation were both recruiting businesses for travel nurses. AMN employees were mandated to sign an agreement that restricted solicitation of AMN employees, in this case recruited travel nurses, for a period of one year. AMN employees left to work for Aya, and were sued for attempting to solicit former AMN travel nurses. The Court of Appeal found that this was a restriction on the recruiter's ability to engage in their profession and was thus invalid.
Particularly, the court found that non-solicitation clauses that restrain recruiters from soliciting former employees to be a direct violation of California's law against prohibiting trade or business. This marks a shift in accepted California employment law.
What does this mean for other employers? Employers who have followed the longstanding "anti-raiding" non-solicitation agreement practice may be susceptible to unenforceable employment agreements for restricting employee trade or business. Unfortunately, it is unclear whether the court's decision in AMN will apply to all non-solicitation agreements, or whether the agreement was unique to the facts of the AMN case.
Because it is unclear whether the court's decision in AMN establishes the new California approach to non-solicitation agreements, further development is needed before completely ruling out the enforceability of "anti-raiding" non-solicitation agreements upheld by the court in Moyes. Consult your business attorney to ensure that your employment agreements are in accordance with California law and the longevity of your business is protected.
[1] (1985) 174 Cal.App.3d 268
[2] (2018) 28 Cal.App.5th 923
by Jason Eldred
Krogh & Decker, LLP, Business Attorneys (916) 498-9000 or www.kroghdecker.com/contact
