Over three decades ago, in Loral Corp. v. Moyes, a California Court of Appeal held that employee non-solicitation agreements, which bar former employees from soliciting the employer’s existing employees, could be enforceable. In 2008, the California Supreme Court in Edwards v. Arthur Andersen LLP held that non-competition agreements are unlawful restraints on trade and void under California Business & Professions Code section 16600 (with limited statutory exceptions), but left open whether employee non-solicitation provisions amounted to unlawful restraints on trade. But recently, in a span of just months, two different courts in California have ruled that employee non-solicitation provisions are invalid under section 16600.
In November 2018, a California Court of Appeal decided AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. Healthcare company AMN provided travel nurses on a temporary basis to medical facilities. AMN required its employee-recruiters to sign a confidentiality agreement that prevented them for one year following employment from soliciting any AMN employees, including the travel nurses. When AMN attempted to enforce the non-solicitation provision against several recruiters who jumped ship to another healthcare staffing company, the recruiters and their new employer claimed that the non-solicitation provision operated as an unlawful non-compete by restraining the recruiters from engaging in their profession, i.e. recruiting travel nurses.
Disagreeing with the decades-old Loral decision, the AMN court found that non-solicitation agreements operate as an unlawful restraint on trade in violation of section 16600, even though such agreements do not entirely prevent employees from moving to a competing employer. The court pointed out that section 16600 expressly bans “restraints” on trade rather than “prohibitions” on trade. The court did note, however, that Loral was factually distinguishable because it did not, as in the present case, involve individuals who were in the business of recruiting like the former AMN employees.
In January 2019, in Barker v. Insight Global, LLC, a federal district court in California ruled that it was “convinced by the reasoning in AMN that California law is properly interpreted post-Edwards to invalidate employee nonsolicitation provisions.” The court further noted that AMN’s primary holding that non-solicitation provisions are invalid is not in any way abrogated or limited by AMN‘s “secondary ruling” regarding the employee’s particular job duties as recruiters. (Note that Insight Global is a staffing firm, although the nature of plaintiff Barker’s job duties is not clear from the opinion.)
In light of these developments, businesses should consult with counsel before including employee non-solicitation provisions in employment agreements or before taking steps to enforce employee non-solicitation provisions against departing and former employees.