CMCP Diversity Matters - January/February 2019

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A RECENT COURT OF APPEALS RULING CHIPS AWAY AT THE VALIDITY OF NON- SOLICITATION PROVISIONS BY: SWETA H. PATEL PARTNER, KLEIN, HOCKEL, IEZZA & PATEL P.C. California Business and Professions Code section 16600 invalidates any agreement, with limited exceptions, that restrains a person “from engaging in a lawful profession, trade, or business of any kind.” Although section 16600 has been interpreted to prohibit noncompete agreements, non-solicitation agreements have generally been upheld such that former employees could not solicit employees of their former employer. However, on November 1, 2018, the California Court of Appeal, Fourth Appellate District departed from the norm and refused to uphold a non-solicitation agreement. Instead, the Court affirmed the trial court’s ruling in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. 8 | CMCP Diversity Matters
et al., No. D071924, 2018 WL 5669154 (Cal. App. 2018), which held that a non-solicitation provision could not prevent a recruiter from recruiting employees from his or her former employer. TRIAL COURT’S RULING AMN Healthcare, Inc. (“AMN”) sued its competitor Aya Healthcare Services, Inc. (“AYA”) and its former employees for violating a non-solicitation agreement. The former employees had been recruiters for AMN and executed Confidentiality and Non-Disclosure Agreements preventing them from soliciting any AMN employees for at least one year after their employment at AMN ended. These recruiters left AMN and went to work for AYA, which like AMN provides temporary healthcare professionals, in particular "travel nurses," to medical care facilities. AMN’s lawsuit alleged that the former employees had breached the terms of that agreement by recruiting temporary workers that AMN had previously employed. The former employees countersued alleging that AMN was engaged in unfair competition, and sought declaratory relief. AYA alleged that the non-solicitation provisions were an unlawful restraint of trade and that AMN was enforcing them to discourage former employees from obtaining employment with AMN’s competitors. The trial court granted AYA’s and the former employees’ motion for summary judgment, determining that the non-solicitation provision was invalid under section 16600 and awarded $190,000 in attorneys’ fees against AMN. The trial court explained that since the recruiters were in the business of recruiting, any restriction on their ability to solicit would necessarily restrain their right to engage in their chosen profession, and would thus violate section 16600. The trial court also issued a statewide injunction against AMN with respect to the non-solicitation agreement. The trial court’s decision and injunction prevented AMN from “using, enforcing or attempting to enforce any contract or employment agreement in the State of California which purports to restrain its former employees from directly or indirectly soliciting or inducing or causing others to solicit or induce, any employee of AMN to leave the service of AMN.” TRIAL COURT RULING AFFIRMED The Court of Appeal affirmed the trial court’s rulings in its entirety rejecting AMN’s claim that the non-solicitation provision was valid because it merely prohibited the recruiters from soliciting current AMN employees.¹ The Court rejected AMN’s attempt to analogize its non-solicitation provision to Loral Corp. v. Moyes, in which the court determined that the employee non-solicitation provision was more like a nondisclosure agreement rather than a non-compete agreement because the former employee was simply prohibited from “raiding” the employees of his former employer.² The Moyes Court reasoned that the “restriction only slightly affects [the plaintiffs'] employees. They are not hampered from seeking employment with [the defendant's new employer] nor from contacting [the defendant]. All they lose is the option of being contacted by him first. It does not restrain them from being employed by [the defendant's employer], contrary to defendant's argument.”³ The Court questioned the “reasonableness standard” proposed by Moyes and concluded that it “doubt[ed] the continuing viability of Moyes post-Edwards.” Edwards v. Arthur Andersen LLP reasoned that "if the Legislature intended [section 16600] to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect," but it did not. 4 Continued on next page... January/February 2019 | 9
Page 2 and 3: CMCP@30: TAKING THE MISSION FORWARD
Page 4 and 5: Letter from the Executive Director
Page 6 and 7: #METOO MOVEMENT PROMPTS CALIFORNIA
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Page 32 and 33: filing a Rule 50, 52, or 59 motion
Page 34 and 35: Diversity Calendar The CMCP Diversi
Page 36: ABOUT CMCP The California Minority

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