Businessnon-solicitation agreementNon-Solicitation Agreements May Not Be Valid

April 10, 2019

Non-solicitation contracts are a common contract that many businesses have with their employees and/or contractors.  The agreements prohibit the solicitation of the company’s employees and customers during or after the hiring of the employee/contractor.

A recent California appeals court case made many non-solicitation agreements unenforceable.  The court ruled that an employer’s non-solicitation clause in a confidentiality agreement was a violation of California law that prohibits restraints on a person’s right to work in any lawful occupation.

Non-solicitation clause in confidentiality agreement.

In a case decided last year, a major healthcare organization that hired nurses for short-term positions required its recruiters to sign a confidentiality agreement. The confidentiality agreement prohibited the recruiters from soliciting nurses who worked for the company for a period of one year.  Some recruiters left the company and went to work for a competitor and, you guessed it, solicited nurses that worked for their previous employer.

The former employer sued the employees for breach of contract.  The court in AMN Healthcare, Inc. v. AYA Healthcare Services, Inc., et al. found that the non-solicitation clause was unenforceable because it was an unlawful restraint on trade in violation of California Business and Professions Code (B&PC) Section 16600, concluding that it prevented individual defendants from engaging in their lawful trade or profession — soliciting and recruiting travel nurses on temporary assignment with AMN — for at least one-year post-termination.

B&PC Section 16600 is one of the most important business laws in the State of California.  It makes any contract that restricts someone from engaging in a lawful occupation void.  It has been the law in California since 1872.  California courts have rigorously applied it to non-competition clauses and to any term in a contract that constrains an individual from working.  For instance, this law has been applied to confidentiality agreements that prevent an employee from using knowledge learned in one job and applying it in another job. In the AMN case, the courts had no trouble finding that the non-solicitation clause in the confidentiality agreement constrained the right of the recruiters to work.

Many businesses have agreements with their employees and contractors that contain non-solicitation agreements.  Those clauses may be invalid and could invalidate the entire contract.  Companies that have contracts containing non-solicitation terms should have them reviewed by an attorney.

Eric D. Morton is the principal attorney at Clear Sky Law Group, available at offices in Carlsbad and Oakland.  He can be reached at 760-722-6582, 510-556-0367, or emorton@clearskylaw.com.

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