November 26, 2018 - Employment, United States

Are Employee Non-Solicitation Clauses Still Legal In California?

The Fourth District Court of Appeals in San Diego on November 1, 2018, issued AMN Healthcare Inc. v. Aya Healthcare Services Inc., in which it called into question the continuing viability in California of employee non-solicitation clauses found in many employment contracts and proprietary information, invention assignment, and confidentiality agreements.  This was a question that had been left open in Edwards v. Arthur Anderson (2000) 44 Cal. 4th 937, the California Supreme Court decision that had swept away any judicially created “narrow restraint” exceptions to California’s Business and Professions Code § 16600’s basic dictate that all non-competition provisions in employee contracts are void.  Edwards confirmed that the only exception to Section 16600 are the narrow exceptions under § 16601 (sale of goodwill of a business), § 16602 (dissolution of a partnership), and § 16602.5 (dissolution of LLC or termination of LLC interest).  Edwards did not address employee non-solicitation agreements because they were not before the court.  Accordingly, employee non-solicitation agreements were still generally understood to be enforceable in California under Loral Corp. v. Moyes (1985) 174 Cal.App.3d 268, which had not been overturned by Edwards.  While based on a unique factual record, AMN Healthcarenonetheless questioned whether Moyes was reliable authority to support employee non-solicitation agreements in light of the California Supreme Court’s decision in Edwards.

Read the full post on our Employment Law Commentary blog.