22 October 2019 - Article
This client alert provides important updates on non-solicitation clauses in California. Three recent California courts have held that non-solicitation clauses – provisions that prohibit a former employee from soliciting his or her former colleagues – are not enforceable in California.
California’s Policy Favoring Employee Mobility
California has strong public and legislative policies favoring employee mobility and open competition. Codified in California Business and Professions Code section 16600, California law provides, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Interpreting these policies and laws, California courts have long held that the interests of the employee in his or her own mobility and betterment are deemed paramount to the competitive business interest of employers, where neither employee nor his or her new employer has committed any illegal act at the change of employment.
While non-compete provisions have been held invalid in California for quite some time, non-solicitation clauses were often seen as an alternative to non-compete clauses – and a way to protect employers’ interests. Now, however, non-solicitation clauses are under attack by California courts, with at least three deeming these clauses to be unenforceable.
Recent Decisions Affecting Non-Solicitation Clauses
In November of 2018, a Fourth District Court of Appeal held that a non-solicitation of employee provision was void under section 16600. There, the provision prohibited former employees from, either directly or indirectly, soliciting, recruiting or causing others to solicit, current employees. The court held that this provision restrained the employees from practicing their chosen profession. See AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., 28 Cal. App. 5th 923 (Ct. App. 2018). Two separate federal court judges in California agreed in opinions published in January and in April of 2019, holding “that California law . . . invalidate[s] employee non-solicitation provisions” and that such “clause[s] [are] void.” See Barker v. Insight Global, LLC, 2019 U.S. Dist. LEXIS 6523, *3 (N.D. Cal. Jan. 11. 2019); WeRide Corp. v. Huang, 2019 U.S. Dist. LEXIS 55996, *32 (N.D. Cal. Apr. 1, 2019).
There are, however, important exceptions to this prohibition. Non-compete provisions and non-solicitation provisions are enforceable in situations in which there was (1) a sale of goodwill or interest in a business, (2) the dissolution of a partnership, or (3) the dissolution or sale of a limited liability company.
Impact and Next Steps
It is important for all of our employer-clients to review any employment agreements effective in the State of California. If they contain non-solicitation clauses, consider whether those clauses should be omitted and the employment agreements re-signed. There is a potential for litigation if these steps are not taken, as well as the possibility that a court could award attorneys’ fees to the employee in a successful lawsuit. If you would like to discuss with us the specifics of your employment agreements, or whether non-solicitation clauses in your employment agreements fall into one of the exceptions referenced above, we encourage you to contact us to set up a phone call or meeting.