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.

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Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

As a senior member of Covington’s Institutional Culture and Social Responsibility Practice Group, Carolyn has co-led significant investigations into workplace culture, DEI issues, and reports of sexual misconduct and workplace harassment.

As an employment lawyer with over two decades of experience, Carolyn focuses on a wide range of compliance and regulatory matters for employers, including:

  • Conducting audits regarding employee classification and pay equity
  • Advising on employment issues arising in corporate transactions
  • Strategic counseling on a wide range of issues including discrimination and harassment, wages and hours, worker classification, workplace accommodations and leave management, performance management and termination decisions, workplace violence, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies
  • Drafting employment contracts and offer letters, separation agreements, NDAs, and other employment agreements
  • Advising on employee privacy matters, including under the California Consumer Privacy Act
  • Providing guidance on use of AI in the workplace and development of related policies
  • Leading anti-harassment and other workplace-related trainings, for employees, executives, and boards

Carolyn also works frequently with the firm’s white collar, privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups.