Recent California Cases Invalidate Employee Non-Solicitation Provisions

Many California employers use employee non-solicitation provisions in their employment agreements. These provisions prohibit employees, both during their employment and for one to two years thereafter, from soliciting the company's employees or independent contractors to leave the company.

California law has long prohibited any contract "by which anyone is restrained from engaging in a lawful profession, trade or business of any kind." Cal. Bus. Prof. Code Section 16600. Because of this law, post-employment non-competition or customer non-solicitation provisions are not enforceable in California.

Employers have traditionally distinguished employee non-solicitation provisions by relying on a 1985 California appellate court case called Loral v. Moyes. 174 Cal. App. 3d 268 (1985). There, the court held a non-solicitation provision did not violate Section 16600 and was enforceable. The court found such prohibition was a reasonable and limited restriction that had little impact on employee mobility and helped promote a stable work force by preventing employee raiding and poaching.

However, two recent California cases have doubted the continuing viability of Loral and have found such employee non-solicitation provisions unenforceable.

First, in a November 2018 opinion in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., a California appellate court invalidated a post-employee non-solicitation provision on the grounds that it restrained trade in violation of Section 16600. 28 Cal. App. 5th 923 (2018). The provision in question prevented travel nurse recruiters from soliciting company employees (including travel nurses) for 12 to 18 months post-employment. The court reasoned that such provision unlawfully restrained recruiters from engaging in their profession, i.e., soliciting travel nurses within their network regarding new employment opportunities. The court recognized that Loral had permitted such non-solicitation provisions, but the court "doubted the continuing viability of Loral" in light of a 2008 California Supreme Court case called Edwards v. Anderson. In Edwards, the California Supreme Court held any restraint on a person's ability to engage in their profession is impermissible, even a reasonable or narrow one. 44 Cal. 4th 937 (2008).

Commentators initially wondered how much AMN was limited to its facts, since a provision limiting solicitation of employees has the greatest impact on a recruiter's ability to engage in his or her...