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California Nixes Employee Non-Solicitation Restrictions

    Client Alerts
  • November 21, 2018

Employers with California operations probably know that traditional noncompetition covenants are unenforceable in that state. Additional state court decisions concluded that customer non-solicitation prohibitions are also considered a form of unenforceable noncompetes. However, until earlier this month, California employers were unsure as to whether these prohibitions extend to employee non-solicitation covenants.                       

Employee non-solicitation provisions prevent a former employee from hiring or inducing a company employee to leave their position to join a competitor or other entity. In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., the California Court of Appeals concluded that employee non-solicitation clauses violate the same California statute that serves as the basis for the prohibition on noncompetes and customer non-solicitation restrictions. In its decision, the California court called into question the validity of older cases that allowed reasonable restrictions against employee raiding. The only limited exception to this prohibition would be employee non-solicitation covenants put in place as a result of the sale of a business.

This decision may still leave the door open for tort claims by one company against another based on claims that it is taking multiple employees for the purpose of interfering with the target company’s ability to conduct business. Absent such facts, this case calls into question the ability of California employers to impose any post-employment restrictions on their former employee’s actions, other than confidential information protections.