By Patrick O’Brien, J.D., Legal Coordinator for the American Med Spa Association
Generally, California prohibits the enforcement of most employee non-compete clauses with few exceptions. An appeals court decision this past November saw a commonly used and previously accepted non-solicitation restriction caste into doubt in California. The case known as AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. involves former travel nurse recruiters for AMN, a travel nursing placement agency who went to work for Aya a competing travel nursing agency. Travel nursing agencies seek to recruit and place nurses on temporary work assignments throughout the country.
The defendant nurse recruiters had signed a confidentiality and nondisclosure agreement as a condition of employment with AMN. The AMN confidentiality and nondisclosure agreement contained fairly typical restrictions whereby the employee promised to keep company trade secrets secure and confidential. However, it also included what is commonly known as an “anti-solicitation” clause which prohibited former employees for a period of one year or eighteen months after leaving the company from contacting current employees for the purpose of directly or indirectly inducing or causing them to also leave. As a small quirk in this case, travel nurses are considered employees of the agency when they are placed on assignment but may otherwise be customers of the agency. This anti-solicitation clause would seem to be a prudent safe guard for an employment agency to stop former employees from stealing away your pool of potential employees.
Which is unsurprisingly why AMN sued the former recruiters when they recruited away some of AMN’s travel nurses to work for Aya. This, AMN claimed, was in violation of the anti-solicitation clause of the non-disclosure agreement they had previously signed and agreed to. However the trial court sided with the defendants, Aya Healthcare Services Inc. and the former recruiters, and found the restrictions that AMN was seeking to enforce were void as a matter of public policy. And on November 1, 2018 the 4th District Court of Appeals if California upheld that judgement of the lower court.
To understand why AMN lost we’ll need to look at some peculiarities of California labor law. California strictly prohibits employee non-compete agreements with few exceptions as embodied in the Business and Professions Code section 16600. In brief, section 16600 makes any contract that restrains someone from engaging in a lawful profession, trade, or business void and unenforceable. There are a few exceptions to this rule that aren’t applicable in this case such as allowing owners, partners, and shareholders to be restricted by non-compete clauses when they sell a business. However, and this would seem to be a critical exception in this case, the statute does allow for protection of a company’s trade secrets. For an employment agency trade secrets include the company’s applicant/customer lists and the statute allows for protections of these lists for one year following termination of the former employee.
It would seem that AMN should be able to enforce their non-disclosure agreement using the trade secrets exception. So why did the case not go in their favor? The devil is, not surprisingly, in the details: travel nurses would apply for employment with an agency and if they were selected for job placement would work as employees of that placement agency (here either AMN or Aya). The nurses, to improve their chances of placement might and often did apply with multiple agencies. So in the case at hand each of the AMN travel nurses that had been recruited to Aya were already registered with Aya, in some cases years in advance of them leaving AMN. Because of this the court ruled that the identities and contact information of these employees couldn’t be claimed as a trade secret by AMN since, practically speaking, there was nothing secret about it. Since there was no trade secret exception the court found that the non-solicitation clause was an “unlawful restraint on trade” under 16600 because it sought to prevent the defendants from engaging in their profession as travel nurse recruiters. While the ruling in this case is very fact specific any California employers will want to carefully review their own non-disclosure agreements in light of this Appeals Court ruling.
If you have questions or concerns on your own employment issues you might consider using one of your AmSpa member benefits which includes an annual legal consultation with the law firm ByrdAdatto.