California Non-Compete Agreements Revisited

In this latest installment, we revisit the topic of California non-competition agreements (also referred to as California non-compete agreements). This time the focus is on California Business and Professions Code 16600.

In the recent case of Golden v. Cal. Emergency Physicians (9th Cir. 12-16514 4/8/15), the 9th Circuit revisited California’s stark prohibition against non-competition agreements (aka non-compete agreements). In this case, the Court held that the district court “abused its discretion” in holding that California Business and Professions Code 16600 (prohibiting non-compete agreements) did not apply to a no-employment provision contained in the drafted settlement agreement.

In summary, Dr. Golden apparently filed a discrimination lawsuit against Cal. Emergency Physicians (CEP), and the parties ultimately drafted a settlement agreement. In such agreements, there is typically a routine no “re-employment” clause. Many employers obviously want closure, and want certainty that once they settle a claim with the employee, the employee is not going to re-apply for a job next week.

The particular clause at issue provided as follows: “that…Golden shall not be entitled to work or be reinstated at any CEP-contracted facility or at any facility owned or managed by CEP.” It went on to state “if CEP contracts to provide services to, or acquires rights in, a facility that is an emergency room…at which Golden is employed or rendering services, CEP has the right to AND WILL terminate Golden from any work in the emergency room without any liability whatsoever.”

In reaching its decision, the Court reasoned: “The courts of California have not clearly indicated the boundaries of section 16600’s stark prohibition but have nevertheless intimated that they extend to a considerable breadth. At the very least, we have no reason to believe that the State has drawn section 16600 simply to prohibit “covenants not to complete” and not also other contractual restraints on professional practice.”

While the big picture seems to be an affirmation of California clearly stated policy of “open competition and employee mobility”, the court left it to the district court to determine whether this language is in effect a “restraint of a substantial character to Dr. Golden’s medical practice.” In dissent, Judge Kozinski seemed to believe that it was impossible to determine at this point in time whether the provision was in fact a restraint on Dr. Golden’s ability to practice his profession, and that if it did work to that effect in the future, Dr. Golden could argue that the provision was void.

The case is not finished yet, however one implication is that a no re-employment provision drafted into a settlement agreement could perhaps be considered to be a violation of BPC 16600. Depending on other terms of the contract (i.e. whether or not there is a severability clause), either the entire agreement or just the restriction could be voided. If the settlement agreement is voided, then the employer will have paid the money and have no settlement. Of course, this would probably sort itself out, but it will cost (a) time and (b) money. Not a good square to land on. Alternatively, just that clause may be voided, in which case the employer will have paid the money and then the employee could re-apply, and claim retaliation if he or she is not hired. Again, not a place where an employer wants to be after settling a litigation.

Non-compete agreements remain a battleground issue in California, even with the strong language of BPC 16600 and accompanying California Supreme Court decisions, so we’re sure there will be more to follow on this topic…

Adishian Law Group is a California law firm with a statewide practice in the areas of Corporate law, Employment law, Real Estate law and Mediation Services. Adishianlaw.com is one of the oldest continually operating law firm websites on the Internet. The firm serves its clientele via three offices located in the major business hubs of El Segundo, Palo Alto and San Francisco. As of December 2014, Adishian Law Group, P.C. has represented individual and corporate clients located across 20 California counties, 8 States outside of California and 9 foreign countries — in over 380 legal matters.

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California Non-Compete Agreements, Revisited