Employers are right to worry about protecting the investment they have in recruiting and training their workforce. One way many businesses seek to address this is by inserting an “anti-raiding provision” in employment agreements. Primarily, such provisions prohibit departing employees from actively soliciting the business’s current employees to leave their jobs, or using confidential business information to help them induce such employees to leave.
A recent California Court of Appeals decision invalidated such a provision in the context of an employment-staffing agency. This is a significant decision that may impact the continued use of anti-raiding provisions, at least in certain industries.
AMN and Aya are competing healthcare staffing agencies that provide travel nurses to medical care facilities throughout the country. AMN had an anti-raiding provision in its standard employment agreement. Some of AMN’s travel-nurse recruiters left AMN, and began recruiting AMN’s travel nurses for Aya. In response, AMN brought claims against Aya and the former AMN recruiters for breach of contract and trade secret misappropriation.
The anti-raiding provisions in AMN’s employment agreement were typical of such agreements: AMN employees were not to recruit fellow employees to leave AMN during their employment at AMN and for up to 18 months after they left AMN.
The trial court ruled that AMN’s anti-raiding provision unlawfully prevented the former AMN employees from engaging in their lawful trade or profession: soliciting and recruiting travel nurses, including those who held temporary assignments with AMN. The trial court also ruled that the names and identities of AMN’s travel nurses and other information were not trade secrets and not even confidential.
Thus, AMN was banned from enforcing the anti-raiding provision and ordered to pay $169,000 for Aya’s attorney’s fees. AMN appealed and on November 1, 2018, the California Court of Appeal upheld the trial court’s judgment.
In concluding that the anti-raiding provision was void, the Court of Appeal focused on California’s strong public policy in favor of employee mobility, citing California case law rejecting employee non-compete language and “overbroad” customer non-solicitation provisions.
AMN tried to argue that its anti-raiding provision would not unduly restrict former employees from working in their chosen profession, in that they were not hindered in seeking new employment, but they merely lost the option to initiate contact with their former co-workers. Therefore, AMN argued, its anti-raiding provision was an enforceable agreement by its employees not to use confidential information to actively recruit and solicit other AMN employees to leave AMN.
The Court rejected this argument, emphasizing the fact that the profession at issue is recruiting and soliciting… specifically, initiating contact with travel nurses and inducing them to work for their staffing agency. Accordingly, enforcing the anti-raiding provision would restrain the recruiters from engaging in their chosen profession.
Though many California courts have upheld limited anti-raiding provisions over the years, the AMN case creates a cloud of uncertainty over their future viability. AMN still has the option to petition the California Supreme Court for review, and employer groups could also mobilize to challenge the decision. At some point, the California Supreme Court may need to step in to resolve these important issues.
Though many California courts have upheld limited anti-raiding provisions over the years, the AMN case creates a cloud of uncertainty over their future viability. AMN still has the option to petition the California Supreme Court for review, and employer groups could also mobilize to challenge the decision. At some point, the California Supreme Court may need to step in to resolve these important issues.
The AMN decision serves as continuing confirmation of California’s aggressive pro-employee mobility policy and judicial hostility towards restrictive covenants. Employers should conduct a careful review of their anti-raiding and trade-secret provisions to address the uncertainty created by this decision, particularly for employers in specialized industries.
If you have any questions related to non-solicitation and trade secret issues, or any other employment law matter, please call LightGabler at 805-248-7208 or email info@lightgablerlaw.com.
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Disclaimer: This article is a general summary and discussion of some of the more recent developments affecting business interests. This information is not intended to provide legal opinions or to substitute for the advice of legal counsel, and should not be relied upon as an opinion of the author regarding any specific matter. Instead, please contact LightGabler for additional information.
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