California Court Rules On Protections Against Contracts: Why You Should Review Your Form Agreements Today
A divided Ninth Circuit court ruled this week that California’s protections against contracts restraining employment were not explicitly limited to non-compete agreements. Rather, the law can apply to any type of employment agreement, including settlement agreements.
In Donald Golden v. California Emergency Physicians Medical Group et al., case number 12-16514, the employer and employee entered into a proposed settlement agreement. The no-employment provision in the settlement agreement states that the employee will not continue to be employed at any of the employer’s current facilities, or at any other facility with which the employer may contract in the future. The employee appealed and sought to “un-do” the settlement agreement based on this clause.
The majority agreed with the employee, concluding that California Business and Professions Code section 16600 applies not only to non-compete agreements but also to any agreement restricting an employee’s ability to engage in his or her profession. Because the settlement agreement contains a no re-employment clause, the clause is potentially invalid if it unduly restricts the employee’s ability to engage in his profession. The majority remanded the case and asked the lower court to conduct additional fact finding to see if the no re-employment clause in question restrains the employee’s ability to engage in his profession.
The case provides no definite answer as to no re-employment clauses’ continued validity in California. However, it does provide caution to employers. At the very least, employers should review their form agreements to ensure that the agreements do not unduly restrict employees’ ability to engage in their profession.