New Appeals Court Decision Makes It Harder for Businesses to Protect Themselves from Ex-Employees

In AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., the Court of Appeal held that a "Nonsolicitation of employees" provision of a standard Confidentiality and Non-Disclosure Agreement signed by employees who later left to compete against their former employer was void and unenforceable as an improper restraint of the employees' right to practice in their chosen profession.

The Court relied upon Business and Professions Code Section 16600, which provides in relevant part, "... every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

Plaintiff AMN and Defendants Aya and former employees of AMN, were competitors in a niche field of recruiting travel nurses on 13-week assignments. The undisputed evidence showed that if the former AMN employees were barred for at least one year from "soliciting or recruiting any travel nurse listed in AMN's database, that would likewise restrict the number of nurses with whom a recruiter could work with while employed at his/her new staffing agency."

AMN also tried to preserve its claim against its former employees by arguing that they were using "trade secrets", such as "the terms and conditions of AMN's travel nurses' employment with AMN, their placement at various hospitals..., [and] their identity...." The Court independently evaluated the three categories of trade secrets and found, as a matter of law, that they were not because, among other things, travel nurses belong to a public social media site where they reveal their names, assignments and even terms of employment.

Adding injury to insult, the Court also upheld the award of attorneys' fees to the Defendants pursuant to Code of Civil Procedure Section 1021.5 which provides, "a court may award attorneys' fees to a successful party ... in any action which has resulted in the enforcement of an important right affecting the public interest...." The Court held that Defendants' successful challenge of the Nonsolicitation provision conferred a significant benefit on a large class of persons, namely, the current and former AMN California employees who had signed the Confidentiality/Non-Disclosure Agreement.

The AMN decision will make it extremely difficult for employers to restrict their former California employees from competing with them.

Please contact Alton Burkhalter at [email protected] or (949) 975-7500 if you have any questions about any issue discussed in this article, or any other related matter.

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