The California Court of Appeal recently held that a non-solicitation of employee provision improperly impinged on the ability to freely engage in gainful employment. Historically, California courts have upheld such agreements in limited situations if they are reasonable.
The case involves individual defendants that executed a Confidentiality and Non-Disclosure Agreement. The Agreement specifically prohibited the solicitation of plaintiff’s employees for one year. In addition to finding that the non-solicitation provision was unlawful, the court also found that customer names and identities were not trade secrets. The court of appeal affirmed the ruling.
The court found that the identity and contact information were not “secrets” because they were already known to the defendant, and were readily ascertainable via social media and by word of mouth. The court also considered that such information was not acquired via a proprietary database.
The court also held that a list of names and email addresses that was forwarded by an individual defendant to a personal email account prior to terminating employment with defendant was not a protectable trade secret because it did not cause plaintiff any damage.
The case is AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. Defendant alleges that AMN pursued litigation in bad faith and that used anti-competitive behaviors that are now the subject of a separate antitrust lawsuit.
Consult with an experienced legal professional about policy and applicable legal precedent regarding restrictive covenants. Historically, non-solicit and non-compete agreements are viewed skeptically by courts, particularly in California.
With regard to the latter, a new Massachusetts law has been passed that limits non-competes. Utah and Idaho have also recently passed laws regulating employee non-compete agreements. The Massachusetts law applies to employees and independent contractors. It requires, inter alia, that such agreements be reasonable in scope and duration, be in writing and signed by both parties. Notice to the employee/contractor is also required, as is the obligation to advise the employee/contractor that they have the right to consult independent legal counsel.
Employers must also must provide statutorily required notice and non-competes effective during (versus, prior to) employment must be supported by separate consideration. They Massachusetts law is unusual in that employers are required to pay the employee/contractor a set amount during the entire non-compete period, unless the employee/contractor breaches the agreement. Non-competes are prohibit under the new law for employees/contractors that are terminated without cause.
Richard B. Newman is an FTC investigation lawyer at Hinch Newman LLP. Follow him on Facebook and LinkedIn.
Informational purposes only. Not legal advice. Always seek the advice of an attorney. Previous case results do not guarantee similar future result. Hinch Newman LLP | 40 Wall St., 35th Floor, New York, NY 10005 | (212) 756-8777