Enforcement of re-employment agreement
Are agreements to not seek re-employment enforceable?
The Ninth Circuit Court of Appeals recently addressed the question of whether a no re-employment provision in a settlement agreement violates California law. On April 8, 2015, the appellate court in Golden v. Cal. Emergency Physicians Med. Group (9th Cir. 2015) 2015 U.S. App. LEXIS 5642, concluded that the answer depends on whether the provision creates a substantial restraint on the employee’s right to engage in her profession.
Dr. Golden was an emergency room doctor affiliated with the California Emergency Physicians Medical Group. He sued the Medical Group regarding his loss of staff membership. The parties orally agreed to settle the matter with a provision that Dr. Golden waived all rights to future employment with the Medical Group or any facility owned by or in contract with it. Dr. Golden refused to sign a written version of agreement. After the trial court decided that Dr. Golden was required to sign the written agreement, Dr. Golden appealed.
Dr. Golden contended that the no re-employment provision violated California law (Cal. Bus. Prof. Code section 16600) that makes void any contract that restrains an individual from engaging in any lawful profession, trade, or business. The trial court determined that this law did not apply to the provision because it was not an agreement to not compete with the Medical Group.
Upon review of this determination, the Ninth Circuit first noted that the California Supreme Court has not decided whether the section 16600 law is limited to non-compete agreements. The appellate court then looked to the language of the law, which does not specifically target non-compete agreements and applies to all contracts, not just employment contracts.
The appellate court also reviewed California Supreme Court decisions. One (Chamberlain v. Augustine (1916) 172 Cal. 285) provides that determining whether the section 16600 law applies is not whether the contract is a non-compete agreement, but rather whether the contract imposes a substantial restraint. A second (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937) noted the policy behind the law is to favor open competition and employee mobility, and the key issue in that case was whether the agreement restricted the employee’s professional practice.
In a 2-1 decision, the Ninth Circuit returned the matter back to the trial court to determine whether the no re-employment provision constitutes a substantial restraint on Dr. Golden’s medical practice. Consequently, whether such provisions are enforceable remains an open question. At the same time, the Ninth Circuit has provided guidance in how to answer it.