New precedent for California no rehire clause – Golden vs. Cal. Emergency Physicians. It’s fairly well-known that the state of California doesn’t look kindly on non-compete provisions in employment contracts. Settlement agreements with “no rehire” provisions have not posed many problems for employers, however – until now. In a case that could have major consequences for California employers, the U.S. Court of Appeals for the Ninth Circuit has ruled that a “no rehire” clause can violate the same California law that prohibits non-compete provisions.
No Rehire Clause Decision
The decision, Golden vs. Cal. Emergency Physicians, was handed down in April 2015. It held that a settlement agreement’s provisions about re-hiring could be considered overly broad – and thus could be found to impermissibly restrain an employee’s professional practice, which is a violation of Section 16600 of the California Business and Professions Code.
What Happened in the Case?
The employee, David Golden, was a doctor employed by California Emergency Physicians Medical Group. He was terminated from his position, and then filed an employment discrimination suit. The parties eventually agreed to settle.
The settlement agreement contained a clause stating that he would waive any and all rights to be employed by CEP, or to be employed at any facility owned by CEP. The clause also stated that if Dr. Golden were to become employed at a facility unaffiliated with CEP, and then CEP bought or contracted with that facility, then Dr. Golden would be terminated without any liability.
Dr. Golden was unhappy with this clause, and refused to sign it. He argued that the clause violated Section 16600, which states that a contract “by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”
When his case went to the U.S. District Court for the Northern District of California, the court ruled against Dr. Golden. The district court held that because the agreement didn’t prevent him from working for a competitor of CEP (or for a hospital or facility operated by someone other than CEP), then the agreement could not be considered a violation of Section 16600.
This decision, however, was overturned by the Ninth Circuit, which sent the case back to the district court. The Ninth Circuit held that the language of 16600 is broad, and should not be interpreted to apply only to non-compete clauses. The court, however, did not take a stance on whether the agreement actually violated Section 16600.
What Does This Case Mean For You?
If you are an employer in California, and you have signed no-rehire agreements with former employees, there’s no need to panic. The ruling does not prohibit no-rehire agreements altogether. But it does mean that some no-rehire agreements could conceivably be considered violations of Section 16600.
Before you sign any new settlement agreements, it may be wise to ensure that the language you use does not go overboard in restricting the employee’s rights. If you are concerned about the enforceability of your agreements, you may wish to speak to a lawyer. The employment and labor law attorneys at Beck Law P.C., in Santa Rosa, have a great deal of experience with employment contracts. You can call or email them today to schedule a consultation.