December 18, 2018

Key California Employment Law Cases: November 2018

This month’s key employment law cases address nonsolicitation provisions and arbitration agreements.

AMN Healthcare, Inc. v. Aya Healthcare Servs., Inc., 28 Cal. App. 5th 923, 239 Cal. Rptr. 3d 577 (2018)

Summary: Nonsolicitation provision was void that prevented former employees from soliciting, for at least one year, any employee of employer to leave.

Facts: Plaintiff AMN Healthcare, Inc. and defendant Aya Healthcare, Inc. are competitors in the business of providing temporary healthcare professionals, including travel nurses, to medical care facilities around the country.  Individual defendants were former travel nurse recruiters of AMN who left AMN to work for Aya. The individual defendants each signed a confidentiality and nondisclosure agreement with AMN that included a provision preventing them, for at least one year, from soliciting any employee, including travel nurses, of AMN to leave AMN. After each of the individual defendants left AMN to work for Aya, they recruited AMN travel nurses to work for Aya. AMN sued Aya and the individual defendants, asserting claims including breach of contract and misappropriation of confidential information.  Defendants cross-complained for declaratory and injunctive relief. Defendants then moved for summary judgment on AMN’s complaint and their cross-complaint, arguing that the nonsolicitation provision was illegal under California Business and Professions Code section 16600. The trial court granted defendants’ motion and enjoined AMN from enforcing its nonsolicitation agreement in California.

Court’s Decision: The California Court of Appeal affirmed. First, the nonsolicitation provision was void under section 16600.  The nonsolicitation provision prevented the individual defendants from practicing their chosen profession: soliciting and recruiting travel nurses.  The reasonableness standard adopted in Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 219 Cal. Rptr. 836 (1985), which permits nonsolicitation agreements that involve only limited restrictions which tend more to promote than restrain trade and business, likely did not survive the California Supreme Court’s decision in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937, 81 Cal. Rptr. 3d 282 (2008).  Edwards, which addressed noncompetition agreements, rejected any narrow restraint exceptions to section 16600.  Even if the reasonableness standard survived Edwards, AMN’s nonsolicitation provision still violated section 16600 because it directly restrained the individual defendants from engaging in the business of recruiting.  Second, summary judgment was properly granted on AMN’s causes of action based on misuse of confidential information because section 16600 prohibits an employer from restraining an employee from engaging in his or her profession even if the employee uses information that is confidential but not a trade secret.  Third, the injunction against AMN was proper because the agreement violated section 16600 and AMN had previously sued another former employee who had left to work for a competitor.  Finally, in connection with the injunction, the trial court acted within its discretion in awarding defendants their attorney’s fees under California Code of Civil Procedure section 1021.5, which permits an award of fees when the action confers a significant benefit on the public.

Practical Implications: California employers should exercise caution in using and enforcing nonsolicitation agreements.  While it remains to be seen whether this case will be interpreted narrowly based on its unique facts, the court’s reasoning sweeps broadly and signals that, at least for the moment, nonsolicitation agreements untethered to misuse of trade secrets are on questionable footing in California.

Ramos v. Super. Ct., 28 Cal. App. 5th 1042, 239 Cal. Rptr. 3d 679 (2018)

Summary: Requirements for mandatory employment arbitration agreements set forth in Armendariz apply to relationships akin to employer-employee relationship.

Facts:  Plaintiff was an intellectual property “Income Partner” at defendant law firm.  When plaintiff filed suit against defendant for sex discrimination, retaliation, wrongful termination, and violation of California’s Equal Pay Act, defendant moved to compel arbitration of plaintiff’s claims in accordance with an arbitration agreement that plaintiff signed shortly after joining the firm.  Defendant argued that because plaintiff was a partner and not in an employment relationship with defendant, (1) the requirements for arbitration clauses in mandatory employment agreements outlined in Armendariz v. Foundation Health Psychcare Services, Inc., 24 Cal. 4th 83, 99 Cal. Rptr. 2d 745 (2000), did not apply; (2) Armendariz was no longer good law; and (3) even if Armendariz applied and was still good law, its requirements were satisfied.  The trial court granted defendant’s motion but severed the provisions of the agreement relating to venue and cost-sharing. 

Court’s Decision:  The California Court of Appeal reversed and remanded.  Armendariz remains good law and it governed the analysis of plaintiff’s agreement.  Armendariz applied because the claims plaintiff asserted in the lawsuit encompassed statutory rights that Armendariz held are unwaivable, and because defendant was in a superior bargaining position vis-à-vis plaintiff akin to an employer-employee relationship.  The Armendariz requirements were not satisfied here: (1) plaintiff was required to pay her own attorney’s fees even if she would otherwise have been statutorily entitled to fees; (2) she was required to pay arbitration fees and costs that she would not have had to pay if she litigated her claims in court; (3) all aspects of the arbitration were to be kept confidential; and (4) the panel of arbitrators was restricted in its ability to override or substitute its judgment for that of the partnership, thereby restricting the remedies available to plaintiff.  The court could not cure the unconscionability by severing the offending terms. 

Practical Implications: Companies should review the arbitration agreements they provide to all individuals who work for them, not just individuals in a traditional employer-employee relationship.  While the court did not define what it means to be in a position akin to an employer-employee relationship, employers should ensure that the protections California courts require for employment arbitration agreements are included in agreements with individuals who may fit within this category.