Once an Ex-employee, Not Always an Ex-Employee

You run a large, successful company with various divisions operating in several cities across the nation. One of your employees sues you and you agree to settle. In the settlement agreement, you agree that you will not hire the employee at facilities that your company owns or may contract with in the future. Even under a private agreement, this may not be legal.

The United States Court of Appeals for the Ninth Circuit recently held in Golden v. California Emergency Physicians that a no-employment agreement, which bars an ex-employee from working or being reinstated at any of the company’s facilities or facilities the company may contract with in the future, violates Section 16600 of the California Business and Professions Code. The Code sets the standard that “every contract by which anyone is restrained from engaging in a lawful possession, trade, or business of any kind is to that extent void.” The ex-employee argues that his employment opportunities will be greatly limited in the future given the company’s size and dominance in the industry.

The California Supreme Court remanded the case to determine whether the agreement unlawfully restrains the ex-employee from future business opportunities. While this case is to be continued, employers should be weary – contracting with an ex-employee to remain an ex-employee may void the agreement. However, this decision will most likely be limited to very large employers.

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