When California employers settle lawsuits with employees and former employees they commonly require that the persons suing agree they’ll never apply for work with the employer again and, if they do, the employer can fire them without liability – “no re-hire” provisions. A decision this month by a panel of the 9th Circuit Court of Appeals, however, for the first time questions whether such provisions are legal. The decision may bring into question whether employers can continue to require that settling plaintiffs sign onto such “no re-hire” terms.
California law has long provided that “every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind is to that extent void.” Business & Professions Code § 16600. California courts now universally agree that § 16600 makes void non-competition agreements, that is, agreements that employees won’t compete with their former employer once their employment ends, other than in narrow exceptions set out by statute. Edwards v. Arthur Anderson LLP (2008) 44 Cal.4th 937.
This month the 9th Circuit ruled that, non-competition agreements aside, § 16600 may also render void “no re-hire” provisions, as they arguably restrain plaintiffs from engaging in their occupations or professions. Golden v. California Emergency Physicians Medical Group 2015 WL 1543049. Golden, an emergency-room physician, sued his employer (CEP) for race discrimination. CEP manages and staffs emergency rooms throughout California and other states. On the record in court, Golden agreed to a settlement which included a standard “no-rehire” provision. A short time later, Golden refused, though, to sign the written settlement agreement provided by CEP which contained a broad “no re-hire” provision. Golden’s lawyer in the case purported to withdraw from representing Golden and joined CEP in moving the court for an order compelling Golden to sign the settlement agreement.
The court ordered Golden to sign the agreement containing the “no-rehire” provision. Golden refused. The court entered judgment enforcing the settlement.
Golden appealed, arguing that the “no re-hire” provision violated § 16600 as a restraint on his ability to engage in his profession as an emergency room physician.
The 9th Circuit panel ruled that “no-rehire” provisions may be void under § 16600 if, in the particular case, barring the plaintiff from working again for the defendant employer constitutes a restraint of “a substantial character” on the individual’s ability to pursue his or her occupation or profession. The panel sent the case back to the district court to reach findings, for example, as to the extent of CEP’s monopoly on Golden’s future job opportunities, the extent of Golden’s employment opportunities outside of CEP, etc.
In opening an inquiry into whether the “no-rehire” provision is a “substantial” restraint on Golden’s professional opportunities, the 9th Circuit panel relied on a 1916 California Supreme Court decision and the “narrow restraint” doctrine, a doctrine the California Supreme Court disavowed in 2008 in the Edwards decision. The reasoning of the decision is questionable.
It remains to be seen whether Golden is the beginning of the end for the “no re-hire” provisions that bring employers a sense of closure and are now commonplace in employment litigation throughout California or will fade away as an anomaly in the law. It is a decision to watch, though, as the case will likely return to the 9th Circuit following further findings by the federal district court.