Senior Associate Attorney
As most employers know, non-compete agreements are generally void as against public policy in California under Business and Professions Code section 16600 as an unlawful restraint on a trade/profession. However, employers can still generally protect themselves against a former employee’s use of trade secret information for competition purposes.
What about former employees who try to steal not customers, but other employees? Under a 1985 California court of appeal case, Loral Corp. v. Moyes, employee non-solicitation (aka anti-raiding) agreements that were reasonable in scope likely remained valid. However, this is an untested area of the law as California courts have typically skirted this question.
Recently, a recent court of appeal case called into question the continuing validity of Loral and therefore, anti-employee raiding provisions. In AMN Healthcare v. Aya Healthcare Services, Inc. (2018), the agreement at issue prevented former employees from soliciting away current employees for a one-year period. The court questioned whether Loral is still good law (without overturning it), but distinguished it factually from the current case, noting that because the employees in this case were employed as recruiters, a ban on employee raiding for recruiters is akin to a customer non-solicitation. Therefore, the court in AMN Healthcare “independently conclude[d]” that the employee non-solicitation provisions in that case were void, without expressly invalidating the “reasonableness” standard set forth in Loral. So, although the AMN Healthcare case did not expressly invalidate the Loral case, it did question the Loral decision and echoed a disfavor of non-solicitation provisions voiced by other courts. As a result, many employers believe it is too risky to continue to have broad anti-raiding provisions. In any event, as noted above, it is clear that employers are still permitted to protect trade secrets, so provisions preventing employees from using employer trade secrets or confidential information to recruit someone away are valid.
Accordingly, employers should establish strong (and accurate!) trade secret and confidentiality policies, and should obtain legal review of any non-solicitation provision in new hire, confidentiality or other paperwork from experienced counsel.