Cal-Peculiarities: How California Employment Law is Different 2022 Edition

©2022 Seyfarth Shaw LLP  www.seyfarth.com 2022 Cal-Peculiarities | 331 Court of Appeal reversed, reasoning that because “the interests of the employee trump the interests of the employers as a matter of public policy,” “it logically follows that a broad-ranging contractual provision such as the one at issue here cannot stand. ” 21 The Court of Appeal concluded that “enforcing this clause would present many of the same problems as covenants not to compete and unfairly limit the mobility of an employee who actively sought an opportunity with [the customer]. ” 22 T he Court of Appeal allowed that a “more narrowly drawn and limited no-hire provision” might be permissible under California law, but noted that the provision in question covered all hiring (not just solicitation by the customer) and covered all of the consultant firm’s employees (not just those who worked for the customer or those whom the consulting firm even employed at the time). Outweighing this “broad provision” was “the policy favoring freedom of mobility for employees. ” 23 12.2 Implications for Wrongful Termination California courts have held that where an employee refuses to sign a document containing an unlawful covenant not to compete, the employer violates public policy and incurs tort liability if the employer responds by firing the employe e. 24 The Court of Appeal has extended that principle to hold that an employer could be liable for wrongful termination if it fired an employee for breaching a noncompete covenant that the employee had entered into with a former employer . 25 The Court of Appeal reasoned that the new employer’s decision to fire the employee in those circumstances amounted to enforcing a no-hire agreement between the old and new employers—an agreement that was void as an unlawful noncompete agreement . 26 12.3 “No rehire” clauses Employment settlement agreements traditionally have provided that the settling plaintiff—now a former employee—would never re-apply for employment, and that the defendant could deny employment to the plaintiff without recourse. Before 2020, such “no rehire” clauses were common even in California, but one case held that in particular circumstances a no-rehire clause could be an unlawful restraint of the former employee’s right to engage in a lawful profession, trade, or business. In a 2015 decision, the Ninth Circuit held that the trial court, which had enforced a settlement agreement with a “no rehire” clause, had abused its discretion by narrowly characterizing Section 16600 as applying only to “covenants not to compete,” when Section 16600 actually applies more broadly to any contractual “‘restraint of a substantial character,’ no matter its form or scope. ” 27 The case involved unusual facts, arising in an usual procedural posture. The plaintiff was an emergency medicine physician who sued for unlawful termination of his staff privileges at a medical facility. The parties negotiated a settlement agreement that contained a no-rehire clause but then the plaintiff sought to renege on the basis that the no-rehire clause was contrary to public policy as expressed in Section 16600. The district court rejected this concern, reasoning that Section 16600 addresses only “covenants not to compete.” But the Ninth Circuit disagreed, holding that the no-rehire clause might constitute a substantial restraint of trade, depending on whether the former employer so dominated emergency medicine in California that the no-rehire clause could effectively constrain the plaintiff’s freedom to practice medicin e. 28 The Ninth Circuit declined to rule on the merits, remanding the case for further factual development. On remand, the district court again found that the “no rehire” provision was not a restraint of a substantial character, and ordered enforcement of the agreement. The plaintiff appealed, and the Ninth Circuit reversed . 29 Reasoning that “a contractual provision imposes a restraint of a substantial character if it significantly or materially impedes a person’s lawful profession, trade, or business,” the Ninth Circuit held that the provision at issue— forbidding the plaintiff from working at “any [defendant]-contracted facility”—went too far, considering the defendant’s large footprint in the relevant market . 30 T hus, “no re-hire” provisions of the sort traditionally found in