It is a relatively common practice for an employer to, when settling a claim, include a “no re-employment” clause in the settlement agreement. These types of provisions operate to bar the employee-plaintiff from working for the company in the future and, in some instances, even provide a basis for termination if the employee-plaintiff ends up working for the company as a result of a corporate acquisition. By way of a somewhat complicated set of facts that, quite frankly, most of you would find extremely boring, the United States Court of Appeal for the Ninth Circuit recently issued an important decision regarding the enforceability of “no reemployment” provisions in California.
The case, Golden v. California Emergency Physicians Medical Group, involved an emergency room physician who brought a lawsuit against his former employer. As part of the settlement, he agreed to a no reemployment provision that waived “any and all rights to employment with CEP or at any facility that CEP may own or with which it may contract in the future.” He challenged various aspects of the settlement contending, in pertinent part, that the no reemployment provision was barred by California Business and Professions Code section 16600. This statute, which provides 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” gives employment attorneys throughout the country indigestion, headaches, gray hairs, and/or heart palpitations because it invalidates many non-compete agreements that would be enforceable in many other jurisdictions.
In the Golden case, the Plaintiff argued that the no reemployment provision would be detrimental because the company owned a number of medical facilities throughout the state and planned to further expand. The district court did not find this argument persuasive, and it upheld the no reemployment provision because the clause did not constitute an agreement not to compete. The Ninth Circuit reversed, holding that Section 16600 does not just target covenants not to compete but, rather, “voids every contract that restrain[s] someone from engaging in a lawful profession, trade, or business.” (citations omitted, emphasis in decision).
Ultimately, the Ninth Circuit remanded the case for further proceedings and instructed the district court to “determine in the first instance whether the no-employment provision constitutes a restraint of a substantial character to Dr. Golden’s medical practice.” The Golden case, therefore, does not completely bar no reemployment provisions. However, employers should be aware that such provisions will be scrutinized and potentially invalidated.