Does California Business and Professions Code § 16600 prohibit employees from waiving their right to reemployment with prior employers? The answer is maybe, according to the Ninth Circuit’s recent decision in Golden v. Calif. Emergency Phys. Med. Gp., where the court held that Section 16600 prohibits more than just post-employment non-competition agreements and may potentially extend to a reemployment waiver.
Plaintiff Golden was an emergency room physician and formerly affiliated with California Emergency Physicians Medical Group (“CEP”), a physician’s consortium that staffs ERs and other medical facilities throughout California and other Western states. Golden sued CEP for racial discrimination and other state and federal claims. Before trial, the parties reached an oral settlement in court, which included, as a material term, that Golden waive his right to reemployment with CEP or any facility that CEP may own or contract with in the future. Further, it gave CEP the right to terminate Golden, without any liability, if CEP contracted to provide services or acquired rights in an ER at which Golden was employed or to which he was rendering services. The settlement agreement was later memorialized in a draft written agreement, which Golden refused to sign and sought to set aside. A lower district court upheld the agreement, and Golden appealed.
Golden argued that the no-employment clause violated Section 16600 because it restrained his ability to practice medicine. Thus, he claimed that the entire settlement agreement was void and his lawsuit should be reinstated. Section 16600 prohibits contracts that restrain individuals from engaging in a profession, trade, or business. Golden maintained that since CEP had a large presence in the medical profession in California and surrounding areas, with an expanding presence, the no-employment clause would significantly impede his ability to work as an ER doctor. CEP argued that Section 16600 did not apply since the no-employment clause was not a non-compete and that, historically, courts had only applied this section to non-compete provisions.
The Court sympathized with Golden, particularly noting CEP’s “dominance of emergency medicine” in California, its “aggressive plans to expand,” and Golden’s duty under the agreement to preemptively surrender a future position if certain circumstances “completely outside of his control” occurred. Further, it noted that the text of Section 16600 does not include the words “compete” or “competition” and that if the Legislature had wished to limit its application as such, it would have explicitly stated so in the statute.
Although the Court did not render a definitive decision on the matter, it remanded the case to the lower court to issue a decision not inconsistent with its opinion, which was peppered with references to the “considerable breadth” and expansiveness of the statute and a statement that the lower court mischaracterized the appropriate legal rule.
In light of this decision, employers should consult counsel before including such clauses in settlement and other agreements with careful consideration of the scope of the clauses and the breadth of the employer’s business, amongst other factors.