California Court Voids Nonsolicit Agreement, Defeats Trade Secret Claims and Awards Attorneys’ Fees to Defendants
Topics: Non-Compete and Trade Secrets
A California Court of Appeal concluded that what appeared to be a standard nonsolicitation of employees provision was, in fact, an unenforceable noncompete that prevented its former employees from carrying out their chosen profession. The Court of Appeal in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc. upheld summary judgment in favor of employee defendants and their employer defeating an 11 count complaint that asserted claims of breach of contract, misappropriation of trade secrets, interference with prospective economic advantage, aiding and abetting misappropriation of trade secrets, and unfair business practices after four of AMN’s recruiters were hired by Aya and recruited other of AMN’s employees to work for Aya. In addition, the Court of Appeal upheld an injunction against the former employer from attempting to enforce such agreements in the future and awarded the defendants $190,000 in attorneys’ fees.
Nonsolicit Not Enforceable
AMN and Aya are competitors in the business of providing temporary healthcare professionals (travel nurses) to medical care facilities across the United States. The employees, recruiters, earned their livelihood recruiting travel nurses so that their employer (first, AMN and, then, Aya) could place those travel nurses with their respective clients. The AMN employees’ employment agreement provided that “during Employee’s employment with the Company and for a period of one year after the termination….Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company…to leave the service of the Company….” AMN sued four of its former recruiters after they were hired by Aya to recruit nurses. While the Court focused on California’s broad public policy to allow persons to seek employment and questioned whether Loral Corp. v. Moyes’ enforcement of a similar nonsolicit provision survived Edwards v. Anderson, it relied on the actual employment functions of the effected employees, recruiters, to conclude that the contract restrained the employees from engaging in their profession and therefore was void under 16600 to distinguish it from Loral Corp v. Moyes, a case that upheld an injunction restraining a former executive from raiding his former employer’s employees based on a nonsolicit agreement.
Employers Beware: Not Everything is Trade Secret
AMN’s claimed that the recruiters violated California’s Uniform Trade Secrets Act by soliciting travel nurses that had been placed by AMN, claiming that the travel nurses names and contact information was its trade secret. However, on summary judgment, the undisputed evidence showed that the recruited nurses had applied to work at Aya years before and had given Aya their contact information before being solicited to work for Aya by the former AMN recruiters. And, the Court concluded that therefore there was nothing secret about the travel nurses contact information under CalUTSA. The Court also pointed to a social media network, the Gypsy Nurse Group, a public social media group, as a public source of information from which the recruiters could prospect, even knowing the names of AMN’s travel nurses based on their work history for AMN.
In addition, one of the defendant employees, while employed by AMN, sent Aya an internal AMN email that AMN contended constituted trade secret information about its plans to compete with Aya. The Court gave short shrift to this claim, and held that as a matter of law the email did not disclose trade secrets but contained very general information that AMN wanted its team to use to compete against Aya. The Court showed no concern about a current AMN employee providing her soon-to-be employer with AMN’s internal communications.
Moreover, one of AMN’s former employees sent email to her personal email account shortly before accepting new employment, attaching a list of persons that she had placed for AMN. While the Court assumed that the list was trade secret, it concluded that AMN was not harmed by the disclosure and that the disclosure was not a substantial factor in causing harm based on the employee’s testimony that she did not use that list to compete against AMN. Again, the Court looked past the act of sending a trade secret document outside of AMN and then credited her declaration that she never used the information to compete but instead relied on Aya’s internal information, social media or other referrals to solicit those employees for Aya.
Injunction and Attorneys’ Fees
In addition to defeating the Complaint, the Court of Appeal concluded that the injunction against AMN from attempting to enforce its agreement against other California employees was appropriate as it concluded that the provision was void and no other employees should be subject to claims or expenses associated with litigation.
And, while the trial court awarded attorneys’ fees to the defendants based on CalUTSA and due to the enforcement of an important right affecting the public interest under California Code of Civil Procedure section 1021.5, the Court of Appeal limited its decision to conclude that the fees were appropriate to a prevailing party on a matter of public importance.
Employers should check in with their counsel to review any trade secret or nonsolicit agreements to have the best assurances that they are updated with the AMN case in mind.