Ninth Circuit Decision Challenges Enforceability of “No Future Employment” Provisions in Employment Separation and Settlement Agreements

Topics: Court Decisions, Non-Compete and Trade Secrets

To resolve employment disputes, whether in litigation or at a separation, typically, the parties wish to go in separate directions and not cross paths in the future.  Consequently, separation or settlement agreements provide compensation and employees often agree not to seek future employment with their former employer and agree that should they unexpectedly come to work for their former employer due to an acquisition, merger or other incident that cause will exist to terminate that employee.  The viability of such "no future employment" provisions has been called into question by the Ninth Circuit’s decision earlier this week in Golden v. California Emergency Physicians.  In Golden, the Ninth Circuit overturned a District Court’s order finding a "no future employment" provision enforceable.  The Ninth Circuit extended the reach of Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), and Cal. Bus. & Prof. Code § 16600, to settlement agreements in a case of first impression by a 2-1 decision over Judge Kozinski’s dissent. The Ninth Circuit was not moved by the fact that the plaintiff was being paid a large sum of money, in part, to move on and give up his right to work for or seek employment with his former employer.  Nor was it convinced by Judge Kozinski’s dissenting conclusion that the California Supreme Court would uphold such an agreement.  The Court directed the lower court to re-examine the agreement to make a determination as to whether the provision constitutes a substantial restraint on the plaintiff’s trade, in order to determine whether the provision was enforceable.

California employers should continue to monitor this case on remand before the district court and consider the impact of this decision in conjunction with preparing separation and settlement agreements arising out of employment to make every effort to ensure enforceability of any "no future employment" provision.