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Enforceability of a Former Employee's Promise Not to Seek Re-Employment

Settlement agreements with departing employees - whether done in the context of a pending lawsuit or a severance package - quite often include the departing employee's promise never to seek to be re-hired. Given that neither side is - at the time - all that happy with the other, this would seem a pretty unremarkable arrangement. A California federal court decision, however, raises questions as to the ultimate enforceability of the promise.

Before we get to the federal decision, it helps to understand that California has a very basic and clear rule 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." California Business & Professions Code § 16600. California courts have had no difficulty in concluding that "every" means every (not just some) and that "restrained" means restrained (not just prohibited). See Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 946-48 ("restrain" is much broader than "prohibit," and rejecting the notion that some limitation is acceptable so long as it is reasonable in the circumstances).

Golden v. California Emergency Physicians Medical Group, 782 F.3d 1083 (9th Cir. 2015), involved a lawsuit settlement agreement that included Dr. Golden's promise not to seek re-employment with California Emergency Physicians Medical Group, or at any facility that the Group owned or operated. Before the negotiated agreement was signed, however, Dr. Golden balked, arguing that the promise never to seek future re-employment "restrained" his ability to engage in his profession, and so was void under California Business & Professions Code § 16600. The district court ordered enforcement of the agreement, concluding that the promise not to seek re-employment was not an agreement not to compete, and so did not violate Section 16600. Dr. Golden appealed.

Relying on the plain language of Section 16600, and the opinion in Edwards v. Arthur Andersen, the federal appellate court reversed the lower court, finding that it had failed to consider adequately whether the promise not to seek future employment "constitute[d] a restraint of substantial character to Dr. Golden's medical practice." It is important to note that the appellate court did not find that the agreement not to seek future employment necessarily violated Section 16600, although it did leave open the possibility that such a promise could be a violation if it was found to 'restrain' the ability to engage in a lawful profession, trade or business.

Where does this leave things? To start, the Golden decision is from a federal court. While possibly persuasive to a California state court, it certainly is not binding. Moreover, Golden did not conclude that all promises not to seek re-employment are necessarily void under Section 16600, merely that the trial court in that particular case had not adequately considered whether the particular promise was an unlawful restraint. Even under California law, some things that might be considered limitations are not necessarily void restraints. One recent California appellate court opinion concluded that requiring an employee to honor a contractual promise to repay the cost of an employer-sponsored educational program if the employee quit within 30 months of completing the program did not violate Section 16600, as it left the former employee free to seek any employment anywhere. USS-POSCO Industries v. Case (2016) 224 Cal.App.4th 197, 209-210.

Golden does not directly prohibit a departing employee's agreement not to seek future employment with the former employer. Because such an agreement permits the former employee to seek any employment anywhere, except with the former employer, a court actually addressing the issue could well conclude that it is no more impactful than requiring a departing employee to pay the costs of an employer-sponsored educational program, and so not illegal under Section 16600. Still, employers should be aware of the possibility that a promise not to seek future re-employment may not be enforceable, and should make other appropriate arrangements to address the possibility of the former employee seeking to return sometime down the road. What those arrangements might be in the context of a particular employee are matters that employers should discuss carefully with their employment law advisors. 

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