Something we often see when a case settles is that employers prefer to include a “no re-hire” provision in their agreement. What, you were harassed, sued, settled and now want your job back? You may be in luck. Read on –
The rationale for these clauses is that any refusal to hire the plaintiff in the future could be characterized as “retaliation” for having raising protected complaints in the prior lawsuit. Though it seems it would be easy to defend that issue, it is almost always present in settlement agreements.
The California 9th Circuit held in Golden v. California Emergency Physicians Medical Group this language may be at odds with section 16600 of the California Business and Professions Code, 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.”
In reviewing the case law interpreting section 16600, the Court found that California’s ban on employment restraints is extremely broad in its scope and extremely “stark” in its prohibition. As a result, the statute does not merely ban traditional “non-compete” agreements in which an employee is precluded from working for a competitor. The Court held that “The crux of the inquiry under section 16600 is not whether the contract constituted a covenant not to compete, but rather whether it imposes “a restraint of a substantial character” regardless of “the form in which it is cast.”
Having articulated this standard, the Court declined to apply it to the specific agreement before it, which involved a settlement agreement by a physician that bound him to never again work for “a large consortium of over 1,000 physicians.” Instead, it remanded to the district court with directions to determine if the restraint was “of a substantial character,” and therefore void. Companies will likely have the releasing party agree that there is “plenty of work” and “this provision is ‘insubstantial,’ or some nonsense like that.
It is unclear how this “substantial character” standard will be played out in the Courts. We could see an analysis that included (1) size and market share of the employer, (2) number of jobs [like on Monster.com etc.] and the employee’s type of job. Brian Surgeon? Not a lot of opportunities. 7-11 clerk? Maybe easier. If there are no employment opportunities, in the context of the company size, employee and industry [making it “substantial”] then any “no re-hire” agreement will be void.
Please make sure you have looked into these issues for your settlement agreements for your company or as an employee and feel free to contact Quintilone & Associates for assistance.