348 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com those whom the consulting firm even employed at the time). Outweighing this “broad provision” was “the policy favoring freedom of mobility for employees.”29 More recently, in 2020, the California Supreme Court held that business-to-business non-compete agreements are not per se void and that the rule of reason applies to such contracts.30 At issue in that case was an agreement to jointly develop a novel drug. This agreement ended when one party resolved a patent dispute by agreeing to terminate all contracts “related to the development” of this novel drug. The Court limited Edwards to employee non-competition agreements, and explained that “[n]othing about Edwards indicates a departure from . . . precedent to also invalidate reasonable contractual limitations on business operations and commercial dealings.” The Ninth Circuit, in 2021, also clarified that non-solicitation provisions in business-to-business collaboration agreements are not per se violations of the Sherman Act.31 Both parties in that case were health care staffing agencies who had entered into a subcontractor agreement with a non-solicitation provision. The Ninth Circuit ruled that the non-solicitation provision was an ancillary restraint that did not unlawfully restrict competition and had important pro-competitive benefits for the health care market. The interplay between these two cases and the new law remains to be seen. 12.2 Implications for Wrongful Termination California courts have held that where an employee refuses to sign a document containing an unlawful covenant not to compete, the employer violates public policy and incurs tort liability if the employer responds by firing the employee.32 The legislative updates effective in 2024 also confirmed that employees may bring a private action for injunctive relief, recovery of actual damages, and recovery of reasonable attorney fees and costs. The Court of Appeal has extended that principle to hold that an employer could be liable for wrongful termination if it fired an employee for breaching a noncompete covenant that the employee had entered into with a former employer.33 The Court of Appeal reasoned that the new employer’s decision to fire the employee in those circumstances amounted to enforcing a no-hire agreement between the old and new employers—an agreement that was void as an unlawful noncompete agreement.34 12.3 “No Rehire” Clauses Employment settlement agreements traditionally have provided that the settling plaintiff—now a former employee—would never re-apply for employment, and that the defendant could deny employment to the plaintiff without recourse. Before 2020, such “no rehire” clauses were common even in California, but one case held that in particular circumstances a no-rehire clause could be an unlawful restraint of the former employee’s right to engage in a lawful profession, trade, or business. In a 2015 decision, the Ninth Circuit held that the trial court, which had enforced a settlement agreement with a “no rehire” clause, had abused its discretion by narrowly characterizing section 16600 as applying only to “covenants not to compete,” when section 16600 actually applies more broadly to any contractual “‘restraint of a substantial character,’ no matter its form or scope.”35 The case involved unusual facts, arising in an usual procedural posture. The plaintiff was an emergency medicine physician who sued for unlawful termination of his staff privileges at a medical facility. The parties negotiated a settlement agreement that contained a no-rehire clause but then the plaintiff sought to renege on the basis that the no-rehire clause was contrary to public policy as expressed in section 16600. The district court rejected this concern, reasoning that section 16600 addresses only “covenants not to compete.” But the Ninth Circuit disagreed, holding that the no-rehire clause might constitute a substantial restraint of trade, depending on whether the former employer so dominated emergency medicine in California that the no-rehire clause could
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