“No Rehire” Language in Settlement Agreement Found Unlawful Where Not Narrowly Tailored
When negotiating a settlement agreement in an employment dispute, “no rehire” language is often a standard term. This language typically bars the litigating employee from seeking re-employment with the former employer. However, in California, at least one “no rehire” provision was invalidated because it was not narrowly tailored to the employer at issue.
In Golden v. California Emergency Physicians Medical Group (“CEP”), CEP terminated Dr. Golden’s employment, and he subsequently filed a lawsuit alleging racial discrimination. The parties settled Dr. Golden’s claims, and CEP included a “no rehire” provision in the settlement agreement. The provision states:
“The parties agree that, except as specified in Paragraphs 7a and b, below, Golden shall not be entitled to work or be reinstated at any CEP-contracted facility or at any facility owned or managed by CEP. The parties further agree that if CEP contracts to provide services to, or acquires rights in, a facility that is an emergency room as defined and regulated by California law at which Golden is employed or rendering services, CEP has the right to and will terminate Golden from any work in the emergency room without any liability whatsoever. Similarly, the parties agree that if CEP contracts to provide services to, or acquires rights in, a facility at which Golden is employed or rendering services as a hospitalist, CEP has the right to and will terminate Golden from any work as a hospitalist without any liability whatsoever.”
Dr. Golden refused to sign the agreement on the basis that the provision was an unlawful restraint of trade and violates Cal. Bus. & Prof. Code § 16600. The lower court found that Cal. Bus. & Prof. Code § 16600 did not apply, because the “no rehire” provision did not prevent Dr. Golden from competing with CEP and did not restrain his medical practice.
The Ninth Circuit reversed the lower court’s ruling and held that Cal. Bus. & Prof. Code § 16600 applies to any contractual provision that places a “restraint of a substantial character” on a person’s ability to practice a profession, trade, or business, not just non-compete agreements. Using that standard, the Ninth Circuit found that portions of “no rehire” provision in Dr. Golden’s case were unlawful. It found that a “no hire” agreement was lawful when limited to the employer, but when it extended to the employer’s contractual partners, it became a substantial restraint on the employee’s ability to practice their trade, and thus unlawful and unenforceable. The Ninth Circuit voided the entire settlement agreement, because the parties agreed that the “no rehire” provision was a material portion of the agreement.
Going forward, employers should consider any “no rehire” provision in their settlement agreements in California to assess whether the provision could be too broad. Though “no rehire” provisions have been typically uncontroversial in the past, this recent ruling highlights at least one scenario to review and consider.
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