Why it matters

Affirming the judgment of a trial court, a panel of the California Court of Appeal, Fourth Appellate District agreed that a travel nurse provider ran afoul of state law with the use of a confidentiality and nondisclosure agreement (CNDA) that included a provision preventing individual defendants from soliciting any employees to leave their service for at least a one-year period. AMN Healthcare sued Aya Healthcare Services and four former employees asserting breach of contract and misappropriation of confidential information after the employees left AMN and went to work for Aya. The defendants filed a cross-complaint for declaratory relief and unfair business competition, calling the CNDA an improper restraint on their ability to engage in their profession in violation of Section 16600 of the state’s Business and Professions Code. Granting summary judgment in favor of the defendants, the trial court enjoined AMN from enforcing the nonsolicitation of employee provision in the CNDA regarding any former California workers. The appellate panel affirmed, emphasizing the state’s “strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice.”

Detailed discussion

AMN Healthcare and Aya Healthcare Services are competitors in the business of providing temporary healthcare professionals, particularly “travel nurses,” to medical facilities around the country. As a condition of employment with AMN, employees were required to sign a confidentiality and nondisclosure agreement (CNDA).

Section 3.2 of the CNDA provided: “Employee covenants and agrees that during Employee’s employment with the Company and for a period of [one year or] eighteen months after the termination of the employment relationship with the Company, Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company or any Company Affiliate to leave the service of the Company or such Company Affiliate.”

AMN sued four former employees and Aya. Each of the individual defendants, hired between October 2012 and May 2014, worked in the staffing department to recruit and place travel nurses. Each also signed the CNDA and ultimately went to work for Aya. Because AMN’s travel nurses were employees of AMN, the plaintiff alleged that Section 3.2 of the CNDA applied to prevent for a period of at least one year a former AMN employee from recruiting a travel nurse who was on temporary assignment.

In addition to the breach of contract allegations, AMN claimed the individual defendants misappropriated trade secrets as set forth in the Uniform Trade Secrets Act by using confidential and proprietary information.

The defendants responded with a counterclaim for declaratory relief and unfair business competition. Ruling on cross-motions for summary judgment, the trial court judge sided with the defendants. The nonsolicitation provision was an improper restraint on the individual defendants’ ability to engage in their profession in violation of Business and Professions Code Section 16600, the court held, enjoining AMN from enforcing the provision as to any California AMN employees.

AMN appealed. The nonsolicitation provision was valid and enforceable, the plaintiff argued, as it merely prohibited individual defendants from soliciting “current [AMN] employees.”

But the California appellate panel disagreed, affirming summary judgment in favor of the defendants.

Section 16600 provides: “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” This absolute bar on contractual restrictions expresses California’s “strong public policy of protecting the right of its citizens to pursue any lawful employment and enterprise of their choice,” the court said.

Applying the statute, the panel independently concluded that the nonsolicitation of employee provision in the CNDA is void under Section 16600.

“Indeed, the broadly worded provision prevents individual defendants, for a period of at least one year after termination of employment with AMN, from either ‘directly or indirectly’ soliciting or recruiting, or causing others to solicit or induce, any employee of AMN,” the panel wrote. “This provision clearly restrained individual defendants from practicing with Aya their chosen profession—recruiting travel nurses on 13-week assignments with AMN.”

A one-year post-termination restriction preventing a former AMN recruiter from contacting and recruiting a travel nurse on a 13-week assignment with AMN at a minimum equates to a period of four such assignments for a given nurse, the court noted.

“[T]he individual defendants were in the business of recruiting and placing on a temporary basis medical professionals, primarily nurses, in medical facilities throughout the country,” the court said. “If enforced, section 3.2 thus restrained individual defendants from engaging in their chosen profession, even in a ‘narrow’ manner or a ‘limited’ way. We thus independently conclude section 3.2 of the CNDA is void under section 16600.”

In light of this conclusion, the plaintiff’s other contract-based claims (such as breach of loyalty and intentional and negligent interference with prospective economic advantage) failed as well, the panel found.

As for the misappropriation of trade secret claims, the court determined that the information at issue was not entitled to legal protection. Of the travel nurses listed in AMN’s complaint as having been solicited by the individual defendants and Aya, two applied with Aya almost a full year before one of the individual defendants attempted to recruit them; a third applied with Aya three years before her solicitation.

“The undisputed evidence shows that the identity and contact information of travel nurses that AMN claims to be ‘secret’ for purposes of its trade secret cause of action were already known to Aya before any of [the] individual defendants left AMN and went to work for Aya,” the panel wrote.

Many travel nurses belong to a public social media group called the “Gypsy Nurse Group,” the court added, comprised of more than 30,000 travel nurses/members, reinforcing the conclusion that their identities and contact information are not “secret.”

Further, an email one of the individual defendants forwarded to an Aya recruiter before leaving AMN’s employ was not a protectable trade secret because it was “very general,” the court found.

“We conclude as a matter of law that the information in this e-mail is not a protectable trade secret, as it merely addressed information about Aya and some of the terms it used in competing with AMN to recruit travel nurses,” the court said. Aya did not make any changes to its hiring practices as a result of the email and did not believe the information in the message held any value, the panel said, other than being “amus[ing].”

The appellate panel affirmed summary judgment in favor of the defendants as well as the injunction against AMN from attempting to enforce Section 3.2 against the individual defendants and other California AMN employees.

To read the opinion in AMN Healthcare, Inc. v. Aya Healthcare Services, Inc., click here.