Ninth Circuit Expands Reach of Section 16600 in Golden II

Three years ago, I wrote a lengthy blog post on the case of Golden v. California Emergency Physicians, a Ninth Circuit case that I felt was a bit of an oddity. It addressed California's well-known statute, Section 16600 of the Business and Professions Code, which generally bars non-compete agreements.

The problem in Golden I was that the provisions at issue weren't really non-compete covenants at all, and so the application of Section 16600 was a little confusing. Though I punt to my 2015 post for a factual run-down of Golden I, summarized briefly the case involved this scenario. Am emergency physician had an employment dispute with a staffing company. As part of a settlement, the company required him to agree not to work at any facility where the company had a staffing contract. It further provided that if the company later acquired a staffing contract at another facility, it could and would terminate the physician.

So how does this implicate Section 16600? Golden I didn't necessarily address that question and remanded for fact-finding about how this covenant impacted Dr. Golden. I wrote three years ago that I didn't understand the fact-finding rationale at all. I still don't. But the Ninth Circuit now has addressed the application of Section 16600 and what the district court did on remand.

To start with, the Ninth Circuit says Section 16600 covers all contractual provisions that impose "a restraint of a substantial character." That means, the provision cannot "significantly or materially" impede a person's lawful profession, trade, or business. According to the California decisions summarized in Golden II, restraints that meet this definition include:

1. Restrictions on working for a competitor;
2. Restrictions on soliciting customers;
3. Clauses that impose a monetary penalty for engaging in competitive conduct.

What won't meet the definition? A limited provision allowing for a company to recoup training program costs when an employee leaves.

The no-employment clauses at issue in Golden I and Golden II don't fit neatly into any of these boxes. Instead, they make clear that Dr. Golden won't work where CEP is contracted to provide services, now or in the future. The Ninth Circuit concluded that a clause pertaining only to Dr. Golden's employment at CEP wasn't problematic and was so limited that it didn't meet the "significantly or materially" impeding test it created.

The other provisions in the draft settlement agreement, however, were void under Section 16600. Those prohibited his current and future employment at CEP-contracted facilities. The court's analysis suggested that it was focused more on results and less on methodology. For instance, it emphasized CEP's expansive reach into California medical facilities. But it also downplayed Dr. Golden's admissions concerning his medical specialties, which suggested that the restraint in practice might not be that onerous.

To be sure, it's hard to make much of this case. I suspect that it's so factually goofy that any other case that deals with obliquely limited clauses having some peripheral impact on employment will easily be able to navigate around the court's rationale. About all the case may do for practitioners is reinforce the reach of Section 16600 and solidify that true covenants against competition are almost certain to fail, even if those covenants are very specific and narrow.