Vol. 2015, No. 11 November 2015
Michael C. Sullivan, Editor-in-Chief
No-Employment Terms in
California Settlement
Agreements: The Uncertain
Effect of Golden v. California
Emergency Physicians Medical
Group
Inside This Issue
No-Employment Terms in California Settlement Agreements: The Uncertain Effect of
Golden v. California Emergency Physicians
Medical Group
CATHERINE S. NASSER, RICK BERGSTROM & KELSEY
ISRAEL-TRUMMEL ............................................. 363
Control Issues — How the NLRB Is Redefining Joint Employment
APRIL N. LOVE ................................................ 371
WAGE & HOUR ADVISOR: Ninth Circuit Adopts
California Supreme Court’s Iskanian Rule;
Holds PAGA Waivers Unenforceable
AARON BUCKLEY.............................................. 374
Implementing California’s New Sick Leave
Law Is Giving Me a Headache
JESSICA KENNY & GENEVIEVE NG .................... 376
CASE NOTES .............................................. 380
Arbitration................................................. 380
Class Certification .................................... 382
Disabilities ................................................ 383
Employee Benefit Plans ............................ 384
Employer’s Liability ................................. 385
Preemption ................................................ 386
Wage and Hour......................................... 387
Wage and Hour Class Actions.................. 389
Whistleblower & Retaliation .................... 390
Workers’ Compensation............................ 391
By Catherine S. Nasser, Rick
Bergstrom & Kelsey Israel-Trummel
Introduction
As California practitioners have long been aware, the
state has a strong policy in favor of ‘‘open competition
and employee mobility.’’1 Section 16600 of the California Business and Professions Code is a longstanding state statute that voids ‘‘every contract by
which anyone is restrained from engaging in a lawful
profession, trade, or business of any kind . . . .’’2 The
legal environment in California for contracts limiting
employee mobility has grown even more inhospitable
in the last few years, as the California State Supreme
Court squarely rejected the argument that the ‘‘rule of
reasonableness’’ preserved narrowly tailored covenants
not to compete,3 and the Department of Justice
conducted a high-profile investigation into alleged
CALENDAR OF EVENTS ......................... 393
EDITORIAL BOARD AND AUTHOR
CONTACT INFORMATION...................... 394
1
Edwards v. Arthur Anderson LLP, 44 Cal. 4th 937, 946
(2008).
2
Cal. Bus. & Prof. Code § 16600.
3
See Edwards, 44 Cal. 4th at 946.
(Continued on page 365)
CA Labor & Employment Bulletin
364
EDITORIAL BOARD
Michael C. Sullivan, Editor-in-Chief
Matthew Jedreski, Executive Editor
Deborah J. Tibbetts, Associate Editor
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
Ray Bertrand
Paul Hastings LLP
San Diego
Phyllis W. Cheng
DLA Piper LLP (US)
Los Angeles
Nicole A. Diller
Morgan, Lewis & Bockius LLP
San Francisco
Barbara A. Fitzgerald
Morgan, Lewis & Bockius LLP
Los Angeles
Joshua Henderson
Seyfarth Shaw LLP
San Francisco
Lynne C. Hermle
Orrick, Herrington & Sutcliffe LLP
Menlo Park
F. Curt Kirschner
Jones Day
San Francisco
Alan Levins
Littler Mendelson, P.C.
San Francisco
Genevieve Ng
Renne Sloan Holtzman Sakai LLP
San Francisco
Tyler M. Paetkau
Hartnett, Smith & Paetkau
Redwood City
William B. Sailer
QUALCOMM Incorporated
San Diego
Charles D. Sakai
Renne, Sloan, Holtzman & Sakai
San Francisco
Arthur F. Silbergeld
Norton Rose Fulbright LLP
Los Angeles
Walter Stella
Miller Law Group
San Francisco
Peder J.V. Thoreen
Altshuler Berzon LLP
San Francisco
Bill Whelan
Solomon Ward Seidenwurm & Smith, LLP
San Diego
M. Kirby Wilcox
Paul Hastings LLP
San Francisco
November 2015
REPORTERS
April Love
Littler Mendelson, P.C.
Houston
Brit K. Seifert
Paul Hastings LLP
San Diego
COLUMNISTS
Aaron A. Buckley
Paul Plevin Sullivan & Connaughton, LLP
San Diego
Brian M. Ragen
Mitchell Silberberg & Knupp LLP
Los Angeles
Deborah J. Tibbetts
Paul, Plevin, Sullivan & Connaughton LLP
San Diego
This publication is designed to provide accurate and
authoritative information in regard to the subject matter
covered. It is provided with the understanding that the
publisher is not engaged in rendering legal, accounting,
or other professional service. If legal or other expert assistance is required, the services of a competent professional
should be sought.
From the Declaration of Principles jointly adopted by a
Committee of the American Bar Association and a
Committee of Publishers and Associations.
A NOTE ON CITATION: The correct citation form for
this publication is: 2015 Bender’s Calif. Lab. & Empl.
Bull. 363 (November 2015).
EBOOK ISBN 978-0-3271-6747-1
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CA Labor & Employment Bulletin
365
November 2015
No-Employment Terms in California Settlement Agreements: The
Uncertain Effect of Golden v. California Emergency Physicians Medical
Group
By Catherine S. Nasser, Rick Bergstrom & Kelsey Israel-Trummel
(Continued from page 363)
no-hire agreements between Silicon Valley companies
that led to a multimillion-dollar class action.4
Most recently, the Ninth Circuit Court of Appeals
issued a precedential opinion in Golden v. California
Emergency Physicians Medical Group,5 whose rhetoric
at least joins the pro-mobility chorus. In its opening
sentence, the court states that it was called upon to
‘‘decide whether California law prohibits a settlement
agreement that may constrain a physician’s freedom to
practice medicine.’’6 Though the court ultimately held
that it may, the unusual facts and posture of the case
suggest that the holding may prove to be less significant
than it initially appears, and the proper standard to be
applied to resolve such issues likely will need to be
resolved by the California Supreme Court.
Factual Background
Golden arose out of an employment dispute between
Dr. Donald Golden, an emergency-room physician,
and the California Emergency Physicians Medical
Group (CEP), a large consortium of physicians that
staffs or manages emergency rooms, clinics, and other
medical facilities throughout California and in neighboring states. Dr. Golden brought suit alleging that CEP
had caused him to improperly lose his staff membership
at a particular CEP location. The parties reached an
agreement to settle the case in open court. In exchange
for a monetary payment from CEP, Dr. Golden agreed
to drop his then-current lawsuit, waive any other
possible claims he may have had against CEP, and
‘‘waive any and all rights to employment with CEP or
at any facility that CEP may own or with which it may
contract in the future.’’7
The initial agreement was reached in front of a magistrate judge, who expressly confirmed Dr. Golden’s
assent. Subsequently, however, Dr. Golden withdrew
that assent, which he claimed had only been given
‘‘extremely reluctantly.’’8 Dr. Golden refused to sign
the memorialization of the parties’ settlement agreement, and relations with his counsel broke down. Dr.
Golden then moved to set aside the agreement altogether, and his attorney moved to enforce the
agreement so that he could collect his contingency fee.
Ultimately, when Dr. Golden refused to comply with the
district court’s order that he sign the settlement agreement, the district court granted his attorney’s motion to
intervene, ordered the no-employment provision of the
settlement be enforced, and dismissed the case.9 Dr.
Golden then appealed.
Appeal
On appeal, Dr. Golden raised only the argument that the
no-employment provision of the settlement ran afoul of
Section 16600, and that because the no-employment
provision was a material term, the entire settlement
agreement was void. Given that CEP had conceded
the materiality of the no-employment provision,10
4
See Miguel Helft, Unwritten Code Rules Silicon Valley
Hiring, N.Y. TIMES, June 3, 2009, at B11 (reporting that the
Department of Justice had initiated an antitrust investigation
of Silicon Valley companies including Google, Apple, Yahoo,
and Genentech, and explaining that ‘‘Justice Department
lawyers were focusing on whether companies had agreements
not to go after each other’s employees’’); David Streitfeld,
New Accord Is Expected in Hiring Ban, N.Y. TIMES, Jan. 14,
2015, at B1 (reporting on $415 million settlement offer that
would ‘‘most likely put an end to a [class action] that has
consumed the tech world since the Justice Department
revealed in 2010 that several leading companies had conspired
against their own employees’’).
5
782 F.3d 1083 (9th Cir. 2015).
6
782 F.3d at 1084.
7
782 F.3d at 1085.
8
782 F.3d at 1085.
9
See generally Golden v. Cal. Emergency Physicians Med.
Grp., No. C 10-00437 JSW, slip op. (N.D. Cal. June 15, 2012).
The district court also ordered that certain additional terms of
the settlement be stricken. Those terms, though, were not at
issue on appeal. Golden, 782 F.3d at 1085. Details regarding
the struck terms are unavailable in the public record as
portions of the district court’s order are under seal.
10
Golden, 782 F.3d at 1088 (‘‘Indeed, even CEP’s counsel
conceded at oral argument that the no-employment provision
is a material term, and CEP would not have consented to an
agreement that simply deleted that provision.’’).
CA Labor & Employment Bulletin
the only substantive dispute was whether the noemployment provision was void under Section 16600.
Majority
The Ninth Circuit panel overturned the district court’s
holding 2 to 1. The majority held that the district court
had incorrectly interpreted Section 16600 by holding
that it did not apply because the no-employment term
was not a covenant not to compete, but only a reflection
of the parties’ intent that CEP ‘‘chose not to employ Dr.
Golden at [its] facilities.’’11
Ripeness
To reach this question, the majority first had to address whether the dispute was ripe for adjudication.
The Ninth Circuit expressed concern that Dr. Golden
‘‘contend[ed] that [S]ection 16600 void[ed] his
settlement agreement because, in a future set of circumstances uncertain — perhaps unlikely — ever to
materialize, the no-employment provision may impermissibly restrain his professional practice.’’ 12 This
argument, the court explained, raised the possibility
that the plaintiff was asking it to resolve a ‘‘purely
hypothetical dispute.’’13
After finding that the traditional ripeness standard,
and not the prudential ripeness standard, governed the
parties’ dispute, however, the court concluded that the
appeal presented a ‘‘substantial controversy’’ between
parties with ‘‘adverse legal interests . . . of sufficient
immediacy and reality to warrant resolution.’’14 Specifically, the Ninth Circuit reasoned that ‘‘[t]o affirm
the district court’s enforcement of the settlement
agreement — in a way that would allow the parties to
litigate the validity of the no-employment provision in
a future factual context — would not defer resolution of
the allegedly ‘hypothetical’ dispute between the
parties.’’15 Rather, allowing the settlement to stand
notwithstanding the fact that future events might
render the provision void would resolve that dispute
in favor of CEP. The court also found significant that
Dr. Golden did not force the issue by filing a declaratory
judgment action so that the agreement could not be
enforced in the future. Instead, his attorney raised the
question of whether the settlement agreement was
enforceable in an effort to collect his contingency fee
in the present.
11
366
November 2015
Section 16600
Addressing the merits of the appeal, the Ninth Circuit
framed the question before it as whether settlement
agreements were beyond the ‘‘ambit’’ of Section 16600
and whether, if they were not, the no-employment
agreement would ‘‘substantially limit’’ Dr. Golden’s
ability to engage in his chosen profession.16 That issue,
the court observed, was an open question in California as
the California Supreme Court has not expressly ruled
whether Section 16600 is limited to ‘‘typical’’ noncompete covenant, or whether the provision applies
equally to an agreement that ‘‘does not prevent a
former employee from seeking work with a competitor’’
or ‘‘penalize him should he do so.’’17
The Ninth Circuit first looked to the text of Section
16600 and noted that it does not ‘‘specifically target
covenants not to compete,’’ but rather broadly ‘‘voids
‘every contract’ that ‘restrain[s]’ someone from engaging in a lawful profession, trade, or business.’’18 In
contrast, the ‘‘successive provisions in the Code . . .
admit of a few, narrow exceptions,’’ which ‘‘seem by
their plain language to correspond to more conventional
non-compete covenants.’’19 The California Legislature,
the court explained, thus ‘‘demonstrated an ability to
describe, with considerable detail, a subspecies of the
contracts’’ that restrained the ability to engage in a
profession, but did not do so in articulating the
general rule against professional restrains.20 Accordingly, the Ninth Circuit concluded that the statutory
text and context ‘‘lend[] little support to construing
Section 16600 much more narrowly - as simply a prohibition of agreements between employers and employees
not to compete — than its plain language would otherwise suggest.’’21
The Ninth Circuit found that California case law also
supported a broad rather than narrow interpretation of
Section 16600. In particular, the court looked to Chamberlain v. Augustine22 and Edwards v. Arthur Anderson
LLP.23 In Chamberlain, the California Supreme Court
found that a contract provision requiring one party to
16
782 F.3d at 1089.
17
782 F.3d at 1089.
18
782 F.3d at 1090 (quoting Cal. Bus. & Profs. Code
§ 16600) (emphasis in original).
782 F.3d at 1089 (quoting the district court opinion).
19
782 F.3d at 1090.
12
782 F.3d at 1086.
20
782 F.3d at 1090.
13
782 F.3d at 1086.
21
782 F.3d at 1090.
782 F.3d at 1086.
22
172 Cal. 285 (1916).
782 F.3d at 1088.
23
44 Cal. 4th 937 (2008).
14
15
CA Labor & Employment Bulletin
pay $5,000 in liquidated damages if he accepted
employment within a particular geographic region
was void under Section 16600’s predecessor statute.
According to the Golden majority, the supreme court
identified the ‘‘crux of the inquiry under 16600’’ as
whether a contract ‘‘imposes ‘a restraint of a substantial
character’ regardless of ‘the form in which it is cast.’’’24
Reviewing the California Supreme Court’s most recent
statement on Section 16600, the Ninth Circuit observed
that Edwards reaffirmed the supreme court’s strict
understanding of the proscription on professional
restraints. Not only did the high court reject the
notion that Section 16600 allowed for a rule of reasonableness that would permit narrowly tailored
contractual restraints, but it also relied on the state’s
‘‘settled legislative policy in favor of open competition
and employee mobility.’’25 And, as in Chamberlain, the
Ninth Circuit pointed out, the Edwards Court did not
ask if the challenged contractual terms permitted the
employee to compete with his former employer, but
rather asked if the terms ‘‘restricted [the employee’s]
ability to practice his accounting profession.’’26
The Golden Court concluded that under California law,
Section 16600 extends beyond traditional non-compete
agreements. Thus, a court conducting a Section 16600
inquiry should ask whether a challenged provision
poses a ‘‘restraint of a substantial character,’’ no
matter its form or scope.27 Because the district court
had not done so, and had instead relied on the incorrect
premise that Section 16600 voids only covenants not to
compete, the Ninth Circuit concluded that reversal was
appropriate.
The court refrained, however, from addressing the ultimate question of whether the no-employment provision
at issue constituted a ‘‘restraint of a substantial
character.’’28 Instead, the court of appeals noted the
‘‘relatively underdeveloped record,’’ and remanded for
further proceedings, suggesting that the district court
consider ordering supplementary briefing or conducting
additional fact-finding.29
24
Golden, 782 F.3d at 1091.
25
See Edwards, 44 Cal. 4th at 946.
367
November 2015
Dissent
The dissent by Judge Kozinski primarily took issue with
the majority’s ripeness analysis, emphasizing the practical effect of its decision. First, Judge Kozinski pointed
out that if a no-employment agreement can be found to
prospectively restrain an employee’s future ability to
practice his profession, very few employment disputes
could ever be settled because the ‘‘continuation of [the]
employment relationship’’ is the very subject in controversy in such a lawsuit.30 Instead, Kozinski argued that
‘‘[t]he only way [S]ection 16600 might be implicated is
if, at some future time, Dr. Golden were working for an
entity that is acquired by CEP, in which case the agreement would give the employer a right to fire him
without a further showing of cause.’’31 Thus, even
with additional fact-finding, he cautioned that there is
no way for the district court to ‘‘find’’ whether such
circumstances would ever arise without a ‘‘ouija
board.’’32
Rather than holding that the no-employment clause is
void due to potential future circumstances, Kozinski
argued that the better course would be to wait to see
‘‘[i]f and when the scenario Dr. Golden fears to [sic]
comes to pass,’’ and only then to adjudicate his Section
16600 argument as a defense to his dismissal.33 Only at
that stage does it become possible for that adjudication
to be informed by ‘‘concrete circumstances,’’ such as
what job he was being denied and what alternative positions existed.34 For these reasons, and because there
was no California case of which he was aware preserving ‘‘an unfettered right to employment in all future
circumstances,’’ the judge would have affirmed.35
Implications Going Forward
The dispute in Golden involved unique factual circumstances and an unusual procedural posture. In the
ordinary case, parties to a settlement agreement do
not turn around and immediately seek to have the agreement declared void. The Ninth Circuit’s analysis,
however, raises theoretical questions that counsel
would be well-advised to consider in drafting settlement
agreements, or any other contract, that includes a noemployment provision.
30
782 F.3d at 1093.
31
Golden, 782 F.3d at 1091 (quoting Edwards, 44 Cal. 4th
at 948).
782 F.3d at 1093.
32
782 F.3d at 1093.
27
782 F.3d at 1092.
33
782 F.3d at 1094.
782 F.3d at 1093.
34
782 F.3d at 1094.
782 F.3d at 1093.
35
782 F.3d at 1093.
26
28
29
CA Labor & Employment Bulletin
Open Questions
It is significant that Golden did not find no-employment
agreements to be per-se illegal under Section 16600.
Rather, the court of appeals only held that the district
court failed to properly evaluate the particular noemployment provision at issue. The important questions
that Golden leaves open are, first, what kinds of burdens
qualify as ‘‘substantial’’ and, second, what the analysis
of whether a burden is substantial should look like. It is
the answers to these questions that will dictate the realworld impact of Golden, as they are what will define the
unclear ‘‘boundaries of [S]ection 16600’s stark prohibition,’’ and determine the factors that a court will
consider when the enforceability of a professional
restraint is at issue.36
As to the first question, the Ninth Circuit’s opinion does
not provide any guidance for attorneys or the lower
courts as what types of restraint are of a sufficiently
‘‘substantial’’ nature that they are void under Section
16600, explaining only that the California Supreme
Court ‘‘had not clearly indicated’’ the limits of Section
16600.37
As to the second question, as the dissent points out, it is
difficult for courts to make factual findings based on
circumstances that have not yet arisen. And neither
the majority nor the defense explicitly states what
kinds of present-day evidence a reviewing court
should consider in evaluating a no-employment provision. Both opinions do, however, indicate that CEP’s
market share within Dr. Golden’s field may be a relevant
consideration. The majority suggested that the district
court should have addressed Dr. Golden’s argument
that ‘‘in effect, he cannot work because Defendants
own a large number of hospitals and facilities in
California;’’38 the dissent suggested that a ‘‘determination whether CEP’s share of the market is so great that
being dismissed by them impairs Dr. Golden’s ability to
practice his profession’’ would be relevant to a future
16600 inquiry.’’39 The opinion therefore signals to
lower courts that a Section 16600 analysis should
368
November 2015
include an economic analysis of the labor market that
takes into account factors like the employer’s market
share and the number of positions not covered by a noemployment term. Accordingly, parties may want to
consider such factors in drafting no-employment terms.
Last, it should also be noted that the validity of the
‘‘substantially limit’’ standard adopted by the court is
somewhat suspect, as the California Supreme Court
previously rejected the ‘‘narrow restraint’’ exception to
Section 16600 developed and promulgated by the Ninth
Circuit.40 Thus, if a California court concluded that a no
re-hire clause did in fact ‘‘restrain’’ an employee from
pursuing a lawful profession, it could find the provision
to be void without imposing a substantiality requirement. Indeed, the California Court of Appeal in VL
Systems Inc. v. Unisen Inc. held a no hire provision
between two businesses was void based on Section
16600 without any substantiality requirement.41
Conclusion
As described above, the Ninth Circuit’s decision in
Golden means that parties must consider Section
16600 before including a no-employment clause in a
settlement agreement. Golden does not, however, hold
that all such terms are void. Instead, the decision leaves
several significant questions open. Its practical effect
will therefore depend on how lower courts apply its
instruction to void only no-employment provisions
that place a substantial burden on the right to engage
in a lawful profession, trade, or business.
Catherine S. Nasser is a partner in Jones Day’s Labor
and Employment Group. Her experience includes
defending employers in state and federal courts and
government agency proceedings in cases involving
California wage and hour laws, the Fair Labor Standards Act, federal and state antidiscrimination laws,
and a variety of state law wrongful discharge, statutory,
contract, and tort claims. Catherine also represents
clients in alternative dispute resolution proceedings
such as mediations and arbitrations. A significant
portion of her practice includes counseling clients in
litigation avoidance. She frequently assists companies
in investigations, policy reviews, management training,
and in the settlement and negotiation of employmentrelated claims. For more information, visit http://
www.jonesday.com/cnasser.
36
782 F.3d at 1093.
37
782 F.3d at 1093.
38
782 F.3d at 1092, n.6.
40
Edwards, 44 Cal. 4th at 947.
782 F.3d at 1093.
41
152 Cal. App. 4th 708, 713-18 (2007).
39
CA Labor & Employment Bulletin
Rick Bergstrom is a partner in Jones Day’s Labor and
Employment Group. His practice focuses on representing corporate clients in complex litigation in
federal and state courts. He has significant experience
defending companies in wage and hour class actions,
litigating trade secret and employee mobility issues,
whistleblower claims, public access/disability claims,
and advising companies regarding Affordable Care
Act employment issues. For more information, visit
http://www.jonesday.com/rbergstrom.
369
November 2015
Kelsey Israel-Trummel is an associate in Jones Day’s
Labor and Employment Group. Kelsey works on matters
at both the trial and appellate levels. She has experience with multiple aspects of litigation, including case
management and trial and appellate briefing. Kelsey
also has worked on arbitration matters and contributed
to several publications on international arbitration.
Prior to joining Jones Day, Kelsey gained significant
experience with legal research and writing in clerkships
at the Third Circuit U.S. Court of Appeals and the
Eastern District of California. For more information,
visit http://www.jonesday.com/kitrummel.