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Is a “No Re-Hire Provision” Legal in My California Employment Contract?

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Under California law (California Business and Professions Code Section 16600), “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind,” is prohibited. Among other things, this means that, absent special circumstances, an employer cannot require a California employee to sign an agreement restricting the employee’s ability to find work after the employment relationship ends. Outside of a limited number of special exceptions, ‘non-compete’ agreements are generally not permitted in California.

No Re-Hire Agreements May Amount to Unlawful Restraints on Employee Rights  

What about “no re-hire” agreements? That is to say, can an employer ask or require you to sign an agreement–say, to settle a sex discrimination claim–that prohibits you from seeking reinstatement to the company? Although California state courts have not definitively ruled on this issue, a federal appeals court has and it determined California law generally forbids such provisions. 

The Ninth Circuit Invalidated an Overly Broad ‘No Re-Hire’ Provision 

In July of 2018, the U.S. Ninth Circuit Court of Appeals issued an important decision on ‘no re-hire’ provisions in California. In the case of Golden v. California Emergency Physicians No. 16-17354, the appeals court ruled in favor of an employee. The plaintiff, Donald Golden, an emergency room physician, sued the his former employer California Emergency Physicians (CEP) for race discrimination under Title VII of the Civil Rights Act of 1964 and the California Fair Employment and Housing Act (FEHA).

Mr. Golden originally filed the lawsuit in 2007 in Alameda County Superior Court, Prior to litigation, the parties had a tentative settlement agreement, but when it came time to sign the written agreement, the plaintiff refused, because the text contained a no-rehire clause. Notably, this was a relatively broad no-rehire clause. The reason being that CEP provided staffing for emergency rooms throughout California and several other states. Under the proposed terms of the agreement, the plaintiff, Mr. Golden, would have been barred from seeking employment with any emergency room under contract with the defendant. In fact, if the plaintiff got a job with an emergency room that later contracted with the defendant, he would possibly lose that job as well.

After the plaintiff refused to agree to this expansive no-rehire provision, litigation ensued over whether or not the settlement agreement itself was enforceable. While a district court decided the agreement was enforceable and ordered the plaintiff to sign it, the United States Ninth Circuit Court of Appeals has now confirmed that, based on its interpretation of California state court rulings, that a broad no-rehire provision may amount  to “interference with [the plaintiff’s] ability to seek or maintain employment with third parties easily rises to the level of a substantial restraint.”

In other words, the defendant could potentially insist on a no-rehire provision applicable solely to its own worksites, but not to third parties that merely contracted with the defendant, or any future sites the defendant might enter into a contract with. The main takeaway from all this is that if an employer insists on a no-rehire provision, it may be illegal if it is not limited in its scope. If you have further questions about no rehire provisions, please contact an experienced Florida employment law attorney right away.

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* Cathleen Scott is licensed to practice in Florida only.

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