Rebecca Diamond Music » Blog

Settlement Agreement Non Compete

A federal appeals court recently ruled that a “non-rehire” regime overspending in a transaction agreement with a former employee could constitute an illegal restriction on trade under California law. In the emergency medical group of Gold v. California (July 24, 2018), the Ninth Court of Appeals struck down a settlement agreement between a doctor and his former employer because of the imposition of a trade restriction, in violation of California`s Strict Competition Prohibitions Act, Business- Professions Code Section 16600. The Court found that the general non-rehire regime constituted, in two respects, an “essential restriction”. In addition to employment contracts, restrictive agreements can often be included in transaction agreements, with your employer asking you to affirm the restrictions that are already imposed on you (or even try to insert new ones at this late stage of the employment relationship). Non-compete agreements are extremely common, particularly in the contracts of older workers, as employers are concerned about the protection of their legitimate business interests when large workers can leave the country and eventually join a competitor. For example, the worker may have worked with the employer in a position where he has established extensive contact with customers, suppliers and company staff and may have sensitive information about intellectual property, trade secrets and other important information about employers` affairs. The magnitude can be such that the worker can use it very quickly after the dismissal, to the detriment of employers and to the benefit of a competitor. For this reason, the employer may consider it essential to contractually prohibit the worker from holding a job with a competitor for a certain period after the termination of the employment relationship (usually 3 to 12 months), in order to protect his legitimate business interests. The judge ruled that the restriction after the termination of the shareholder contract had been maintained despite the wording of the settlement agreement.