The validity of “no future employment” clauses in settlement agreements is being questioned by the United States Court of Appeals for the Ninth Circuit. In the case Golden v. California Emergency Physicians, the court recently overturned a District Court’s order finding a “no future employment” provision enforceable. The Court directed the lower court to re-examine the agreement and determine whether the provision constitutes a substantial restraint on the plaintiff’s trade, in order to determine whether the provision was enforceable.
Frequently after litigation or employment separation, the parties to an employment dispute will enter a settlement or other kind of separation agreement that includes a “no future employment” clause. This is to ensure the parties, which likely have some bad blood between them, do not cross paths in the future. Employees generally do not have a problem agreeing to this, because the clause usually provides that the employee will be compensated in some way, and they usually do not want to work for the former employer again anyway.
Such provisions also provide that should the employee unexpectedly come to work for their former employer due to an acquisition, merger, or other incident, the employer will be able to terminate that employee. This is usually the most litigated aspect of a “no future employment” clause, and was the issue in Golden. Specifically, the plaintiff, a physician, claimed a settlement agreement between him and the defendants was invalid because it contained a “not future employment clause,” requiring him to waive his rights to employment with the defendant “or at any facility that the defendant may own or with which it may contract in the future.”
In Golden, the Ninth Circuit sympathized with the plaintiff, even though he was being paid a large sum of money, in part, to move on and give up his right to work for or seek employment with his former employer. It therefore sent the case back to the lower court to whether the provision was enforceable.
This case could potentially have a major impact on California employers, who should make sure any “no future employment” provisions in separation and settlement agreements are actually enforceable.
Sacramento, CA 95821