Ninth Circuit Finds California's Ban On Non-Compete Agreements Can Extend To Substantial Professional Restraints

California, unlike other states, takes an absolutist view of covenants not to compete.  Section 16600 of the Business and Professions Code declares, with certain exceptions, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void". 

What about a covenant that allows one to continue in his or her chosen profession, but not work for one or more specified employers?  The Ninth Circuit Court of Appeals recently tackled this question in Golden v. Cal. Emergency Physicians Med. Grp., 2018 U.S. App. LEXIS 20519.

The case arose when a physician refused to sign a settlement agreement on the basis that it violated Section 16600.  Senior District Judge John D. Bates writing for the majority found that the contested provision impeded the doctor's ability to practice medicine in three ways:

  • The doctor was "not entitled to work or be reinstated" at "any facility owned or managed by" the medical group;
  • The doctor may not work at any facility contracted by the medical group; and
  • The medical group has the right to terminate the doctor if the medical group contracts to provide services to, or acquires rights in, a facility in which the doctor is currently working as an emergency room physician or hospitalist.

The majority found that the last two of the above violate Section 16600 because they would substantially restrain the physician's practice of medicine.  Therefore, the majority found the entire agreement void and that the District Court had abused its discretion in ordering the physician to sign it.

Judge Milan D. Smith vehemently dissented, labeling the physician's refusal "sheer humbug" and criticizing the majority's holding as having the effect of rewarding the doctor's "dishonorable conduct". 

The physician's own attorney was also unhappy.  After his client refused to sign, the lawyer withdrew, intervened in the proceedings, and moved to enforce the agreement so that he could collect his fee.