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Monday, May 20, 2024 | Back issues
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9th Punts Issue on Noncompete Clauses

SAN FRANCISCO (CN) - A noncompete clause in an emergency room doctor's settlement with his former employer may not be enforceable in California, a 9th Circuit panel ruled.

Donald Golden sued California Emergency Physicians Medical Group, Med America and two of its directors in state court, and the lawsuit was removed to federal court in 2010.

Golden, who is black, alleged that race discrimination motivated the hospital to take him off the roster at Seton Coastside, a hospital in a small town just south of San Francisco. He claimed that CEP failed to place him at another facility or help him find a job elsewhere, and had actively impeded his finding other employment.

The next year, Golden agreed to settle for an undisclosed amount. The deal avoided a trial but also barred him from ever working for CEP.

Golden tried to back out of the settlement, instructing his lawyer not to file the final paperwork. A federal judge then made some changes to the agreement and ordered Golden to sign.

The doctor appealed to the 9th Circuit, which rejected the case for jurisdictional reasons.

In 2012, his attorney Mitchell Green moved to intervene and withdraw as counsel, saying that he would not be paid without a distribution of settlement funds.

U.S. District Judge Jeffrey White again compelled Golden to honor the deal and dismissed the case.

Golden appealed to the 9th Circuit for a second time, seeking to have the entire settlement agreement tossed and his lawsuit reinstated. He argued that CEP dominates emergency medicine in California and its plans to expand could effectively keep him from ever finding work.

After a hearing last year, however, a three-judge panel did not find a resolution to the case, instead calling on White to determine "whether the no-employment provision constitutes a restraint of a substantial character to Dr. Golden's medical practice" in a ruling issued this week.

Writing for the panel, Circuit Judge Diarmuid O'Scannlain ordered White to take a fresh look at California statute and case law, even advising him to require the parties to provide more briefing.

White abused his discretion in holding that the agreement with CEP was valid, O'Scannlain wrote, since California law is unclear as it relates to employment with a non-competitor.

While California does not allow noncompete clauses, White "mischaracterized the appropriate legal rule" in deciding to enforce the agreement based on Section 16600 of the California Business and Professions, O'Scannlain wrote.

Section 16600 does not expressly use the terms non-compete or non-competition, yet the case-law that has been built on the statute governing such disputes in California. The statute is one sentence long and says that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

O'Scannlain - joined by Circuit Judge Mary Murguia - noted that "the courts of California have not clearly indicated the boundaries of section 16600's stark prohibition but have nevertheless intimated that they extend to a considerable breadth," and advised the lower court to keep wrestling.

"At the very least," O'Scannlain continued, "we have no reason to believe that the state has drawn section 16600 simply to prohibit 'covenants not to compete' and not also other contractual restraints on professional practice."

He added: "In other words, California seems not to have settled whether a contract can impermissibly restrain professional practice, within the meaning of the statute, if it does not prevent a former employee from seeking work with a competitor and if it does not penalize him should he do so."

On remand, White must "whether the no-employment provision constitutes a restraint of a substantial character to Dr. Golden's medical practice," according to the ruling.

Dissenting in the 2-1 decision, Circuit Judge Alex Kozinski said the settlement between Golden and CEP was enforceable.

The two had a "serious disagreement" that they settled in a deal that paid Golden "a large sum of money and, in exchange, he gives up his right to continue working for CEP," Kozinski wrote, adding, "If this violates section 16600, few employment disputes could ever be settled," he said.

Kozinski also predicted that the district court would "need a Ouija board to 'find' any of the facts the majority believes are relevant to whether the agreement will violate section 16600."

Golden can sue on a claim that the contract violates California law if and when he is working for a facility that CEP buys and is fired as a result, Kozinski said.

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