Legalized recreational cannabis businesses are still new in California. As a cannabis business owner, you may be thinking that a great way to protect your confidential information and prevent your employees from leaving would be a non-compete agreement. Think again. Not only are non-competition agreements unenforceable and prohibited in California, but they can come with criminal sanctions if an employer requires an employee to enter into a non-competition agreement as a condition of employment. In other words, don’t even think about entering into non-competition agreements with you California cannabis employees.
Many cannabis companies may try another route to protect their confidential business information and get employees to stick around through “non-solicitation agreements.” Non-solicitation agreements are not as restrictive as non-competition agreements and generally are not prohibited by California law. Non-solicitation agreements typically prohibit employees from taking any actions that will cause any employee, customer, or vendor of the employer to change its relationship with the employer. California courts will carefully scrutinize non-solicitation agreements to ensure they are not overly broad and therefore crossing the line from non-solicitation into non-competition. A recent case from the California Court of Appeals demonstrates that the courts are continuing this tradition and carefully examining non-solicitation agreements and only enforcing them if they are true non-solicitation agreements.
In AMN Healthcare Inc v. Aya Healthcare Services Inc, AMN Healthcare required employees to sign a non-solicitation agreement preventing them from soliciting other employees of AMN Healthcare, to leave the service of AMN Healthcare. AMN Healthcare required a recruiter it hired to sign the non-solicitation agreement. The recruiter then went to work for Aya Healthcare, which practiced in the same field as AMN Healthcare. The recruiter, pursuant to the non-solicitation agreement was not allowed to recruit employees from AMN Healthcare. Litigation ensued.
The Court of Appeals determined the broad language of AMN Healthcare’s non-solicitation agreement violated California’s Business and Professions code because it restricted the employee’s ability to freely engage in a lawful profession or trade. Specifically, the recruiter could not freely recruit from AMN Healthcare, her exact professional requirements. While the Court of Appeals decision turned on the recruiter’s specific issue, the Court went further and noted AMN Healthcare primarily employed travel nurses for a period of 13 weeks or less. The AMN Healthcare non-solicitation agreement was to be in effect for at least one year following the end of the employment relationship. The Court found this to be overly restrictive given that most of the nurses were employed for such a short period. Overall, the court determined the non-solicitation agreements ANM Healthcare required employees to sign were unenforceable.
What does this mean for your cannabis company? Non-solicitation agreements can be useful tools to help protect confidential information and protect employees from jumping ship. However, they need to be carefully crafted to be enforceable. There is little point in requiring employees to sign an unenforceable non-solicitation agreement. More importantly, non-solicitation agreements need to be carefully drafted to ensure they are not actually non-competition agreements that could violate the Business and Professions Code, and subject your cannabis company to criminal sanctions. If you are interested in a non-solicitation agreement, it is always best to consult a cannabis employment attorney to draft a strong one that will protect your interests.