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Settlements: No-rehire clauses may be illegal

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in Hiring,Human Resources

When you settle an employment discrimination complaint or lawsuit, you likely include a “no-rehire” provision. Essentially, you trade some settlement dollars for the former employee’s promise not to apply for work at your company in the future. It’s a way to prevent future failure-to-hire lawsuits.

Until now, everyone thought such common settlement provisions were legally valid and enforceable.

But now a recent case has cast doubt on that premise by looking at California’s broad prohibitions on restrictive covenants in the Business and Professions Code Section 16600.

Recent case: Donald, an emergency room doctor, sued a consortium of ER physicians after losing his staff privileges at a hospital. He alleged racial discrimination. The consortium staffed many emergency rooms and clinics in California and other Western states.

Donald’s attorneys negotiated a settlement agreement in which Donald would receive a significant financial payment (and the attorneys a large contingent-fee payment). The agreement included a “no-rehire” clause in which Donald had to promise he would never apply for a position with the consortium. It gave the consortium the right to fire Donald should it acquire or subcontract to staff a facility where he worked.

Donald balked at signing the agreement and argued that the no-rehire provision violated the prohibition on restrictive covenants in the Business and Professions Code Section 16600. He filed an appeal and argued that the provision made the agreement unenforceable and therefore he should not be forced to sign.

The appeals court agreed that the no-rehire clause may violate the provision and sent the case back to the trial court to determine whether the no-rehire provision is a substantial restraint on Donald’s medical practice. (Golden v. California Emergency Physicians Medical Group, No. 12-16514, 9th Cir., 2015)

{ 3 comments… read them below or add one }

r September 6, 2016 at 4:23 pm

16600 is 600 years old dating back to england 1414… Judge White will not think the ‘golden rule’ so important as to change a 600 year old code and go against the 9th circuit?! comment please

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flea July 23, 2015 at 10:42 am

please speak on the contract that states “where ever CEP is contracted and if Dr Golden works there we can and will fire him” you see there has never been a settlement ever that has been so broad. if dr golden is a janitor for 30 years at mc donalds cep can “contract” with mcdonalds for 1 minute and fire dr golden

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flea July 23, 2015 at 10:40 am

you leave out the facts. The settlement says “Dr Golden can and will be fired if CEP contracts with a sight where Dr Golden is working” so if Dr Golden becomes a janitor at Mc Donalds and CEP contracts with Mc Donald (they have a consulting aspect to CEP and many other aspects) Dr Golden can and will be fired. You see it goes farrrrrrrrrrrrrrr beyond any settlement ever written . because it is not just restraining Dr Golden from applying to CEP, it lets CEP ACTIVELY SEARCH OUT AND DESTROY Dr Golden by stopping him from where ever he works by simply contracting with the facility for 1 minute there is NOT a settlement written that has ever been so broad please talk about this

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