“NO RE-HIRE” CLAUSES UNDER FIRE

“No Re-Hire” clauses are common in settlement agreements involving employment law related claims.

In Golden v. California Emergency Physicians Medical Group, the Ninth Circuit held that a “no re-hire” provision in a settlement agreement could, under certain circumstances, could constitute an unlawful restraint of trade under California law.

In Golden, a physician verbally agreed to settle his discrimination claim against his employer. Their oral settlement agreement was later reduced to writing which included a “no re-hire” clause. The district court enforced the parties’ settlement over Dr. Golden’s objection that this “no-rehire” clause violated Section 16600 of California’s Business & Professions Code, which provides that a contract is void if it restrains anyone from engaging in a lawful profession.

On appeal, Dr. Golden argued that the “no re-hire” clause was unlawful and that, because it constituted a material term of the settlement, the entire agreement was void, permitting Dr. Golden to pursue his discrimination lawsuit.

The Ninth Circuit panel determined that Dr. Golden might prevail on this argument, and remanded the case to the district court for further proceedings. Specifically, the Ninth Circuit panel did not rule that the clause was actually void. Instead, the panel majority concluded that the district court would need to do more fact-finding to see if the clause actually created a restraint of a “substantial character” on Golden’s pursuit of his profession.