Legal Update II

Nonsolicitation Agreements Under Fire

Elizabeth Hogue, Esq.

In Aya Healthcare Services, Inc.; et al v. AMN Healthcare, Inc.; et al [No. 20-55679, D.C. No. 3:17-cv-00205MMA-MDD, August 19, 2021], the United States Court of Appeals for the Ninth Circuit concluded that the nonsolicitation provision in AMN’s contract with Aya to provide temporary staffing to healthcare providers was valid. Both parties in this case are healthcare staffing agencies that place nurses on temporary assignments. Aya contracted with AMN to handle requests for nurses that AMN could not staff. The contract included a provision that prohibited Aya from soliciting AMN’s employees.

Aya claimed that the nonsolicitation provision is an unreasonable restraint prohibited by Section 1 of the Sherman Antitrust Act. The Court decided, however, that the nonsolicitation clause in the contract was reasonably necessary to the parties’ procompetitive collaboration. This meant that Aya had to show that the nonsolicitation clause violated the “rule-of reason” standard. The rule of reason weighs legitimate justifications for restraints against any anticompetitive effects.

The Court concluded that Aya failed to show a violation of the rule of reason. Aya did not show, through either direct or indirect evidence, that an issue of fact existed with respect to whether AMN’s nonsolicitation agreement had a substantial anticompetitive effect that harmed consumers in relevant markets.

Aya signed a contract with AMN to help provide customers to AMN’s customers in 2010. Aya eventually became AMN’s largest subcontractor. In 2015, Aya began to actively solicit AMN’s nurse recruiters. This caused Aya and AMN to terminate their agreement.

Former employees of AMN who were employed by Aya signed an agreement with AMN as a condition of their

employment with AMN that said:

“Employee covenants and agrees that during Employee’s employment with the Company and for a period of [one year] or eighteen months after [termination], Employee shall not directly or indirectly solicit or induce, or cause others to solicit or induce, any employee of the Company…to leave the service of the Company.”

The Court decided to uphold this provision because the challenged restraint is reasonably necessary to the parties’ procompetitive collaboration. The nonsolicitation agreement is necessary to achieving that goal because it ensures that AMN will not lose its personnel during the collaboration.

AMN, said the Court, may want to guard its investments and establish relationships with only those agencies that agree not to abuse the relationship by proactively raiding AMN’s employees, subcontractors and customers. Without the restraint, AMN would likely be less willing or unwilling to deal with other agencies to supply nurses to its customers that already experience a chronic shortage of nurses. Based on the restraint, AMN can collaborate with its competitor for the benefit of its customers without “cutting its own throat.”

According to the Court, the nonsolicitation agreement promoted competitiveness in the healthcare staffing industry. More customers received an increased number of nurses since the nonsolicitation agreement allowed AMN to give assignments to Aya without endangering its established network of recruiters, nurses, subcontractors, and customers.

Nonsolicitation agreements are likely to continue to come under fire for a variety of reasons. Watch for additional challenges! CM

According to the Court, the nonsolicitation agreement promoted competitiveness in the healthcare staffing industry.

©2021 Elizabeth E. Hogue, Esq. All rights reserved. No portion of this material may be reproduced in any form without the advance written permission of the author.