Aetna's Non-Compete Agreement Thrown Out

November 30, 2001 ( - The California Court of Appeal upheld a $1.26-million judgment against Aetna US Healthcare Inc., finding the health care group broke California law by enforcing its non-compete agreement.

The case saw Aetna sued by an account manager after she refused to sign an agreement barring her for working for any California health care competitor for six months after leaving Aetna.

In upholding the lower-court ruling, Justice Paul Haerle cited California’s Business and Professions Code, Section 16600, which states that any contract restraining a person from engaging in a lawful profession is void.

The appeals court upheld a jury award of $54,312 in compensatory damages, $125,000 for emotional distress, and $1.080,000 in punitive damages.

The Disputed Agreement

After Aetna merged with US Healthcare in 1996, the merged company asked employees to sign non-competition agreements.

The six-month agreements prohibited employees from working for any health care competitor in the state where the employee had worked or within 50 miles of the employee’s former sales territory.

Anita Walia, a San Francisco account manager, refused to sign , after conducting legal research and concluding that the agreement was unenforceable in California.

Her attorney sent a letter to Aetna US Healthcare’s president with that warning. The attorney said that acting against employees who refused to sign would expose the company to liability for wrongful discharge in violation of public policy.

The company did not concur. Aetna suggested that Walia become an underwriter, which did not require signing the agreement. However, the job paid less and required a different skills set.

She refused and the company fired her in June 1997, stating that she had failed to meet the requirements of her position.

Last Word

In his ruling, Haerle noted that Section 16600 provides 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.”

He found the Aetna US Healthcare agreement restricts employee mobility and therefore violates Section 16600.

The judge further concluded that the jury in the earlier trial could have reasonably viewed the company’s conduct following the merger as “despicable.”

 “This newly aggressive company presented its employees with a draconian and illegal agreement” and “employed high-pressure tactics to induce its employees to sign the agreement,” the judge wrote.

The case isWalia v Aetna Inc.

– Camilla Klein