Articles Posted in Non-Compete Agreement / Covenant Not to Compete

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Many non-compete agreements are included in employment contracts merely as a precaution. While employers reserve the right to sue workers for violating any of the terms of their non-compete agreements, few companies actually follow through on the threat if/when an employee violates their contract.

But one fitness company did decide to exercise its right to sue a former employee who allegedly violated the terms of his employment contract by starting his own club within three miles of the fitness club location he had been managing for his former employer.

The former employee, Jason Voges, started a fitness club of his own, Island Life Fitness, LLC. Voges founded the new club with his wife, Crystal, a few months after his employment with Anytime Fitness ended. Anytime Fitness, a franchise of Fitness Group, LLC, sued Voges, pointing out his contract allows him to seek employment with a rival fitness club ten miles away from any one of Fitness Group’s locations. Continue reading

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The battle to be the first self-driving car company has a new twist.

Waymo’s lawsuit against Uber for allegedly stealing trade secrets pertaining to its self-driving technology was supposed to go to trial earlier this month, but has been delayed as a result of new evidence against Uber.

While the two ride-hailing companies were preparing their cases and getting ready to argue their sides before a jury, Judge William Alsup had ordered an investigation into Uber by the Department of Justice (DOJ) – an investigation which recently turned up a letter that has the potential to do serious damage to Uber’s case.

The letter was written by an attorney representing Richard Jacobs, who used to work for Uber as part of their Marketplace Analytics (MA) team. According to the letter, which Jacobs approved at the time, it was sent, Uber allegedly used its MA team for the sole purpose of stealing trade secrets from Waymo, and possibly other competitors as well.

The DOJ also found that Uber had actively taken steps to hide this information from the court and other legal professionals.

The letter was part of a lawsuit between Jacobs and Uber, which has since been settled. When questioned about the letter on the stand, Jacobs denied parts of it, saying he reviewed the letter in haste when he was on vacation. Jacobs denied that Uber’s MA group existed in order to steal trade secrets, or that Waymo was a target, but he did confirm that Uber took steps to protect sensitive information and eliminate the possibility of a paper trail that might work against them later. Continue reading

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Being wise about knowing which clauses to include in a contract will help you in the long run.  This is for reason being that a contract that is not enforceable on some level could run the risks of becoming void and unenforceable.  In turn, that can cost business and profit.  The basic principles of materiality can change from year to year.  An awareness in advance can save.  We are here to help with the following list:

1. Non compete agreements are enforceable to the extent that a business interest is protected.

This has always been at the core of non compete interests.  Having been at the core, means it has also been subject to scrutiny.  There are plenty of court decisions that have considered this more closely which includes the fairness test as espoused in the case of  White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, Case No. SC16-28 (Fla. Sup. Ct., Sep. 14, 2017).  Is what the employer seeking to protect its investment or is it making it unfair for the employee to use information, relationships or resources that they acquired while employed by a former employer?  That is the question and agreements will be assessed on the management of their exploitative nature. 

2. Forum selection clauses are usually enforceable across the country.

Clauses that choose not to enforce another state’s law are generally enforceable unless the violation of public policy is at stake.  In the case of  Stone Surgical, LLC v. Stryker Corp., Case No. 16-1434 (6th Cir., May 24, 2017), an employee was subject to a non compete with Michigan choice of law and forum clause.  Enforceability of such clauses was challenged when that employee transitioned to work with a competitor of the other jurisdictional state of Louisiana.   It was noted on appeal at the federal level that Michigan law would favor such clauses. Continue reading

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An interesting recent employment law case in the United Kingdom illustrates why it is crucial for businesses to carefully draft non-compete agreements. In England as in the United States former employees can use overbroad wording to invalidate the entire covenant and circumvent otherwise valid provisions.

Mary-Caroline T. was an executive search agent and partner at Egon Zehnder Ltd. in the U.K., eventually rising to become co-global head of the financial services group. Her employment agreement provided that she not be “engaged, concerned with or interested in” a competing business of a similar nature for six months following separation from the company. The restriction was not limited geographically. Continue reading

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All contracts are subject to scrutiny before the law, especially when a dispute arises. Employment-employer disputes are no exception. Federal and state‑specific restrictions are
now facing employers who utilize non‑compete agreements and such agreements are able to be stricken for unrelated employment issues. This is since the Appellate Division of the New
Jersey Superior Court has provided a warning to an employer had no ability to prevent its former employee from working for its direct client despite the existence of a non‑compete
agreement expressly covering that client. This was of particular concern since the employee was not paid properly by the employer during her training period. It was because the
employment and non‑compete “agreements violated federal law, they were void and unenforceable.”

This brings to light notions such as the importance of fair and just contracts, as well as, the unconscionability. If ever a contract has an abuse of power or is in favor of one party over the
other, it will violate the law. The employers must take this into consideration when drafting terms and have them reviewed by attorneys who are familiar with restrictive covenants within
the scope of employment law. Continue reading

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It’s hard to see how a children’s clothing store could be a competitor for a brand that sells high-end men’s and women’s clothing. But that’s allegedly what Trunk Club told a former employee who wanted to go to work for Mac & Mia, which Trunk Club said would be in violations of the non-compete agreement she had signed with them.

A subsidiary of Nordstrom’s, Trunk Club is a personal styling service for men and women, while Mac & Mia uses personal stylists to help sell children’s clothing. Molly Dowell worked as a personal stylist at Trunk Club for about six months before leaving, citing concerns about the future of the company. Nordstrom’s recently reduced Trunk Club’s value to half of what the clothing giant paid for the personal styling company, saying it had not been performing as well as Nordstrom’s had hoped it would. That, combined with the recent departure of Trunk Club’s CEO, suggests Dowell’s concerns for the company may have been well-founded. Continue reading

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Can a former employee breach a nonsolicitation agreement by posting his new job on his Facebook page or inviting former colleagues to connect with him on LinkedIn? It turns out that it depends on the nature of the communication. An Illinois appellate court recently considered the role social media plays in the world of corporate non-compete agreements.

Gregory G. was a branch sales manager in the Warwick, Rhode Island, office of Bankers Life, an Illinois company that sells insurance and financial products to seniors. In 2006 Gregory signed a non-compete agreement that barred him from soliciting any employee or client of that office for two years after his employment ended. Gregory left Bankers Life in 2015 and later joined its competitor, American Senior Benefits LLC, as a senior vice president.

In a breach of contract complaint, Bankers Life alleged that Gregory attempted to recruit employees from its Warwick office by sending LinkedIn invitations to three former co-workers, who would be able to see a job posting for his new employer on his LinkedIn profile page. Continue reading

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Start-ups (specifically tech start-ups) generally don’t have much need for inexperienced or untrained students who just graduated and are now entering the workforce. Instead, they have a greater need of well-trained, knowledgeable, experienced workers to help them build their new venture into a profitable business. But they’re finding it increasingly difficult to hire those people in states that protect non-compete agreements.

Experts say that the rise of Silicon Valley as the heart of the technology world is directly related to California’s refusal to enforce any non-compete agreements whatsoever.

A non-compete agreement is part of an employment contract that prevents a worker from leaving their employer to work for a competitor. There’s usually a geographical limit of a few miles and a time limit around six months to a year, but companies are increasingly leaving those limitations behind and simply preventing their workers from ever working for any competitor.

The practice started with high-level executives who could potentially take sensitive trade secrets directly to a competitor, thereby ruining their former employer’s prospects. But more and more companies have been expanding their use of non-competes to cover all their employees – from those earning minimum wage, all the way to the top of the corporation.

Employee advocacy groups have fought hard against the use and enforcement of non-compete agreements and Big Business has fought just as hard in their favor. Large corporations trying to hold onto their employees at any cost have started looking for ways to punish their employees for leaving, rather than enticing them to stay. Continue reading

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This Article gives an excellent over view of non-compete agreement law in various states. It summarizes the law for these agreements in the following states: Arizona, Colorado, Georgia, Illinois, Missouri and New York. It provides a number of insightful tips on how courts are likely to view non-compete agreements depending on the facts of the case.  For instance, it concludes, in our opinion accurately, that Illinois courts will likely be more likely to enforce non-compete agreements if the employee has engaged in some sort of wrongful behavior such as misappropriating confidential information or starting the competing business using the employer’s computers and other resources.

With regard the to Illinois the article states:

Illinois courts generally disfavor employer-employee restrictive covenants.  Consequently, courts look for reasons not to enforce restrictive covenants and the fact that an employee is “low level” often creates an equitable reason for the court to refuse to enforce restrictive covenants.  However, bad conduct by a former employee, whether by taking confidential information or poaching former customers of the former employer, often will overcome a court’s reluctance to enforce a restrictive covenant against a low-level employee.

Historically, Illinois courts only enforced such restrictive covenants if the employer could demonstrate it had a legitimate protectable interest. Courts defined legitimate protectable interest to include “near permanent customer relationships” or confidential information.  In 2011, the Illinois Supreme Court revisited this issue in Reliable Fire Equipment v. Arredondo, holding that an employer must demonstrate both a legitimate protectable interest and the reasonableness of the scope (activity, time and geographic).  However, the Reliable Fire court also held that an employer could establish a legitimate protectable interest in ways other than confidential information or long-standing customer relationships, creating further confusion in the Illinois legal landscape.  This ruling required trial courts faced with a motion for temporary restraining order seeking to restrain a former employee from competing to focus on what interest an employer is seeking to protect and whether that interest is sufficiently clear at a preliminary stage such that a TRO is justified.   Generally, Illinois courts have looked to two key issues in recent years—has the former employee “taken” confidential information and is the former employee using such confidential information to pursue his former employer’s clients.  If the answer to either of these questions is yes, Illinois courts are likely to enforce a restrictive covenant.

An interesting dilemma has arisen in the last four years since the Illinois Appellate Court decided Fifield v. Premier Dealers Services.  The Fifield court held that at-will employment is inadequate consideration to support restrictive covenants until at least two years of at-will employment have passed since the agreement was put in effect.  This creates another hurdle for enforcing restrictive covenants against lower-level employees. Most low-level employees are employees at will.  Consequently, for an employer to be confident that its restrictive covenants will not fail for lack of consideration, some unrestricted consideration (e.g., a signing bonus) must be provided at the outset of the employment relationship.

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Minteq International, Inc. supplies materials to steel-makers. Minteq’s employees are represented by the engineers’ union of the AFL-CIO and covered by a collective bargaining agreement (CBA). In 2012, without bargaining or even notifying the union, the company began requiring new employees to sign noncompete and confidentiality agreements (NCCA) which barred employees from working for Minteq’s competitors for 18 months following their employment and disclosing confidential or proprietary information. They also included nonsolicitation and at-will employment clauses.

In 2014, the union filed an unfair labor practice charge against Minteq. The National Labor Relations Board found that Minteq violated the Fair Labor Standards Act (FLSA) by failing to afford the employees’ union notice or an opportunity to bargain over Minteq’s unilateral implementation of the NCCA. In a recent ruling, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Board’s findings (Minteq International Inc., et al., v. Nat’l Labor Relations Board, No. 16-1276 (D.C. Cir. 2017)).

NLRB held that the noncompete agreement was a mandatory subject of bargaining not covered by the CBA. FLSA requires parties to bargain in good faith regarding “wages, hours, and other terms and conditions of employment.” As such, Minteq’s noncompete/confidentiality agreement was a mandatory subject of bargaining because it directly “settle[s] an aspect of the relationship between the employer and the employees.” (First Nat’l Maint. Corp. v. NLRB, 452 U.S. 666 (1981)). Continue reading