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

Earlier this month McDonald’s announced suddenly that the board had voted to terminate CEO Steve Easterbrook due to a consensual relationship with another McDonald’s employee. The day after firing Easterbrook, McDonald’s outlined the terms of Easterbrook’s severance package in a filing with the Securities Exchange Commission. Easterbrook will receive 26 weeks of salary as severance, totaling at least $675,000 before benefits. In addition, he will be eligible for a prorated bonus if McDonald’s hits its performance targets for 2019.

The severance agreement also includes several restrictive covenants including a strict non-compete provision prohibiting Easterbrook from working for any fast-food competitor and at least two convenience store chains for the next two years. The agreement provides that:

“You acknowledge and agree that, in performing services for McDonald’s, you were placed in a position of trust with McDonald’s and that, because of the nature of the services provided by you to McDonald’s, Confidential Information will become engrained in you, so much so that you would inevitably or inadvertently disclose such information in the event you were to provide similar services to a competitor of McDonald’s.

“As such, you agree and covenant that for a period of two (2) years following your Termination Date: (a) you shall not either directly or indirectly, alone or in conjunction with any other party or entity, perform any services, work or consulting for one (1) or more Competitive Companies (as defined below) anywhere in the world; and (b) you shall not perform or provide, or assist any third party in performing or providing, Competitive Services anywhere in the world, whether directly or indirectly, as an employer, officer, director, owner, employee, partner or otherwise, of any person, entity, business, or enterprise.” Continue reading ›

To combat the increasing restrictions in non-compete agreements, legislators throughout the United States have been passing laws to limit what restrictions employers can put in their non-compete agreements with their workers, or even whether they can use non-compete agreements at all. California has refused to recognize any non-compete agreements, and other states have followed suit. A federal law limiting or banning non-compete agreements does not exist, though bills on the issue have been proposed.

The latest tactic used by employers to get around the restrictions placed on non-compete agreements has been something called “garden leave”. Garden leave is when an employee gives notice of the termination of their employment with that business and spends some or all of their notice period away from the office, but remains on the company’s payroll. Continue reading ›

In a series of partial summary judgment opinions, the Delaware Chancery Court threw out all non-competition and non-solicitation claims against Alphatec Holdings, Inc., a medical device company, and its chairman and Chief Executive Officer Patrick Miles in a lawsuit filed by Miles’s former employer, NuVasive, Inc. The suit claimed that Miles violated the non-compete and non-solicitation provisions of his employment agreement when he left to work for rival Alphatec in October 2017.

Miles had worked at NuVasive since 2001 and entered an employment contract in September 2016 which included post-employment restrictions against working for a competitor or soliciting NuVasive employees or customers. In October 2017, Miles resigned from NuVasive and accepted a position as the chairman of Alphatec the following day. NuVasive filed suit a week later, claiming that Miles’s departure was part of a year-long scheme that included discouraging NuVasive from acquiring the smaller Alphatec. Continue reading ›

A U.S. District Court judge in Rhode Island recently granted CVS Pharmacy, Inc. a  preliminary injunction to block an executive who ran its Caremark Retail Network from working for Amazon’s online pharmacy PillPack, finding that the move would likely violate the executive’s non-compete agreement.

John Lavin worked as a senior executive for CVS for 27 years, most recently as senior vice president for provider network services at CVS Caremark, a pharmacy benefits manager (PBM). In this role, Lavin negotiated with retail pharmacies on behalf of CVS Caremark. In May 2017, Lavin entered an agreement which contained a covenant not to compete among other restrictive covenants in exchange for restricted stock units worth $157,000, according to the Court’s opinion. Lavin’s non-compete agreement prohibited him from working for a competitor for 18 months after leaving CVS.

A year after entering the agreement, Lavin allegedly began discussions with PillPack about leaving CVS for a position at Pillpack and even interviewed with executives from both PillPack and Amazon. After interviewing, Lavin was ultimately offered the position of director of third-party networks and contracting, reporting directly to PillPack’s CEO. Shortly thereafter, Lavin resigned from CVS and started employment with PillPack. Continue reading ›

Restrictive covenants such as covenants not to compete and non-solicitation agreements are key provisions of many employment agreements and are meant to protect the company’s proprietary information and long-term relationships. Beginning January 1, 2020, business owners in Oregon using non-compete agreements must take into account the notice requirements imposed by a recently passed law or their non-compete agreements will not be enforceable.

Earlier this year, Oregon Governor Kate Brown signed House Bill (HB) 2992, which imposes a new burden on employers who utilize noncompetition agreements with their Oregon employees. Under the new law, an employer must provide the former employee with a signed, written copy of their non-compete agreement within 30-days following their termination. If an employer does not provide a copy of the non-compete agreement to the former employee within this window, the employer forfeits the right to enforce the non-compete agreement. Continue reading ›

When a franchisor learned that its franchisee was building a competing app and planning to launch a new business in direct competition with it, it sued, seeking an injunction to prevent the launch of the app and business during the litigation. The district court granted the injunction, and the appellate court affirmed in part, with regards to the injunction’s limits on competition. The appellate panel did, however, remand for the district court to consider imposing a higher security bond, given the sweeping nature of the terms of the injunction.

Auto Driveway Franchise Systems, LLC is a franchisor for commercial vehicle transportation services. Jeffrey Corbett was one of Auto Driveway’s franchisees. Through his company, Auto Driveway Richmond, LLC, Corbett ran Auto Driveway franchises in Richmond, Virginia, Nashville, and Cleveland. Corbett’s three businesses were governed by separate, but substantively identical franchise agreements with Auto Driveway. Each agreement included a non-compete clause, a non-disclosure clause, and a five-year term set to expire in 2016. The expiration dates came and went, and both parties continued dealing as though the contracts were still in place.

At some point in 2017, Auto Driveway learned that Corbett had been taking actions in apparent violation of the franchise agreements. Corbett was building an app to complete against the app Auto Driveway had hired Corbett to build for itself, using Auto Driveway’s proprietary work product as a starting point. Corbett was set to launch his new app through a new company, InnovAuto, that also provided auto transportation services in direct competition with Auto Driveway. Auto Driveway sued, seeking an injunction to prevent Corbett from selling or using the app.The district court granted Auto Driveway a preliminary injunction, finding that Corbett was harming consumer goodwill and was taking Auto Driveway customers through his competing business. Corbett then appealed. Continue reading ›

New England employers have seen a restricting on their ability to use non-compete agreements in recent weeks with the passage of new laws in Maine, New Hampshire, and Rhode Island. In a previous post, we profiled the non-compete legislation passed in Massachusetts. The bills in Maine and New Hampshire are set to be enacted later this year, while the bill in Rhode Island has passed the legislature and awaits signature by the governor.

Maine

The newly passed Act To Promote Keeping Workers in Maine is set to take effect on September 18, 2019. The new law will dramatically affect employers who utilize various common restrictive covenants by: (1) prohibiting employers from entering into no-poach or non-solicitation agreements with other employers; (2) barring employers from entering into non-compete agreements with low-wage employees; (3) limiting an employer’s ability to enforce restrictive covenants; (4) mandating advanced disclosure of the use of non-compete agreements; and (5) delaying the effective date of non-compete agreements; and (6) imposing stiff monetary penalties for violation of the law’s restrictions.

The law prohibits employers from requiring employees earning at or below 400% of the federal poverty level to sign covenants not to compete. The new law also prohibits the use of no-poach agreements, even those ancillary to legitimate business collaboration, and non-solicitation agreements, a common provision in NDAs used by many companies.

The law also limits the ability to enforce non-competes by limiting an employer’s legitimate business to only: (a) trade secrets; (b) confidential information; or (c) goodwill. Any employer who violates the law is subject to a fine, not less than $5,000. Continue reading ›

Although many financial planning companies rely on the relationship between the financial planner and the customer, E-Trade’s customers primarily conduct business online – usually without communicating directly with any of the company’s financial planners.

Even so, the company includes a non-solicitation agreement as part of their employment contract with their financial consultants and brokers. According to a recent employment lawsuit, Heather Pospisil, a former financial consultant for E-Trade, allegedly violated that agreement by taking E-Trade clients with her when she moved to Morgan Stanley.

According to the lawsuit, Pospisil allegedly accessed a considerable amount of client information late one night, just a few days before she left to join Morgan Stanley, another financial planning company that competes directly with E-Trade.

Pospisil alleges she was merely accessing the information so she could let clients know she was leaving the company. Not only would those clients be unlikely to care, given the online nature of E-Trade’s business, but U.S. Judge Ronald A. Guzman pointed out that it would have been much faster to send a mass email to all her clients. In addition to being more efficient, it also would have provided evidence to support her claim that all she did was provide notice of her departure.

Judge Guzman also noticed that the number of files she accessed on that night accounted for 75% of all the files she had ever accessed in the more than four-and-a-half years she had been working for E-Trade. Continue reading ›

It has become increasingly common over the past few years for employers to include non-compete agreements in their employment contracts. In most cases, they are required to have geographic and time limits, meaning they can only be enforced in a certain geographical area for a certain period of time (usually six months to a year after termination of employment).

The restrictions on non-compete agreements vary from state to state, with a few states, such as California, refusing to recognize any non-compete agreements, even those signed in states that do recognize such contracts.

In one recent case against a realtor in Connecticut, Century 21 Access America successfully sued a former employee and obtained an injunction against her. Under Connecticut state law, non-compete agreements are recognized and enforceable.

Vassilia Mazzotta’s employment agreement with Century 21 stated that she would not work for a competitor or solicit clients within 15 miles of Century 21’s offices for a period of two years after termination of her employment with Century 21.

Shortly after resigning from her position as a real estate broker with Century 21, Mazzotta went to work for a competing real estate company and continued to provide services and solicit clients within 15 miles of Century 21’s offices. Continue reading ›

When non-compete agreements first started to be used, they needed to establish a geographic perimeter in order to be enforceable. Non-compete agreements were intended to prevent workers from going to work for the competitor across the street and taking clients, vendors, and/or proprietary secrets with them. In order to stay fair to workers while still protecting the employer, most non-compete agreements were restricted to a certain geographical range – for example, the employee could not go to work for a competitor less than 20 miles away from the employer.

Over the past few years, employers have started expanding the geographical limits in their non-compete agreements until they didn’t bother putting them in at all – in a few cases, they actually specified that the non-compete agreement was effective worldwide.

With the dawn of the Digital Age, businesses started expanding their reach across the globe, making it increasingly difficult to specify a geographical area in which they conduct business. For this reason, some U.S. courts have ruled that it’s OK for companies to leave out the geographical restrictions on a non-compete agreement, but the Nevada Supreme Court recently stated otherwise. Continue reading ›

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