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

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Trendy big-city restaurants are often here today, gone tomorrow. Such is the case with Grace, a hot West Loop eatery that earned three Michelin stars, a bevy of industry awards, and was the most coveted reservation in Chicago before its owner abruptly closed the restaurant late in 2017. Now, Grace’s former star chef and manager/sommelier are suing to void their noncompete employment agreements.

Head chef Curtis D. and general manager Michael M. were allegedly working together at Avenues restaurant in Chicago’s chic Peninsula Hotel, when they met Michael O.  Curtis and Michael M. had discussed opening their own restaurant which they wanted to name Grace, and found an eager investor in Michael O., who had no experience in the culinary industry. The three went into business together in 2011.

The complaint filed February 20 in Cook County Circuit Court describes the high-priced Grace restaurant as an immediate success upon its opening in 2014 and a “culinary jewel” of the city. It was reportedly profitable within eight months, and Michael O. recouped his entire $3 million investment in the restaurant within several years.

The plaintiffs claim their employment agreements, executed in 2012, were drafted by Michael O.’s attorneys and presented to them without the advice of their own counsel. The agreements contained covenants not to compete for 18 months following termination of employment.

They claim they were led to believe they were receiving ownership rights at the time they signed, when in fact they wouldn’t have the right to share in Grace’s profits for five years. Then the pair would each begin receiving a one-third share of the restaurant’s net revenues. Continue reading

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Courts and now legislators are competing against the trend of non-compete clauses in employment agreements.

For it is Democratic leaders that have joined the bandwagon in terms of wanting to prohibit the use of covenants not to compete nationwide. Per Senator Warren’s press release, implementation of the clauses will reduce bargaining power for employees, stifle competition and innovation.  All of that combined hurts Americans and their opportunities. This will eventually, in turn, give greater power to the Department of Labor.

If legislation was in place, there will most likely be a ban through fines on employers who either fail to notify employees that non-compete agreements are illegal or who require employees to sign covenants not to compete. Such a bill would specifically enact a law to protect its trade secrets. As it stands, no legislation is in place that would not allow that to happen. Continue reading

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Some states, such as California, North Dakota, Montana and Oklahoma already ban non-compete agreements throughout the state, including agreements that were signed in other states where non-compete agreements are recognized. But now Democratic U.S. Senators are looking to expand such bans all over the country.

Elizabeth Warren, Ron Wyden, and Chris Murphy have come together to propose what they call the Workforce Mobility Act (WMA). If it makes it through Congress, the new federal law would place a nationwide ban on companies writing non-compete agreements into their employment contracts.

Non-compete agreements were first used only with high-level executives and they were designed to prevent those executives from going to work with a competitor and taking trade secrets and/or client relations with them. While such actions would clearly harm their former employer, and many businesses have successfully proven that their non-compete agreements protect only their legitimate business interests, non-compete agreements have become increasingly stringent, while at the same time more widespread, in the past decade or so, further inhibiting employment opportunities for workers.

While the first non-compete agreements included limits on both geography and time (usually six months to a year), companies have continued to extend these limitations, some going so far as to forbid even minimum-wage workers from going to work for any competitor anywhere in the world, thereby purportedly limiting those workers’ ability to find new employment.

Employee advocates have long warned about the unfairness of non-compete agreements and their effect of keeping workers chained to their employer. It inhibits a worker’s ability to grow as an individual and also gives companies more opportunities to take advantage of their workers, especially when such agreements are combined with arbitration agreements, in which any dispute between the company and their employers are required to be settled in arbitration, where the employee is at a distinct disadvantage. Continue reading

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Sometimes a stray email is all it takes to send things into a spiral.

In the case of Karen D’Onofrio and her former employer, Vacations to Go, such a stray email led D’Onofrio to sue her employer for allegedly violating her rights under the Family Medical Leave Act (FMLA). The cruise company responded by countersuing her for allegedly violating the non-compete clause of her employment contract.

The issues involved in the case go back to 2011, when D’Onofrio’s husband, Michael, was injured in a car accident. Three years later, he bought a franchise from a company that sells travel-related products and services, including cruises. As part of his application to buy the franchise, Michael included a screenshot of his wife’s sales records, although the picture in question did not include any client names.

A few months after Michael bought the franchise, D’Onofrio asked for leave from work under the FMLA so she could take care of her husband. She was given the option of taking unpaid leaving or working from home a few days out of each week and she decided to go with the latter. Then she allegedly attended a training session for her husband’s franchise while she was on leave and did not respond to messages from clients of Vacations to Go. When a manager sent an email incorrectly stating that D’Onofrio no longer worked for the cruise company, D’Onofrio assumed she had been fired. She was wrong, but she still sued Vacations to Go for violating her rights under the FMLA. Continue reading

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When a staffing company hires professional recruiters, they probably don’t anticipate that they’ll recruit the company’s own employees to a competing staffing company, but that’s allegedly what a former director for Randstad did.

Randstad, a leader in the world of industry staffing and recruiting, recently filed a lawsuit against four former employees who allegedly left their positions at Randstad, without notice, to allegedly set up a competing staffing company just down the street from Randstad. The lawsuit alleges that the former director took his entire team, including two executive recruiters and the company’s office administrator, with him to work at the new staffing company he had just set up.

According to the complaint, Randstad’s former director knew that the two executive recruiters he was taking with him had signed confidentiality and non-compete agreements that prevented them from working for a competing company in the same geographic area for at least one year after their employment with Randstad had been terminated. The agreements also allegedly prohibited them from taking either clients or employees away from Randstad.

The complaint does not yet allege that the former employees stole customers away from Randstad, but it alleges that the fact that they started another staffing firm not far from Randstad’s offices should be sufficient to prove they posed a risk to Randstad’s business. Continue reading

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Non-compete agreements generally exist to protect a company’s legitimate business interests in the event an employee decides to leave to work for a competitor, but what if the employee is laid off through no fault of their own? Should a non-compete agreement still keep them from obtaining employment if their former position no longer exists? This is the question Dr. Crocker asked after he was laid off from his position at Greater Colorado Anesthesia (GCA) as the result of a merger.

When Crocker got another job with a similar company in the same geographic area, GCA sued him for breach of contract. The company pointed to the non-compete clause in Crocker’s employment contract, but Crocker responded by suing his former employer, saying the non-compete agreement was overly burdensome by preventing him from obtaining valid employment as a doctor. Continue reading

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Running a nation-wide business here in the U.S. is almost as complicated as running an international business. With varying laws and restrictions between each city, county, and state, businesses need to make sure each of their locations is working in accordance with all the relevant business and labor laws governing that location.

But according to a recent lawsuit filed against Brown & Saenger, Inc., the South Dakota-based company allegedly tried to get around the need to abide by other states’ labor laws by specifying that all legal disputes were to be handled in South Dakota state court, under South Dakota law. The problem with that turned out to be North Dakota’s laws prohibiting non-compete and non-solicitation clauses in employment contracts.

The lawsuit involved a sales representative who worked for Brown & Saenger in their Fargo, North Dakota location and whose employment contract included both a non-compete agreement and a non-solicitation agreement in violation of North Dakota law. The contract also specified that it was to be held liable under South Dakota law, and in the event of a dispute over the contract, the parties would argue their cases in South Dakota court. Continue reading

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Non-competition clauses are common in the technology industry and have recently made headlines again.  IBM filed a suit against its ex-executive with allegations that her new position violates a year-long non-compete agreement.  This has allowed for the company to implement similar efforts, in order to increase diversity.

The executive that worked for IBM for a period of greater than two decades, is now being sued on the basis of violating a non-compete agreement. She was said to have “abruptly resigned” making it all seem more like a ploy.  Being a senior, she had knowledge of sensitive material and secrets that included recruitment strategies, plans, and initiatives.  It is alleged that this information will be also utilized in her work performed for Microsoft and is, therefore, a violation of terms. IBM complained that, whether intentional or not, using and disclosing, its confidential and sensitive information would place the company at a competitive disadvantage. According to them, it is “inevitable” that she will not be able to do so.  They further went on to state that she possesses “non-public diversity data, strategies, and initiatives — can cause real and immediate competitive harm.”

IBM sued in their filing, within a New York Federal Court, and succeeded in getting a restraining order preventing their ex-employee, who led diversity efforts from joining Microsoft.  The conditions which IBM wish to impose are rather broad. It included a temporary restraining order, preliminary injunction to prevent her from working for a year, in any position, anywhere in the world and for any company that is a competitor to IBM.

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Uber settled its legal fight after being accused of plotting to steal self-driving technology, which is considered to be the way of the future. It took more than four days in court, which included arguments and testimony. An overall case worth stood at $245 million.  The settlement was mainly concerning the trade secrets. The case was between Google’s parent company, Alphabet, and could be considered one of the most intense legal fights of Silicon Valley. This is especially since it concerns a startup vs. one of the biggest technology giants’ parent. The overall potential of the industry is trillion-dollars that are predicted to transform transportation.

The case showcased what many in Silicon Valley normally struggle with: the sudden rise of start-ups, the workings of the rich companies, the rivalries, and competition for talent.  Continue reading

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When Google’s ride-sharing company, Waymo, sued Uber for using Waymo’s trade secrets, it used as evidence the lidar (light detection and ranging) sensor Uber was designing for its self-driving vehicles. Waymo saw the design by accident when the manufacturer (who was making the lidar systems for both Uber and Waymo) accidentally sent Waymo a mock-up of Uber’s lidar system. Although Uber claimed the design was fairly standard, Waymo alleged it was too similar to their own to be a coincidence.

According to Waymo, Uber allegedly obtained knowledge of Google’s self-driving trade secrets when they bought Otto, a self-driving truck company. Otto was founded by Anthony Levandowski, who used to work as an engineer for Google to develop their self-driving technology. Just a few months after he started Otto, his company was bought by Uber and Levandowski became an employee of Waymo’s competitor.

Waymo alleged files regarding their self-driving technology went missing from Google’s servers around the time Levandowski quit his job with Google. The fact that he started working for Uber a short time later, and that Uber’s self-driving technology looked suspiciously like their own, was enough to prompt Waymo to suspect that Levandowski leaving Google to start his own company, which was then bought by Uber, was all part of an elaborate plot for Uber to steal trade secrets from Google. Continue reading