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

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 ›

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 ›

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.

Continue reading ›

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 ›

As our economy continues to expand all over the country and the globe, it forces us to reconsider some of the ways in which we do business.

For example, when companies started including non-compete agreements in their contracts with their employees, the federal and state governments allowed it – as long as the non-compete agreements met certain requirements. Chief among those requirements was a time limit and a geographical limit. Ideally, non-compete agreements should protect the legitimate business interests of the company (by making sure employees don’t go to a direct competitor with trade secrets), without severely restricting further employment opportunities for the worker.

But as companies continue to grow and expand into national and international markets, their competitors can reasonably be considered to be operating just about everywhere. That’s the case Horizon Health Corp. is making in its lawsuit against Acadia Healthcare Co. Inc. and the individual Acadia employees who were allegedly bound by a non-compete agreement when they were working for Horizon.

The contract prohibited the employees from going to work for another “psychiatric management company,” for one year after termination of their employment with Horizon, but there was no geographic limit to the non-compete agreement. Continue reading ›

The Society for Human Resource Management recently published an interesting article discussing the use of non-compete agreements by businesses throughout the country and a White House paper on the issues raised by non-compete agreements.  The article states in part:

Noncompetes may be unpopular among employees, but they’re becoming more common, according to Michael Elkon, an attorney with Fisher Phillips in Atlanta.

As a practical matter, most courts won’t enforce them against lower-level employees, he noted, but their more widespread use is attracting political attention.

The White House paper criticized the growing use of noncompetes, saying that they impact nearly one-fifth of U.S. workers. It cited a 2013 study commissioned by The Wall Street Journalthat found a 61 percent rise from 2002 to 2013 in the number of employees getting sued by former companies for breach of noncompete agreements.

Approximately 14 percent of workers earning less than $40,000 are subject to noncompete clauses, including fast-food employees, warehouse workers and camp counselors, the White House said.

Noncompetes are even prevalent in California, where courts do not enforce them; 19 percent of workers in California report signing a noncompete. Many workers are not aware of the lack of enforcement in California when they sign the agreements, the report noted.

Several states ban noncompete agreements for certain sectors, occupations and time periods. Hawaii banned noncompetes for technology jobs, and New Mexico banned them for health care jobs. Oregon banned noncompete agreements that last longer than 18 months, while Utah has limited them to a year.

Delaware, Illinois, Massachusetts, Tennessee and Texas do not enforce noncompetes against physicians, the White House report noted.

However, some state courts strike offensive clauses from noncompetes if doing so renders the remaining language enforceable under the state’s law. Meanwhile, other courts, most recently the Nevada Supreme Court, reject this so-called blue penciling of noncompetes.

You can view the full article by clicking here. Continue reading ›

Under the federal Fair Labor Standards Act (FLSA), all hourly, non-exempt employees are entitled to one and one-half times their normal hourly rate for all the overtime they spend working. It sounds simple enough, and for most workers it is, but employers need to make sure they’re including all the compensation earned by workers when calculating their overtime rate.

An overtime class action lawsuit against the U.S. division of Weatherford PLC alleges, among other things, that the oil company failed to properly calculate employees’ overtime rates. According to the wage and hour lawsuit, the company did not take into account certain bonuses (called “wellness bonuses”) that employees had earned when calculating the premium overtime compensation they should be paid when working more than eight hours a day or forty hours a week.

The class action lawsuit, which was filed in California in 2014, also alleges that Weatherford illegally denied workers compensation for the meal breaks they worked through.

Although the FLSA does not require employers to provide their workers with breaks throughout the workday, some state labor laws do, including California. Under California labor law, all hourly, nonexempt workers are entitled to one, paid, uninterrupted rest break of at least ten minutes for every four hours they spend working. For every five hours worked, employees are entitled to one, unpaid, uninterrupted meal break lasting at least half an hour. For every day an employee does not take one of these breaks, for any reason, that employee is entitled to one hour’s worth of pay, in addition to all other wages, bonuses, tips, etc. earned that day. Continue reading ›