Despite the fact that some state laws have been working against non-compete clauses in employee contracts, companies continue to find ways around them. While California has been the least tolerant by banning non-compete clauses altogether, other states, such as Massachusetts, have taken more moderate approaches by seeking merely to limit the scope of such contracts.
Non-compete agreements usually exist as part of a contract between an employee and her employer. The non-compete clause states that the employee will not work for one of the company’s competitors for so many months after termination of her employment with her current employer. Such clauses are usually limited by geography as well as time and the idea is to protect the trade secrets of the employer.
Non-compete clauses are usually included in an employee’s initial contract or (if she doesn’t sign an individual contract) in the employee handbook or manual. If a company wants to change its policy regarding existing employees, then it is subject to the requirement of consideration. This requirement means that both the employer and the employee must gain something from the new or altered contract in order for it to be enforceable in a court of law.
Our Chicago non-compete agreement lawyers observed that in its recent attempt to bypass these new restrictions, Best Buy Co. Inc., (which employs about 5,200 people at its corporate headquarters in Richfield, MN) has offered future stock considerations to hundreds of mid-level executives, including the vice presidents and directors.
These stock considerations are to be in exchange for the executives signing new employment contracts with Best Buy, which include a non-compete clause. The clause prohibits the employees from working for any of Best Buy’s competitors anywhere in the world for 12 months after termination of their employment with Best Buy. By offering something of value to the employees in exchange for signing the new contract, Best Buy gets around the consideration requirement.
If an employee were to dispute this new non-compete clause, most state courts would consider the benefit of the clause to the employer as far as protecting intellectual property, confidential business practices, etc. against the employee’s interests in pursuing other employment. The balance struck between these two will, ideally, result in a determination of the clause’s “reasonableness”. There are two key factors which are normally used to determine reasonableness: time and geography.
While some courts have upheld non-compete clauses which extend for a year or more, Best Buy’s geographical limitation prevents the employee from working for any of Best Buy’s competitors anywhere in the world. This may not meet the requirements for reasonableness as it inordinately benefits Best Buy over the employee.
Another argument an employee could use to challenge the clause is to question whether Best Buy has anything of value to protect. As a retailer, Best Buy does not create anything of its own; it merely resells products made by other companies. Even the services that Best Buy offers, such as installation and repair, are not the kinds of services which typically consist of any kind of confidential information recognized by the courts.
This is just one instance of a company’s response to the changes in law regarding non-compete clauses. No doubt we will see many more before long.
The Business Litigation attorneys at DiTommaso Lubin Austermuehle represent business owners and professionals regarding non-competition agreements and other claims throughout the Chicagoland area, including Cook, DuPage, Lake, Kane, McHenry and Will Counties; and in the Mid-West region, including Indiana, Wisconsin and Iowa.