Federal Appeals Court Rules Non-Compete Agreement Unenforceable against Employee Let Go Then Rehired

Layoffs have become commonplace in the COVID-19 era as employers are forced to trim staff levels amid shelter-in-place orders. Many of these employers intend to rehire their former employees when the economy picks back up. Employers should be aware, however, of the impact, these gaps in employment can have on the enforceability of non-compete agreements and other restrictive covenants the employer and employee may have previously entered into.

The U.S. Circuit Court of Appeals for the First Circuit recently considered a similar situation and ultimately held that the employer could not enforce a non-compete agreement against a former employee that had been fired and then rehired. The legal saga started when Novo Nordisk, a pharmaceutical company, sought entry of a temporary restraining order and preliminary injunction against Thomas Russomano, one of its former employees, seeking to enforce the terms of a confidentiality and non-compete agreement that Russomano signed when he began his employment with Novo Nordisk. The District Court denied Novo Nordisk’s motion because it found that Novo Nordisk failed to show a likelihood of success on the merits, a necessary requirement to obtain injunctive relief.

Russomano began his employment with Novo Nordisk in January 2016. As a condition of his employment, he signed confidentiality and non-compete agreement which prohibited him from working for a competitor during his employment and for a period of twelve months following the end of his employment. In October 2016, Novo Nordisk informed Russomano that his position was being eliminated, and he was terminated in mid-November. After an approximately three-week period, the company rehired Russomano to another position. Russomano signed second confidentiality and non-compete upon being rehired.

In June 2018, Novo Nordisk informed Russomano that his position was again being eliminated. As had occurred previously, Novo Nordisk rehired Russomano to a different position. This time, however, Russomano began his new position immediately upon the elimination of his old position. Also different the second time around, Russomano was not required to sign a new confidentiality and non-compete agreement as part of accepting this new job. In January 2020, Russomano resigned from Novo Nordisk to work for a competing pharmaceutical company.

Novo Nordisk argued that the confidentiality and non-compete agreement Russomano signed when he was rehired in 2016 still applied because he had been continuously employed at the company until he resigned in January 2020. While Novo Nordisk argued that it did not lay off Russomano, but rather transferred him to a different position in the company, the court held that the language in the June 2018 layoff letter and subsequent rehire letter were plain and unambiguous.

In affirming the District Court, the First Circuit held that Novo Nordisk’s June 2018 termination letter was unambiguous and that Russomano’s employment ended on August 3, 2018. It was on this date that the 12-month non-compete period began the Court reasoned. Thus, the non-compete period had already expired by the time Novo Nordisk sought to enforce the non-compete agreement.

The court’s full opinion is available here.

Whether you are an employee being asked to sign a non-compete agreement or an employer needing a non-compete agreement or needing to see if your existing agreement is still valid, it is important to speak with an experienced restrictive covenant and non-compete agreement law attorney. It is no less important to have a skilled non-compete attorney at your side if you find yourself embroiled in litigation over the enforcement of a covenant not to compete, non-solicitation agreement, or nondisclosure agreement.

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