How Not to Use a Covenant Not to Compete How Not to Use a Covenant Not to Compete

How Not to Use a Covenant Not to Compete

A very recent court of appeals decision offers a primer on how not to use a covenant not to compete involving an employee.  Wise employers will learn the lessons taught by this ruling.

In this case, an employer sought to enforce a non-compete against an employee who left and went to work for another company. The employee in question possessed no unique confidential information of the original employer, made no effort to steal customers, and took no steps to interfere with the employer's business.

Despite such facts, the employer not only pursued enforcement of the non-compete, it contacted the new employer and insisted that the new employer fire the employee or risk being sued.  The new employer complied and sacked the employee.

Not only did the court of appeals raise the specter of the non-compete being unenforceable due the lack of any protectable interest, the court agreed with the employee that what the employer really sought to block was employment with anyone but the original employer when it came to the employee's general skill and knowledge of his profession.  The employer unwittingly assisted this view by conceding in depositions that the only protectable interest possessed by the employer in the employee consisted of the "investment and costs in training" of the employee.

The employer's "bold" (read: foolhardy) position resulted in a determination that the non-compete lacked enforceability, and that the employee possessed the right to pursue a tortious interference with at-will employment counterclaim against the employer!  Suddenly, the employer went from playing offense to scrambling to find a defense.

The prudent employer will include legal counsel in all phases of the non-compete process:  drafting, application and enforcement.  Failure to do so may result in the employer being hoisted on his or her own non-compete petard. 

If you have questions about these or any other employment-related matters, please contact David Carr or any other member of our Labor and Employment Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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