03/15/2010

Employee Non-Compete Defenses of Non Compete Agreements

In this Traverse Legal Radio Interview, Attorney Mark Clark discusses several employee defenses to the enforcement of a non-compete agreement, also known as non-competition agreement.  Listen to or read the full transcript below:

Today’s program is brought to you by the attorneys at Traverse Legal, PLC, a global law firm specializing in Internet law, Trademark infringement, Copyright Infringement, Cybersquatting, On-Line Defamation,Non-Compete & Trade Secret Law and Complex litigation.  If you have a legal matter arising on the web, contact one of Traverse Legal’s internet lawyers today.  Now here’s your host, Damien Allen.

Damien Allen:  Good morning and welcome to Traverse Legal Radio.  My name is Damien Allen, and today joining me on the phone is Mark Clark, attorney at Traverse Legal, PLC.  Good morning, and welcome to the program, Mark.

Mark Clark:  Good morning, Damien, glad to be here.

Damien Allen:  And it’s a pleasure to have you as always, sir.  Today we’re discussing employee defenses to enforce a non-compete agreement.  Maybe we should get a little background first.  What is a non-compete agreement, Mark?

Mark Clark:    Well, Damien, a non-compete agreement or a non-competition agreement, as it were, is really a covenant or restriction that indicates that you as an employee or an independent contractor, as the case may be, will not do certain things in competition with your former employer when you leave the employment, and that usually is a restriction as to time and geographic place for conducting activities that might be viewed as in competition with your former employer.  And, in most states, a non-compete agreement is an enforceable agreement against the employee, but there are a few exceptions but, generally, a non-compete agreement is an agreement that will be enforced by the courts.  But having said that, there are defenses to a non-compete agreement that the employee can review in an effort to try and escape the restrictions of a non-compete agreement. 

Damien Allen:  Why would an employer request a non-compete agreement? 

Mark Clark:  Well, an employer might request a non-compete agreement for several reasons.  The most common reason is that they’re attempting to protect a business interest that they have in maintaining typically customers or clients or maintaining its trade secrets so that employees with knowledge of that inside information, if you will, aren’t simply free to go work for a competitor after having invested in the employee, if you will.  And so that is the primary reason that an employer will look at having an employee sign a non-compete agreement. 

Damien Allen:  What options do employees have when they sign a non-compete and they lose their employment?   I just lost my job, maybe I want to go out and do the same thing I was doing at the company I was working at.  What options do I have? 

Mark Clark:  Well, if you’ve signed a non-compete agreement, you need to assume that the non-compete agreement is enforceable, and generally, courts have found that so long as an employer is protecting a legitimate business interest with the non-compete agreement, and the non-compete agreement is reasonable in both scope, meaning geographic region, and timeframe, that they will be enforced.    Nevertheless, there are a number of defenses that employees can utilize in an effort to extract themselves from those non-compete restrictions.  Employees, generally, will look to the defense, initially, of duress, and say, you know, this non-compete agreement was provided to me without my knowledge and after I started to work for the company, and they say, I felt as though I had no choice.  Generally, that’s not a common defense, because most employees are at will.  And the courts will find that the employer, in an at will employment situation, is simply allowing the employee to maintain their employment in exchange for signing the non-compete.  In other words, if the employer simply says sign it or leave, that is a legitimate reason to uphold a non-compete agreement in the eyes of most courts.  So, duress is generally not a good defense.  There are several good defenses that employees can take advantage of in certain circumstances, and of course the enforcement of a non-compete agreement depends upon the facts of each case.  But generally, the courts first look at whether the non-compete agreement itself is designed to protect that employers legitimate business interests.   So, the first thing an employee might want to do, for instance, is to look at their position in the company.  If the company is engaged in sales and you are a salesperson, then the employer will usually have a legitimate business interest in protecting its clientele or customers and giving its sales force a non-compete agreement.  Now, if you are simply a clerical worker, for instance, rather than a salesperson in a sales company, the courts may find that the employer has no legitimate business interest to protect in restricting its non-sales force employees.  Employers often will have all of their employees, or a large percentage of their employees, sign a non-compete agreement when there’s really no legitimate business interest being protected in doing so.  So, you may have a good defense depending upon your position with the company in terms of what the non-compete is designed to protect when you look at the restrictions in the non-compete itself.  The other defenses that employees may have in combating enforcement of a non-compete agreement is the reasonableness of the non-compete.  In other words, courts will look at both the scope of the non-compete restrictions and the timeframe attached to the non-compete restrictions.  When I use the word scope, I mean, by way of geographic region.  If the company is doing business in Michigan only, and has no immediate prospects for doing business outside of Michigan, and they prevent you from competing in all of the Midwest, a court will generally find that that is an unreasonable restriction and will allow the employee in fact to go into a market outside of the market restricted by the non-compete agreement and go ahead and in fact compete.  The same holds true for the duration of the non-compete.  Now, generally, non-competes with anywhere from a six month to a two year window have been found valid, but each case is different.  If, for instance, you are a salesperson and the non-compete restriction is two years, a court will look at the particular company and a particular market and attempt to evaluate how long it would take for a new salesperson, for instance, to familiarize himself or herself with the company’s customers and decide what is reasonable in terms of timeframe.  Those are both defenses you can use, both in litigation and also in negotiation with your former employer if you ever wind up in a dispute over your non-compete agreement. 

Damien Allen:  How successful are employees, generally, in avoiding enforcement of non-compete restrictions?

Mark Clark:  Well, as I’ve indicated, generally, non-compete agreements are enforceable.  However, employees do have a good percentage of defenses to the enforcement of the non-compete agreement.  It’s important to have an attorney or somebody knowledgeable evaluate your non-compete agreement in terms of all of the factors we discussed, nature of the business, the legitimate business interest that the non-compete seeks to protect, and the reasonableness of the non-compete restrictions, both in time and geographic duration.  Now, often when a dispute arises, it may not wind up in litigation, but if the employee has indicated to the employer that the employee believes that the non-compete restrictions may not be enforceable, then that creates some leverage in order to negotiate oneself out of a non-compete without the prospect of litigation.  But it is important to do that evaluation upfront, or have a lawyer assist you in doing so, so that you know what your leverage is before you discuss trying to extract yourself from non-compete restrictions. 

Damien Allen:  Do you have any more advice for an ex-employee trying to defend themself from enforcement of non-compete agreements, Mark? 

Mark Clark:  My advice would be to prepare before you address the issue with your former employer.  In other words, conduct a thorough evaluation so that you know what your legal leverage might be and what your non-legal leverage might be.  And the best way to do that is to have a discussion or an analysis done by a competent attorney so that when it comes time to either negotiate or litigate the issue, if that time comes, you will be fully prepared and have a strategy going forward.  That is the best recipe for success in attempting to extricate yourself from a non-compete agreement. 

Damien Allen:  We’d like to thank you for joining us today, Mark.

Mark Clark:  Thank you, Damien.  It’s always a pleasure. 

Damien Allen:  We have been discussing employee defenses to enforcement of a non-compete agreement with Mark Clark of Traverse Legal, PLC.  You’ve been listening to Traverse Legal Radio. My name is Damien Allen.  Everybody have a great afternoon. 

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