Category Archives: Strategies

Day in Court: A Noncompete and the Duty of Loyalty

I had a trial two weeks ago week.  My client’s former employer (“Employer”) had sued him for breach of a non-compete and breach of the duty of loyalty.  Employer wanted almost $500,0000 in damages on these two claims plus their attorneys’ fees.  My client, now a small business owner, had fought for almost a year and a half before the day of reckoning had arrived. Fortunately, the Court ruled in our favor, although the judge will consider post-trial motions before the decision is final. Yet, while it is fresh on my mind, I wanted to record some of the experience to help readers get a better understanding of the challenges they might face.
Basic Facts
 
My client signed a non-compete agreement two days after beginning his employment as a salesman in south Florida. He worked for about 6 years before resigning.  Before he resigned, Employer assigned another sales person to his territory, which raised his concerns that his income would be reduced or that his accounts might be placed in jeopardy.  His largest account was the school district, which worked on a bid system. There was no solicitations of this account.  The jobs were awarded based solely on price, and relationships played no role in the awarding of purchase orders.  Most sales to individual schools, which were generally smaller, were somewhat different but also came down to price.  Lowest bid won.  And all bids were made public after the fact.
Consideration
 
My client testified that there had been no mention of the non-compete when he was offered the job.  It was undisputed he was not presented with one at the time the offer was made, and he did not sign the non-compete until the third day on his new job.   His employment was “at will.”  South Carolina law states pretty clearly that if a non-compete is entered into after the initial offer of employment (and certainly after the first day of employment), then the non-compete is not enforceable unless the employee received something of additional value.  However, in this case, the court actually determined that there was an “intention” to enter into a non-compete, and its ruling in my client’s favor was not premised on lack of consideration.
Reasonable in Geographic Scope
The non-compete in this case prohibited my client from competing within a 100 mile radius of Miami.  However, this 100 mile radius included much territory that my client had never called on customers.  In fact, it included another sales persons territory, which my client never entered.  And the second salesperson which was placed into this territory by the Employer was because the territory was too big for just one salesperson.  South Carolina law states that a non-compete must be limited to the territory where the salesperson actually called on customers and not simply where the Employer does (or wants to do) business.  The judge ruled the territory was overly broad, and therefore unenforceable.
Non-Solicitation Agreement
 
The non-solicitation prohibited my client from calling on customers or accounts he had solicited during the last 12 months of employment.  Of course, this would include accounts who were not current customers of the employer, which is usually overly broad under South Carolina law.   Moreover, there was no evidence that the accounts my client solicited after he left employment were actual customers of the Employer.  The court ruled that there was no evidence my client had sold to actual customers of the Employer.
Breach of Duty of Loyalty
 
Every employee has a duty of loyalty to his employer while an employee.  If an employee acts disloyal by competing with his employer, then he has breached the duty of loyalty and can be held liable for damages, including his compensation during the period of disloyalty.  However, an employee may prepare to compete in the future.  Here, my client had formed a corporate entity with the Florida Secretary of State.  He had had a friend create a website for his business, although the website had never gone live and had never made any sales through the website.  The court found that merely preparing to compete did not breach the duty of loyalty.
Again, these rulings are subject to post-trial motions.  After a trial, the losing party can make post trial motions to seek a reconsideration of the judge’s rulings.  The Employer has very capable defense counsel who will do a good job trying to pick apart the judge’s ruling.  We will be prepared.  And we will file our own post trial motion directed at the ruling on consideration.  Of course, Employer may file an appeal. However, we are confident the judge’s ruling will stand up, and just as confident that our argument on consideration will provide another basis to uphold this ruling.

What Happens When A Non-Compete Case Goes to Trial?

I have tried three cases in the last 12 months, but none more difficult than a non-compete case in Lexington County.  The judge did not grant summary judgment on the non-compete or non-solicitation provisions, and my client had conceded he breached the non-compete.  The defendant was permitted to argue he was entitled to $2.7 million in lost profits, which encompassed a 5 year period although the non-compete was 1 year long.  A jury deliberated 5 hours before asking for a calculator, and another couple doing math.  When it was all said and done, the defendant will receive a breach of contract remedy that is 10% of the lost profits sought and one-half of the first settlement offer.  But the motion for attorneys fees’ is still pending.  (Defendant asked for a figure in excess $700,000.).

Well.  This case has a lot of “boots on the ground” experience to dissect.  Couple if quick take aways for now:  

1. It is cliche, but you never know what a jury is going to do.  This verdict appears to be an inconsistent verdict; it may be a compromise verdict; it is likely a confused verdict.  But, do the parties really want to try this one all over again?  Cost-benefit says “no.” However, rationality gets lost in the passion for revenge that can infect these cases.

2. Judges do not wade very deep into non-competes that often.  The appellate law in the state of South Carolina is not as clear as it could be.  The law has evolved slowly over the last 50 years, and sometimes in ways that appear to be inconsistent.  This lends itself to variability and lack of predictability at the trial court level.  

3. There is a fairness standard that seems to underpin much of what drives juries, and in the present political and cultural environment, juries in certain locales and/or in response to certain fact patterns are not as hostile to non-competes as one might guess.  Whoever wins the fairness battle, wins the war.  And, if there is a split decision in the fairness equation, then verdicts tend to reflect that through a compromise verdict.

Conditions 1, 2 and 3 make an appeal likely.

More soon.

Ten Proverbs for Litigators

Wisdom WayTrying cases is what I think I do best.  There are some lessons that I have learned along the way.  Twitter helped be shrink them down to 140 characters or less.  Here are my top 10:

1.  Cases are won as much by facts forgotten as facts remembered.

2  If truth is in the middle, then so will be the verdict.

3.  Juries tend to make humble lawyers proud and arrogant lawyers humble.

4.  The billable hour, whether your own or another’s, will dictate the course & length of litigation more times than not.

5.  If you don’t pay attention to the trivial aspects of your case, the jury just might. Know thy case.

6.  Don’t ask, if you don’t already know.

7.  Jurors want to know you believe in your case before they believe in it.

8.  If you don’t like your client, the jury surely will not.

9.  Moderation in all things, except your passion for your case.

10.  Make your case a cause.

[From my blog Blogger at Law. These lessons are just as applicable to efforts to beat a non-compete.]

I am Being Sued Where? Forum Selection Clauses

Too many employees who have signed a non-compete agreement fail to take notice that they have agreed to be sued in another state.  These provisions are known as “forum selection clauses.” The costs of going to another state to defend yourself can be significantly higher than litigating in your home state.  At least half of the agreements I review state that the parties have agreed to having another state’s court will decide any dispute. Continue reading

Eight Ways to Guarantee Yourself a Non-Compete Lawsuit

Okay.  I confess:  I have been really busy (what a blessing) and have not had a chance to write much.  But, I have had a chance to read, and I came across something else I wanted to share.  Management-side employment lawyer, Jay Shepherd, has written a good article directed at employees:  Eight Ways to Guarantee Yourself a Non-Compete Lawsuit. Pretty good advice.  Because, in the end, beating your non-compete begins with not acting stupidly and dishonestly, and even if you have a non-compete that will never hold-up in court, being dishonest before you leave your job or taking stuff with you when you leave will make your non-compete the least of your problems.  Remember you can delete, but you cannot hide.

Eight Ways to Lose A Non-Compete Case

It has been a while since I posted.  Will save the excuses, but thought I would take this opportunity to link to one of my favorite management oriented blogs: Gruntled Employees. Jay Shepherd provides interesting advice to employers looking to avoid workplace litigation.  Shepherd’s Eight Ways to Lose a Non-Compete Case is solid advice to those seeking to enforce a non-compete, and likewise provides insight to those who want to wiggle free.

The Biggest Obstacle to Beating Your Non-Compete: Judges

Judge at LawI had a set back recently when a judge decided to “punt” instead of making the decisions he is paid to make.  I represented an employee who had been fired and whose non-compete was making it difficult for him to get another job.  The language of the non-compete appeared to be extremely broad.  We asked the judge to read the non-compete and decide if he agreed with us.  The law is clear:  Whether or not such a non-compete is reasonably limited in its operation is a question of law.  Stringer v. Herron, 424 S.E.2d 547 (S.C. Ct. App. 1992)(emphasis added); see also Bicycle Transit Authority, Inc. v. Bell, 314 N.C. 219, 333 S.E.2d 299 (N.C. 1985)(“The reasonableness of a restraining covenant is a matter of law for the court to decide.”).  So, when the employer argued there were “questions of fact’ the obvious response what facts do you need to read the non-compete and decide whether it is reasonable limited. Continue reading

E-Discovery: You can delete, but you can’t hide.

E-discovery is the new trend in litigation; it is here to stay.  Every lawsuit involves discovery, where lawyers get to ask questions and obtain documents that are relevant or might be relevant to the claims in the case.  Now, because many documents exist in electronic form on computer hard drives, electronic files are also subjects for discovery.  Parties are required to conduct searches of their computers for information, and in some cases, a party may be required to produce their hard drive so the opposing party can conduct its own search.  And these searches can turn up deleted information. Continue reading

It Can Be As Simple As A Well-Drafted Letter

I recently wrote a letter on behalf of a nice lady who had a noncompete, which was on the verge of costing her a good job offer.  However, the prospective employer was temporarily holding the job open to see if she could get released from her non-compete.  Fortunately, we had some strong arguments that the agreement was not enforceable, and sent a well researched letter making our case.  Her former employer responded in two weeks that the company was releasing her from those obligations.  It can be that simple.

But, it is not always that simple.  Sometimes, former employers will continue to insist on enforcement, which requires an employee to institute a declaratory judgment action.  Other times, the noncompete has a provision requiring an employee to litigate out of state, so it makes since to file a preemptive lawsuit before writing the letter.  Otherwise, the former employer may bring its own action in another state, which can be more time consuming and more expensive.  And, if you have filed an action before initiating negotiations, your former employer does not wonder whether you are serious or not.  It all depends on the circumstances.

Nonetheless, in a few cases, a well written, well researched letter can be enough.  The cost for a consultation and a letter will generally be about $500, although some cases can be a bit more complicated.  Of course, the cost of inaction can be much more.