It is happening. Slowly, states are making it easier for employers to enforce non-competes. Recently, the Texas Supreme Court abandoned a decade of precedent when it expanded the basis for supporting non-compete enforcement. Check out Michael P. Maslanka’s Work Matters blog on this topic. Maslanka states “[w]hile the employer won this case, many employers will lose in the long run. Noncompetes tie up talent, and it is the movement of talent that creates what the concurrence calls “economic dynamism.” Amen.
Next door in Georgia, the state has amended the constitution to change its non-compete law. How much so? The Georgia Non-Compete and Trade Secrets News blog says this: “This new law makes it significantly easier for employers to enforce non-competes and other restrictive covenants against former employees, at least with respect to restrictive covenants in contracts that are signed from this point forward and are thus governed by the new law.” Here is a blog post by Trade Secret/Non-Compete that provides a brief description of the law. The change went into effect in May 2011. However, the Georgia constitution now grants courts to blue pencil non-competes, which South Carolina courts still refuse to do.
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. [click to continue…]
The more non-compete matters I review and litigate the more certain I am that geographically based non-competition covenants should be per se unenforceable. What is the logic of preventing an employee from selling widgets in Greenville County just because he has sold widgets to certain customers located in Greenville County? (There is none.) How are such non-competes ever reasonable in a post-employment covenant? (They are not.) Isn’t such a non-compete always broader than it needs to be to protect the former employer’s legitimate interest? (Yes.) [click to continue…]
“A recent study byShepherd Law Group shows that noncompete litigation nationwide has continued to trend upward, despite a slowing economy and legislative attempts to curb noncompetes. The latest study shows that noncompete litigation has more than doubled since 1995, and has increased by 61 percent from 2004 to 2009.” For more on this trend visit Gruntled Employees.
My personal experience is consistent with the trends noted by the Shepherd Law Group study. More employers are seeking non-competes from new employees, existing employees and even employees who have been fired (and offered severance).
A Boston law firm, Beck Reed Riden, has developed achartthat outlines the law of non-competes in all 50 states. It is pretty good tool and an easy way to get some basic information about non-compete law. Review of information related to states with which I am familiar suggested this chart is accurate. This is just a starting point for information but every search begins somewhere.
UPDATED (9/5/2011): The chart was updated as has this blog post.
In Bimbo Sues the Muffin Man, I briefly discussed the inevitable disclosure case filed by Bimbo Bakeries against a former manager, who had ran one of its English muffins facilities. To prevent disclosure of its trade secrets, Bimbo asked a judge to keep the former manager from working for a competitor, even though the manager had never signed a non-compete. In a follow-up post, Judge Sides with Bimbo, I provided a link to Judge Barclay’s 37-page opinion in Bimbo Bakeries USA Inc. v. Botticella, which granted the preliminary injunction. Botticella appealed to the 3rd Circuit Court of Appeals, which just issued an opinion upholding the preliminary injunction.[click to continue…]
“Can they get an injunction?” is among the first several questions asked by folks seeking advice about a non-compete agreement. As a lawyer, I would like to be able to offer a straight answer. And sometimes I do, but almost always with a disclaimer. I can know what existing law states but I cannot know what the judge will say it means in your case. However, there is a standard process and factors for courts considering motions for injunctive relief, and it is helpful for the client to understand the basics.
The South Carolina Supreme Court has issued a new non-compete case, which overturned a lower court decision that enforced a non-compete after it modified (i.e.,“blue penciled”) the agreement’s overly broad provisions. The case of Poynter Investments v. Century Builders(Op. No. 26821 May 24, 2010) is skinny on the details, but on the surface, the opinion suggests that “blue-penciling” is dead in South Carolina. However, the opinion fails to acknowledge and/or discuss language in older opinions suggesting an openness to blue penciling (discussed below) and completely ignores a federal court case permitting blue-penciling under South Carolina law (discussed below). Accordingly, there is still some room for a stubborn employer to argue for a limited reading of Poynter. Nonetheless, this case is important precedent for those seeking to invalidate a non-compete.
Umm, this infoclip is really just an introduction to an introduction of non-compete agreements. The brevity of the introduction means that you can probably find exceptions to some of my general statements. When dealing with covenants not to compete, details matter.
But by way of review,under South Carolina law and the law of most states, non-competes which are a general restraint of trade are against public policy and void, while those founded upon valid consideration and reasonable in their scope and operation are valid. For more, read this more detailed introduction to non-compete law (using South Carolina law).
Several posts on this blog have focused on the inevitable disclosure doctrine, which seeks to further erode an employee’s power to quitand work elsewhere. Nucor v. Bell has produced two published decisions related to a trade secret battle waged against a former employee, who was not quite blameless. However, I have come across an unreported decision from that case (2008) in which U.S. District Court Judge David Norton found that South Carolina would adopt the inevitable disclosure doctrine. Judge Norton used the inevitable disclosure doctrine to grant injunctive relief against the former employee. This case deserves our attention.