I don’t normally comment on other people’s articles. Now that I said that you know I’m about to break with my usual pattern, right? Well, here it is. About two and a half weeks ago — June 8, to be exact– the New York Times ran an article “Non-compete Clauses Increasingly Pop Up in Array of Jobs”. I got emails from clients and colleagues asking me what I thought. So I decided to share those thoughts here — after the jump…
I previously wrote about the nuts and bolts of non-competes here, here and here. If you read those posts, you know that writing a non-compete so that it is enforceable is not easy. The employers mentioned in the Times article, which you can find here, seem to be unaware of that fact, or for the true reason for a non-compete. Take for example, the 19-year-old college student cited by the Times, who worked three previous summers as a camp counselor, and was offered a job at a nearby camp only to have offer revoked. Why? Her 2013 summer employment contract forbade her from working at a competing camp within 10 miles of any of that company’s 30 locations for one year. How about the college junior who took a summer internship at an electronics firm, who was offered a non-compete that forbade working for a competitor for a year? Or the hairstylist who actually went to court with his former employer, who fired him but still enforced his 12-month ban against working at any salon in nearly towns?
Let’s do a really brief review. What’s the reason for a non-compete? Rather than reinvent the wheel, let’s return to my first post on this issue:
Employers will use restrictive covenants to prevent certain of its employees from using its trade secrets, customer relationships and commercially sensitive information to the competitive disadvantage of the employer…Courts, in deciding whether and how to enforce restrictive covenants, have to balance an employee’s right to pursue employment or business opportunities commensurate with their qualifications against an employer’s right to protect proprietary information and customer relationships that it has developed at its own expense.
Having said that, what’s wrong with the examples provided in the N.Y. Times article? The example of the camp counselor and the summer intern suggest blatant abuse and overreaching by the employer. What proprietary information or intellectual property is likely to be involved in being a camp counselor? The camp owner argued that the training and fostering counselors, creates a unique environment “much like a tech firm with designers who developed chips”. C’mon now. Really? Assuming without conceding that the training to counselors is intellectual property (and I frankly don’t see it) where is the damage to the camp? Is there a realistic danger that in one summer a counselor will steal away campers? Was she exposed to confidential pricing or customer information (beyond the names of the campers for whom she was a counselor)? What could be so unique about this training that it could really be “intellectual property”? Given that courts weigh the hardships to both sides and given the dubiousness of the camp owner’s claims, it is unlikely, in my humble opinion, that it would be enforced had it been challenged. How much more so for the summer intern at the electronics store! Now, what about the hairstylist? Courts have recognized restrictive covenants against them. Why? Hair stylists will often develop a relationship with customers and the danger of them taking a number of an employer’s customers is real and can hurt the employer.
Let’s return to the camp counselor. If the non-compete is not enforceable, why was her job offer revoked? The competing camp didn’t want to be caught up in (and have to spend money defending) a lawsuit attempting to enforce the non-compete. So as a practical matter, the camp “won”, because it got what it wanted — for now. While this employee did not challenge the restrictive covenant, employers only need one challenger — and then it will spend significant sums unsuccessfully attempting to enforce a restrictive covenant . Additionally this camp and the company that owns it are located in Massachusetts, which has pending legislation, that, if passed, could ban or severely restrict the use of non-competes. Is that necessarily the answer? No. Non-competes do serve an important purpose with respect to certain businesses that in fact have trade secrets or proprietary information, and where the employee has access to that information and if the employee working for a competitor would be in a position to use that information to the benefit of the competitor and the detriment of the former employer. Restrictive covenants are intended to protect an employer against an employee engaging in unfair competition. Courts will not allow employers to use them to prevent an employee from working for another business that engages in fair competition.
What should you do? Have your in-house or employment counsel help you re-visit your contracts and limit your restrictive covenants to those employees who truly have access to sensitive information and whose employment with a competitor would truly constitute unfair competition.
Aren’t you glad I don’t usually do this? C’mon back next week to find out what our exciting new topic will be!
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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