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Non-Competes, Non-Solicitation, Confidentiality Agreements
Lawyers and laymen usually lump together as “non-competes” or “restrictive covenants” a short list of agreements that may be contained in one long document, or executed in two or more separate shorter documents. Below I list common types of such agreements.
If the employer tries to enforce the agreement through a court action against you, then the agreement will be scrutinized very closely by your lawyer and the judge. Strong defenses might, or might not, be available. Each person’s circumstances are unique, and each agreement will contain unique language that might give arguments against enforceability.
For reasons known only to you, you decide that your employer is not a threat to try to enforce the agreement. For just one example of a common error, you might think that because your employer rarely sues over the non-competes for other employees, he won’t sue you (or can’t sue you). This is of course completely untrue, even if it might appeal to your good common sense. It happens all the time that employers sue YOU even though they did not sue your co-worker.
So get legal advice PRONTO if you are contemplating leaving employment, or if you anticipate getting let go soon, and you have an agreement imposing post-employment restrictions. The worst thing you could do would be to quit without getting legal advice first.
If anyone, even a lawyer, says “these things never hold up” or “these things aren’t worth the paper they are printed on” then you are dealing with someone who does NOT know what they are talking about — run run run away from them and see an employment lawyer right away.
People often come to me and say silly things like the following: “[someone] told me there was no way in hell that agreement would hold up in court.” While it might be true that the agreement would ultimately be found unenforceable in whole or in part, that’s not “the point”.
The point is this: By entering into an agreement that restricts your activities in any way, you give the other party a contract right to take you to court over the agreement. Your opponent (usually your former employer) has more money than you do, and can better afford to litigate.
By taking you to court, your opponent might just slow down your competitive activities, or cause your new employer to suspend or fire you. By slowing you down, or putting you out of business, your opponent is accomplishing something useful for his own business. Your opponent is using the legal system to stop his own bleeding, and to try to eliminate competition.
It’s just business, as they say, it’s not necessarily personal. And your opponent doesn’t really care whether a judge might ultimately throw out the agreement, because the case probably won’t go that far. There will most likely be a settlement of some sort, before the court makes a final decision.
In summary: Your former employer might not expect to “win” his case – he might just expect to enter into an agreement with you to put you out of business and then he will dismiss the case. Your former employer knows he has more money than you, and can better afford legal expenses. So you are motivated to make a deal to end the dispute.
HOWEVER – You will make “counterclaims”, taking the offensive whenever possible. For every action there tends to be an equal and opposite reaction, and if you have claims of your own to make against the former employer, he might be surprised to find that you become the aggressor, and he (and his lawyer) are dismayed to see that their case against you is turned into your case against him. I search hard for these counterclaims when you come see me. Counterclaims are often the chief leverage available to you, enabling an honorable settlement.
Counterclaims are claims you might have against the employer, such as various types of Wrongful Termination, or Retaliation, or Discrimination, or Unpaid Overtime, or even breach of contract. The law of Constructive Discharge plays a large role in non-compete litigation, because it is generally harder for the former employer to convince a judge to prevent you from working when the former employer had essentially forced you to quit due to mistreatment.
And so, maybe you can see now that the real power of the restrictive covenant resides in the power it gives your former employer to make trouble for you in court, to try to coerce you into not competing, whether or not the agreement is valid or would “hold up in court”.
Employers often send you a “Cease and Desist” letter when they wish to make trouble under the non-compete or non-solicitation agreement. The letter essentially says “You signed an agreement, here it is, and we think you might be violating it (or about to violate it), and we demand that you stop the activity now.”
The law does not require that the employer send a Cease and Desist letter, but it’s usually a good idea for the employer to do so because judges want to see evidence that the employer truly believes it is being damaged and has taken steps to stop the damage, before resorting to legal action. Also, it’s cheaper to send cease and desist letters than to sue you. If you ignore the Cease and Desist letter, the employer will try to portray you as being unreasonable when you get in front of the judge. “See how fair we are, your honor – we tried to resolve this without going to court.”
Employers often send the Cease and Desist letter to your new employer, as well as to you. Employers run some risk in doing this, but the risk is not great as long as the employer has a good faith belief that the non-compete is possibly being violated. The new employer might get sued as well.
If you get a Cease and Desist letter you need a lawyer right now, and you need a lawyer who knows what he is doing; stay away from dabblers in employment law matters — they will probably make it worse.
Upon learning that you are embroiled in a non-compete battle, your new employer might suspend or terminate your employment. Do not be angry at the new employer. In non-compete litigation, the new employer is often sued right alongside you.
The single best way for your new employer to try to avoid being sued is to let you go immediately.
WHAT ABOUT THE SELF-EMPLOYED? They just get slapped with a TRO motion — see below.
The TRO and the lawsuit are two different but related things. The lawsuit claims that the former employer is being damaged by your actions. The motion for a TRO asks the judge to immediately stop further damage from occurring.
A TRO is a court order that you stop violating the agreement. It is possible for the employer to get a TRO almost immediately after filing a lawsuit against you. You might be surprised to learn that an employer can get a TRO even if you have not yet had time to get a lawyer.
You must look at court papers very carefully. Often, employers “request” a TRO by formal-looking paperwork, and they “Serve” the paperwork to you at the same time as the actual lawsuit is “served” on you. The request for a TRO is not the same thing as a court order issuing the TRO. This may be your last chance to get a lawyer before the judge decides whether to issue the TRO and put you out of business.
If you get a lawyer quickly, or have a lawyer on standby already, then your employer’s lawyer will have a harder time getting a TRO because your lawyer will make legal arguments and attack the agreement and the evidence. I have successfully prevented many TRO’s from being issued, when the clients come to me early enough.
Unfortunately, many people wait until the TRO has been issued before seeking a lawyer. When a TRO is issued, it means that a judge has decided that you are forbidden to continue to engage in conduct that might violate the non-compete agreement.
If you do not have a lawyer, then as a practical matter your employer’s lawyer will have a fairly easy time getting a TRO by showing the judge some evidence that you may be violating the agreement, and no one will be making any competent legal arguments against issuing the TRO.
If a TRO is issued, there will probably be a hearing within 15 days in front of the judge, regarding whether to continue the restraining order. At that hearing, you can put on witnesses and present evidence. If the judge thinks the former employer has the better case, then you will be prevented from further violating the agreement during the lawsuit process (but the lawsuit process continues – the hearing is not a trial).
The lawsuit that will be filed against you might contain several different legal claims. Breach of contract, tortious interference with customer relationships, etc.
In turn, you will file counterclaims alleging anything you might have against the employer, such as various types of Wrongful Termination, or Retaliation, or Discrimination, or Unpaid Overtime, or even breach of contract. The law of Constructive Discharge plays a large role in non-compete litigation, because it is generally harder for the former employer to convince a judge to prevent you from working when the former employer had essentially forced you to quit due to mistreatment.
The process could last a long time, but most often these non-compete cases settle relatively quickly because they are expensive for everyone involved.
For many years, the primary judge in St. Louis County to hear non-compete cases was Judge Kenneth Romines. Those of us who do non-compete work knew Judge Romines well enough to predict how he might rule. But he got promoted to the Court of Appeals, and this has caused a big change in how non-compete cases are handled in St. Louis County. See this article I wrote about the changes to St. Louis County’s procedures for handling non-compete cases.
Employees are generally not well versed in their legal rights and options. They often do not even perceive of the need to consult a lawyer before taking such enormously important actions as resigning from their job. They bury their heads in the sand when they receive Cease and Desist letters, blindly hoping that the employer is not serious. So by the time the employee calls me, the dispute has often gotten pretty far into the process.
But – it’s almost never too late to see a lawyer. Options will probably be available. Fighting can occur. Counterclaims can be made. Identification of bargaining power can uncover good solid points to raise to help encourage a favorable resolution.
Unless you have very powerful and valuable counterclaims, expect lawyers to charge hourly legal fees to assist you in resolving non-compete disputes.
Lawyers for employees, and lawyers for management, all know that non-compete disputes are expensive and that they are commonly settled before too much legal wrangling has occurred. All parties have an incentive to stop paying legal fees and move on. Most often, such disputes are resolvable on mutually agreeable terms without spending a king’s ransom. It’s important for you and your lawyer to carefully identify what your real interests are, and how lucrative your opportunities might be, in deciding how hard to fight and how flexible to be in settlement.
The best approach is to come and see a lawyer very early, when you are contemplating leaving your job, and get a lawyer’s advice on how to handle the transition. Maybe the timing is wrong, and you should take some preliminary steps before resigning, with an eye toward the day when you might be in court fighting a non-compete battle.
No matter what you want to do, get legal advice first.
Even if your inclination is to just surrender, you might want to figure out (with a lawyer’s help) what the risks are of giving up too soon.
If your career is worth anything, then maybe you need to go through the legal process for a little while, making defenses and counterclaims, in order to shake the employer’s confidence in its case. This builds bargaining power enabling a better resolution or settlement.
If a great deal is at stake, and if you can afford to litigate, then you should sit down with a lawyer and carefully determine whether your position is strong enough to justify a substantial battle.
At any point, the parties are free to settle. They can even engage in a voluntary Mediation to assist them in settling. Generally, if you put up a good fight first, and have decent arguments, you will have more bargaining power to get a more acceptable settlement.
If you are living with a bad non-compete and cannot get a job, you can go to court and have a judge decide whether the non-compete is enforceable in whole or in part. This is called a “declaratory judgment.” It costs some money, but how much have you already lost through unemployment, and how much will you lose for the life of the non-compete?
In a nutshell, the declaratory judgment process involves you filing a lawsuit in court, declaring that you and another party (usually your former or current employer) are having a contract dispute, and asking the judge to “declare” the rights and obligations of the parties.
You do not have to be unemployed to file a declaratory judgement action – you can file such an action while still employed with the same employer who had you sign the non-compete.
For a deeper understanding of how the declaratory judgement process works, you could read the following case from the Missouri Court of Appeals, dated December 21, 2004: Victoria’s Secret Stores, Inc., and Mark J. Weikel, Respondents v. The May Department Stores Company, Appellant. [If the link won’t open the document, go to Missouri Courts homepage and click Court Opinions, and then click Search Court Opinions].
Triggering the declaratory judgment process is a big step, but it might be the best way for you to resolve your dispute so you can get on with your life. Maybe your employer does not have the desire to engage in an expensive legal battle, and so maybe both sides can settle in order to stop the legal fees. It all depends on the circumstances. In the Victoria’s Secret case (linked above) the employee was a very high level executive, and there was a lot at stake in the litigation for all parties. Most people are not such high level executives, and it is unusual that so very much would be at stake. Accordingly, most cases should be more easily settled than the Victoria’s Secret case. It is my experience that non-compete disputes are quite amenable to reasonable settlement in most cases, but your experience may vary due to the unique circumstances of your case.
It all depends on many many factors. If you choose to sign a restriction, you should probably sign it with the expectation that a court is likely to enforce it. Maybe your lawyer can help you get out of the restriction when the time comes, but it isn’t easy and each case is unique.
1. Count on the court enforcing your promise to keep the company’s confidential information confidential, no matter what happens with the balance of the restrictions you might be under. Even if you did not sign a confidentiality agreement, laws and legal doctrines exist that require you to keep confidential the employer’s bona fide trade secrets and confidential business information. Even without a written trade secret or confidentiality agreement, you will likely be sued if you reveal trade secrets or confidential information.
2. Agreements not to solicit your co-workers to take a new job are probably going to be enforceable if one year or less in duration. A recent Missouri law addresses such agreements – RSMo 431.202 – covenant in writing promising not to solicit, recruit, hire or otherwise interfere with the employment (opens in new window).
1. Regarding Customer Non-Solicitation: Each case is so very very unique. For example it MIGHT make a difference if your employer obtained its “customers” in a commercially unreasonable manner, such as by misrepresenting the nature and quality of services it could provide. It MIGHT make a difference if your employer had secretly been cheating its “customers” (violating its contracts) and now wanted to prevent you from doing business with them, when the cheating might render the relationship broken if known to the customer. It MIGHT make a difference if you brought the customers with you from your previous sales position.
Those and other facts MIGHT make a difference, when all thrown together in the stewpot and properly presented to the judge, along with proper legal arguments. But they might NOT make a difference, too. It all depends too much on the total unique circumstances of your particular case.
How’s THAT for a weaselly fudge, rather than a black and white answer? Lawyers who promise you that a non-compete is “clearly overbroad and unenforceable” or “bulletproof enforceable” are probably over-reaching.
2. Regarding Competitive Employment, agreements not to work in competitive fields must be reasonable in accordance with several legal tests:
The judge will try to balance competing interests. He will consider the employer’s main interest: protecting itself from unfair competition from someone (you) who knows his secrets and his customers. He will consider the “public’s” interest in the free enterprise system, and in keeping people off of welfare. He will consider your personal situation and the hardships that will befall you if he enforces the restrictions. He will also consider how fairly or unfairly the parties behaved toward each other during and after the employment.
The judge will make his decision based on all the facts and circumstances of the case. There are few hard and fast rules. For example, there is no rule that declares that a certain duration of restriction is always unreasonable. It depends. It’s all up to the judge, looking at the unique facts and circumstances of your case. Missouri judges have enforced 1 year, 2 year, 3 year, 4 year and even 5 year agreements under the right circumstances.
Many legal commentators believe that a six month restriction in the computer technology industry is the longest duration that is reasonable, because the industry changes so fast. I see a lot of technology non-competes that have six month restrictions, because the companies don’t want to take the chance that a judge will find the restriction excessively long. But I see some that go one year, so some companies will take more of a risk. There is no hard and fast rule. Sales reps commonly have one, two or three year non-competes. But each case’s facts are unique, and all roads lead to the judge.
Geographic restrictions will be most enforceable when they are limited to the location where the great majority of the employer’s customers can be found, particularly if the employee serviced those customers in that same area. If the employer does business throughout the state of Missouri, but 90% of the customers are in St. Louis, the judge might not enforce an agreement that covers the entire state, but I can make no promises because each case is unique and all relevant facts are considered by the judge.
The scope of the restriction is difficult to talk about, even in a general way, because each non-compete scenario is so different. The court will enforce a restriction that is only broad enough to protect the employer’s “legitimate protectable interests,” such as protection from unfair competition. Employers typically exclude you from broad categories of jobs and industries. They usually try to exclude you from the industry that your employer is engaged in, and the type of work you do, and any “related” industry or field. These kinds of agreements are very common and are challengeable in court as overly broad, and sometimes the employee will win, depending on all the facts and circumstances. The broader the language, the more the employer can justify suing you, even though a judge might not enforce the broad language. The employer knows that most employees cannot afford to hire a lawyer to go to court and ask a judge to rule on the enforceability of the agreement. The more narrow the restriction, the more likely the court will enforce the restriction.
Despite the lack of hard and fast rules, there are a few general items I can tell you about:
Missouri courts have declared that you have a duty to disclose your non-compete to your potential new employer. If you fail to disclose, and if the former employer sues both you and your new employer, you may suffer the following fate: Your new employer may sue you for fraudulently inducing him to hire you by withholding information about your non-compete.
In a typical non-compete case, where the main legal dispute regards the enforceability of the non-compete, both the employer and you are paying hourly legal fees to their lawyers to represent them. Since everyone is spending significant sums of money, everyone has an incentive to be reasonable. If it is arguable that you are truly in violation of the agreement, it is often prudent to settle rather than take the risk that the judge will rule against you. But if you have a strong defense to the non-compete action, the employer will not want to take the risk of a bad ruling. In a settlement, anything is possible. Maybe you and the employer will settle for drafting a new non-compete that contains less onerous restrictions. Or maybe you have some counter-claims that will motivate the employer to forget about the non-compete altogether and release you from it in settlement.
Recall what I said earlier about how the employer may have a difficult time getting a judge to enforce a true non-compete if he fires you without good cause? Well, if you quit you make the employer’s life a lot easier if he wants to sue you under the non-compete. But sometimes the reason you want to quit is due to mistreatment by the employer. Sometimes, if you handle it right by getting legal advice first, you can eventually quit and have the courts treat you as a person who has been fired without good cause. This is called “constructive discharge”.
You will have to pay any damages out of your personal assets. You will have to raise the money to hire a lawyer to represent you.
A prevailing party attorney fee provision calls for the loser to pay the winner’s attorney fees if either party sues for breach of the agreement. The value to you is threefold: First, the employer will probably exercise more caution before deciding to harass you with a weak lawsuit – he does not want to be paying your lawyer. Second, if you win you will probably get reimbursed for some or all of the money you spent on lawyers defending you. Third, if you cannot afford to pay all of the attorney fees required, and have a strong position, you might be able to get a lawyer to accept less up front and gamble his time defending you on the hopes that he will collect against the attorney fee provision. The downside is that if you lose, you’ll be ordered to pay the employer’s attorney fees. If you lack the money, you might be forced into bankruptcy.
Your lawyer can go over the agreement with you and try to predict worst case scenarios if you do not change the agreement, so that you know what you are getting into and your eyes are wide open.
If your future plans call for changing employers in a few years, you might need to start planning now for the eventual day when you will face a potential dispute under the non-compete.
If you have the will, and some bargaining power, your lawyer can advise you about some changes to the non-compete that you might be able to negotiate. Sometimes a few small changes can make all the difference in the world, preventing trouble, saving lots of money in legal fees, and avoiding any interruption in your future employment.
Article written by | Tim Willoughby
Maintained by Attorney Phil Willoughby
Founded by Tim Willoughby, Esq. (1959-2013)
Phil is a Missouri employment lawyer who is licensed to practice in Kansas and Missouri, and primarily takes cases in Saint Louis and Kansas City. He is a member of the Missouri Bar Association and Kansas Bar Association. Additionally, he has practiced in the United States Federal Courts of Missouri in St. Louis and Kansas City. He has also practiced in the Kansas Federal District Court in Kansas City, Kansas.
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