COVID-19: How Is it Going to Affect Non-Compete Litigation?

As of May 8th, the U.S. economy lost 20.5 million jobs and the unemployment rate reached 14.7%. Needless to say, there will be millions of people looking for jobs this year. Many of them – 1 in 5 according to pre-COVID studies – will have non-compete agreements with their former employers.

Both employers and employees are wondering how COVID-19 will affect the litigation of non-compete disputes around the country and whether the courts will be more or less likely to enforce such agreements in light of the nationwide health emergency and the drastic economic downturn.

I have no crystal ball, but based on the trends that we are already seeing, here are my predictions as to how COVID-19 will affect the litigation of non-compete agreements around the country:

  • Some employees will try to take advantage of the fact that their employers’ attention and efforts are consumed by COVID-19 matters and attempt to take confidential information and jump ship to a competitor or open their own competing business, despite having non-compete and confidentiality agreements.
  • Other employees will bet on the fact that their former employers will not have the financial resources right now to enforce their non-compete or confidentiality agreements, which often requires filing of a lawsuit and obtaining an injunction against the departed employee, with all the related legal costs and expenses.
  • Some laid off or furloughed employees are likely to argue that the enforcement of their non-compete agreements is against the public policy during the national emergency crisis. And while this argument is not new, the courts may be more receptive to it now that the jobs have become scarce. In some states, being laid off may automatically invalidate non-compete agreements. Thus, in deciding whom to furlough or lay off, employers should consider how their decisions will affect the employees’ non-compete restraints.
  • Some employers will have no choice but to take a stand in court to protect their confidential information or prevent a competitors from exploiting momentary financial and operational weaknesses created by COVID-19. In those circumstances, employers will face additional hurdles in obtaining injunctive relief, including navigating the maze of local orders that have modified the process for obtaining TROs and injunctions in virtually every court around the country, speedily obtaining hearings when in-person appearances are a rare exception, conducting expedited discovery remotely, and dealing with a myriad of recent changes in how legal proceedings are being conducted during the COVID-19 pandemic.
  • It will not be surprising if the courts begin to scrutinize any requests for injunctive relief more critically than before, which means that the quality of the writing as well as the evidence provided to the courts in support of the injunctive relief applications will play even a bigger role now than they have in the past.

BOTTOM LINE:  Albert Einstein once said, “in the midst of every crisis, lies great opportunity.” There will be plenty of employees looking to take advantage of the COVID-19 changes in the workplace and competitors looking to pick up talented employees who have been laid off, furloughed or placed on a reduced salary and looking for a change.

Therefore, businesses should remain vigilant about the protection of their confidential information and make sure that the decisions regarding lay offs, furloughs, reductions in salaries or benefits, and roll outs of work-from-home policies are all made with a clear understanding of how they will affect the enforcement of non-competition agreements with key employees and the protection of the confidential information.

Leiza Dolghih is a labor and employment board certified partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.

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