Non-Compete Agreements: Garbage In, Garbage Out

Enforcing Non-Compete Agreements in TexasLast week, a Texas Court of Appeals ruled that a non-compete agreement between a transportation logistics broker and its freight carrier was unreasonable because it was not clear when the 24-month non-compete period would begin to run. This case serves as a reminder that a confusing, ambiguous, or imprecise non-compete agreement will yield poor results in court.  In other words: garbage in, garbage out. 

The covenant not to compete at issue was meant to ensure that the freight carrier would not take away the broker’s clients after the broker had revealed their identity to the carrier.  Thus, there was a legitimate business reason for the non-compete agreement.  However, the following language in the agreement created a problem: 

For a period of twenty four (24) months following the Carrier’s last contact with any client or client[s] of Broker the Carrier agrees it shall not either directly or indirectly influence or attempt to influence customers or clients of Broker (or any of its present or future subsidiaries or affiliates) for whom the Carrier has rendered services pursuant to this Agreement to divert their business to the Carrier or any individual, partnership, firm, corporation or other entity then in competition or planning to be in competition in the future with the business of Broker or any subsidiary or affiliate of Broker. 

The Court explained that there were two problems with this language that made it impossible to determine how long the restrictive covenant was going to last.  First, under the terms of the covenant not to compete, the 24-month restraint period would start from the date of the carrier’s last contact with “any” client of the broker, not just the clients that the carrier had provided services to.  Since the broker testified that its client list was a trade secret, the carrier would have no way of determining the date of its last contact with the clients whose identity it had no way of knowing.  Second, the non-compete would begin to run from the date of the last contact, regardless of whether the contact took place during or after the broker-carrier agreement had terminated, which meant that it could begin at any time. 

Consequently, the Court ruled that a covenant not to compete that extended for an indeterminable amount of time was not reasonable, and as a result, was not enforceable. It reversed the jury’s finding that the agreement had been breached and took away the damages the jury had awarded to the broker.

Texas Bar Association Top TenBOTTOM LINE:  There are plenty of “sample” non-compete agreement “forms” online, but there is a difference between a non-compete clause and a non-compete clause that is enforceable. Unfortunately, many companies do not find that out until they are in court trying to enforce their agreements that may not be enforceable.  Companies should avoid using “standard” non-compete clauses and make sure that their restraints are tightly drafted to address their specific industry, business model, and particular needs. 

Leiza Dolghih is a 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 or fill out the form below. 

 

 

How Enforceable is a Non-Compete? and Other Top Google Questions Answered

GoogleAccording to Google, the top four questions people want answered about non-compete agreements* are: (1) How enforceable is a non-compete? (2) Is a non compete valid if you are fired? (3) Do non-compete agreements hold up? and (4) How long does a non compete last?  I hear a lot of the same questions in person, so here are the answers:

1. How enforceable is a non-compete?  Generally speaking, non-compete agreements are enforceable.  There are only three states in the country that outright ban non-compete agreements – California, Oklahoma, and North Dakota. Additionally, some states now prohibit non-compete agreements for certain professions or employees who earn less than a certain amount per year or per hour.  The rest of the states will enforce some form of a non-compete agreement as long as it is reasonable.  

Now, if the real question is “How enforceable is my non-compete agreement?”, the answer to that depends on several factors, including the following: (1) the state in which the employee works; (2) the industry in which s/he works; (3) the precise language of the non-compete clause; (4) the responsibilities and duties of the employee at the company; (4) how long the employee has worked for the employer; (5) where the employee is going to work and what will be his/her duties and responsibilities there; (6) what the employee received in exchange for signing the non-compete agreement; (7) whether the employer performed his/her obligations under the agreement; and several other factors.  

2. Is a non-compete valid if you are fired? Usually, yes. However, some states have recently passed laws or have attempted to pass laws that would make non-compete agreements void if an employee was fired without cause or terminated as part of the reduction in force. Additionally, some employment contracts may specify when an employee may be fired, in which case, if the employee is fired in violation of their contract, that may make their non-compete clause unenforceable.  The norm across the United States, however, remains that the reason for separation from employment does not affect the enforceability of  a non-compete clause.  

3.  Do non-compete agreements hold up? When written correctly, yes.  If a non-compete agreement is written to comply with the appropriate state laws, is reasonable, and the employer has given its employees the required consideration in exchange for their promise not to compete, the non-compete agreement is likely to hold up in court, which means the court will order an employee to comply with it.   

However, similarly to the question one above, whether your particular non-compete agreement will hold up in court, depends on many factors, including where in the country and in which venue the employer will attempt to enforce it. 

4. How long does a non-compete agreement last? As a general rule, non-compete agreements that last two years or less are considered reasonable.  However, some states have specific provisions regarding the length of non-compete agreements that set a shorter period of time, and other states allow for much longer periods.  Additionally, employee-specific circumstances may make even a 2-year non-compete agreement unreasonable and, therefore, not enforceable in certain cases. 

*NOTE: Different rules may apply to non-compete agreements that are not employment-related, i.e. non-compete agreements that relate to the sale of business. 

BOTTOM LINEDifferent states have different rules about what non-compete agreements they will enforce. Additionally, whether a particular non-compete agreement is enforceable depends on the (1) language of the agreement and (2) the particular circumstances of the employee bound by that agreement.  

Leiza Dolghih is a 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 or fill out the form below.

2018 Mid-Year Non-Compete Laws Update

Map_of_USA_showing_state_namesMore and more states are amending their non-compete statutes to make them more employee-friendly.  This trend, spurred by the White House report that highlighted the prevalence of non-compete agreements among low-skilled workers coupled with the revelation that some of the largest  employers, like Jimmy John’s and Amazon, were requiring their sandwich-makers and warehouse employees to sign non-compete agreements, has continued into 2018.  

Thus, on the heels of changes implemented in 2017 by California, Illinois and Nevada, which amended their non-compete laws to help protect employees’ right to change employers, in the first half of 2018, Utah, Idaho, and Colorado, enacted their own versions of employee-friendly laws.

UTAH – Now Restricts Use Of Non-Competes In Broadcasting Industry

In March 2018, Utah amended its non-compete statute to restrict the use of non-compete agreements in broadcast journalism.  Specifically, employers may enforce non-compete agreements against employee in the broadcasting industry only if: (1) the employee receives a salary of at least $913 per week or $47,500 a year; (2)  the non-compete clause is part of a written employment agreement with a term of less than four years; and (3) the employee was terminated “for cause” or he/she breached the employment agreement in a manner that resulted in his or her separation.

IDAHO – Has Modified Standard of Proof For Non-Compete Enforcement Actions

This March, Idaho repealed an 2-year old amendment to its non-compete law that was added back in 2016.  The amendment created a rebuttable presumption of irreparable harm with respect to “key employees” and “key independent contractors,” thus putting the burden on these employees to prove that they had no ability to adversely affect the employer’s legitimate business interests as a result of their competitive employment.  

The 2018 bill repealed this rebuttable presumption of irreparable harm. Therefore, Idaho has effectively placed the burden back on companies to establish a likelihood of irreparable harm before an injunction in a breach of non-compete case can be issued.

COLORADO – Now Prohibits Physician Non-Competes for Rare Disease Patients

Colorado generally allows non-compete agreements with physicians when certain conditions are met.  The 2018 amendment to the non-compete statute added a paragraph to permit physicians to continue to treat patients with rare disorders without liability, even when providing such service would otherwise violate their non-compete agreements. Thus, the amendment protects physicians and their new employers from damages for providing care to patients with a rare disorder, as defined in accordance with the criteria developed by the National Organization For Rare Disorders, Inc., or any successor organization. 

Many other states are considering amendments to their non-compete statutes and we are likely to see more changes in that area of the law in the second half of 2018.  The days of one-size-fits-all non-compete agreements for multi-state employers are gone, and now companies need to make sure that their non-compete agreements are compliant in all the applicable jurisdictions. 

Leiza Dolghih is a 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 or fill out the form below.

 

 

Top 5 Non-Compete Cases in Texas in 2017

yearendAlthough the weather outside suggests otherwise, it is, indeed, December – a time traditionally reserved for reflection upon the year’s achievements.  So, let’s take a look at the top five most important non-compete cases in Texas in 2017.

  1. BM Med. Mgmt. Serv., LLC v. Turner (Tex. App.–Dallas, Jan. 10, 2017)*

Held: The employer failed to show a probable, imminent, and irreparable injury in breach of a non-compete case, as the employee had returned his computer and testified that he did not possess any papers or electronic files related to the employer’s business.

Why it made the Top Five list:  Early in each non-compete breach / trade secrets theft case, an employer may have an opportunity to examine the departed employee’s devices and confirm that its confidential information is no longer there.  This case demonstrates that taking advantage of that opportunity may result in the denial of a temporary injunction as it eliminates the probability of imminent and irreparable injury since the employee no longer has the employer’s confidential information.

2. In re Pickrell (Tex. App.–Waco, April 19, 2017)

Held: The employer failed to produce evidence necessary to obtain a Rule 202 pre-suit deposition to investigate whether its former employee had  honored his non-compete obligations.

Why it made the Top Five list:  A party contemplating a lawsuit in Texas may sometimes depose the potential defendant to determine if it has a legal claim against him/her.  This procedure is called a pre-suit or Rule 202 deposition.  In re Pickrell shows that an employer cannot depose a departed employee for the purpose of investigating whether he/she honored his non-compete agreement based on the employer’s suspicion that the employee may be violating the agreement solely because he is now working for a competitor. 

3. Sanders v. Future Com., Ltd. (Tex. App.–Fort Worth, May 18, 2017)

Held: Requiring an employee to repay training costs is not a covenant not to compete and is not subject to the requirements of the Texas Covenants not to Compete Act.

Why it made the Top Five List: This case establishes that Texas employers can deduct reasonable training expenses out of employees’ salaries if they leave before the employer is able to recoup its training costs.  Any overreaching, however, by employers may result in a violation of the Texas Covenants not to Compete Act.  See, for example, Rieves v. Buc-ee’s Ltd. (below). Additionally, any deductions need to be structured to comply with other laws, such as the Fair Labor Standards Act, and must be verifiable and not speculative. For more information, look here.

4. Rieves v. Buc-ee’s Ltd., (Tex. App.–Houston, Oct. 12, 2017)

Held: Requiring an employee to repay a portion of her salary upon termination is a “restraint on trade” in violation of the Texas Covenants Not to Compete Act. 

Why it made the Top Five List:  The Court’s decision shows that any provision in the employment agreement that restricts employee’s mobility must be analyzed through the lens of the Texas Covenants Not to Compete Act, not just non-compete clauses. For more information, look here.

5. Horizon Health Corp. v. Acadia Healthcare Co. (Tex.  2017)

Held: The employer failed to establish that the departed employee’s actions caused it lost profits because it could not prove that the customer that went with the departed employee would have signed a contract with the employer. 

Why it made the Top Five List:  Texas courts require that a company seeking damages based on lost profits produce evidence establishing that prospective customers would have done business with the company absent the defendant’s misconduct.  In this case, the company failed to show that a customer that it claimed it lost due to the departed employee’s actions would have signed a contract with that company had it not signed with the departed employee’s new company.

*Keep in mind that any decisions by the Texas Courts of Appeals may be appealed to the Texas Supreme Court, which may ultimately disagree with their findings.  Therefore, employers should always consult with a qualified employment lawyer to determine the current status of the law applicable to their particular dispute.

Leiza Dolghih is a 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 or fill out the form below.

 

 

2017 Welcomes Changes in Non-Compete Laws

imagesThis year, California, Illinois and Nevada amended their non-compete statutes to help protect the employees’ right to change employers vis-à-vis the employers’ right to restrict unfair competition. Idaho, Maryland, Massachusetts, New York, and Washington considered various amendments, but were unsuccessful in signing them into law, which means they will probably try again in 2018.   

California

An amendment to the California Labor Code, which became effective on January 1, 2017, prohibits employers from requiring employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of another state. The only exception is where an employee was individually represented by a lawyer in negotiating his employment contract.

Penalties apply to an employer who requires a California employee who primarily works and resides in California to sign “as a condition of employment,” an agreement with a provision that requires the employee to adjudicate disputes arising in California in a forum outside of California or under the law of another state.

Illinois

Illinois passed the Freedom to Work Act, effective January 1, 2017, which bars non-compete agreements for workers who earn less than the greater of the federal, state or local minimum wage, or $13.00 an hour.

Nevada

In June of this year, Nevada amended its non-compete statute to state that a non-competition covenant may not restrict a former employee from providing services to a former customer or client if: (1) the former employee did not solicit the former customer or client; (2) the customer or client voluntarily chose to leave and seek the services of the employee; and (3) the former employee is otherwise complying with the non-competition agreement.

The statute also now provides that if there is a reduction in force, reorganization, or similar restructuring, the laid-off employee’s non-competition agreement is only enforceable during the time in which the employer continues to pay the employee’s salary, benefits, or equivalent compensation to the employee.  

Finally, the statute now allows “blue-penciling” and gives the Nevada courts the ability to strike or modify unreasonable terms or provisions from a non-compete agreement and enforce the revised agreement.

More and more states are trying to strike a balance between the workers’ right to change employers and the companies’ right to protect their business interests and goodwill. The end result is a patchwork of non-compete statutes that impose different requirements on employers that operate in different states.  Companies that have employees in several states should consult with legal counsel to make sure that their post-employment covenants are enforceable with respect to all of their employees, regardless of the location.

Leiza represents companies in business and employment litigation.  If you need assistance with a business or employment dispute contact Leiza for a confidential consultation aLeiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.

 

Will Ban the Non-Competes Movement Lose Its Momentum During the Trump Administration?

donald_trump_rnc_h_2016It’s no secret that the Obama administration made a push, especially towards the end, towards limiting the use of non-compete agreements by employers around the country. The White House commissioned not one but two reports on this topic, both of which concluded that non-compete agreements stifle innovation, reduce job mobility, and negatively impact economic growth.  

Several states around the country seemed to join the White House’s view on non-compete agreements in passing statutes limiting their use. Illinois, for example, recently enacted the Illinois Freedom to Work Act, 5 ILCS § 140/1 et. seq., which prohibits private employers from entering into non-competition agreements with “low-wage employees.” Utah passed the Post-Employment Restrictions Act, Utah Code § 34-51-101 et seq., in March 2016, restricting non-competes’ length to 1 year.  Massachusetts tried to pass a similar legislation this year, but failed. And New York State Attorney General Eric Schneiderman announced that he will propose legislation in 2017 to limit the use of non-compete agreements in New York.  

Will this push to limit non-compete agreements continue during the Trump administration?  My prediction is that it won’t.  Of course, as with many other areas of the law, predicting what Trump will or will not do, is like reading tea leaves – nobody really knows. However, here are my top three reasons for thinking that the Trump Administration won’t pursue the same stance on non-compete agreements as the Obama Administration. 

First, Trump is a savvy businessmen and an employer. Therefore, he knows the value of non-compete agreements to employers and, without a doubt, has used them himself in his many businesses. 

Second, Trump has demonstrated that he is not above using such agreements in what some would view as overreaching situations.  For example, he did not shun from using non-compete agreements with the volunteers for his political campaign, even though the volunteers were not paid compensation for their services and probably performed tasks that did not involve any confidential information.

Third, Trump’s recent appointment of Andrew F. Puzder – the former CEO of a fast-food franchise – as the Secretary of Labor, suggests that his focus may not be on helping low-wage employees. Mr. Puzder had openly criticized the minimum wage increase that was supposed to go into effect this December and is commonly perceived as an ally for employers.  His position on ACA, minimum wage, and the joint-employer rule promulgated by the NRLB, is contrary to the position taken by the Obama administration. Thus, if he takes a 180-degree shift from the Obama administration’s stance on non-competes, such position won’t come as a surprise. 

Employers should stay tuned to see how the Trump’s policy on non-competes develops in 2017…

Leiza litigates unfair competition, non-compete and trade secrets lawsuits on behalf of companies and employees, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

A Texas Case Demonstrates Why Using Stock Non-Compete Agreements May Backfire

picLast month, a Texas Court of Appeals denied an insurance agency’s application for a temporary injunction against its former President because it held that the non-compete agreement, as written, did not restrict the President from competing. The agency tried to enforce the non-compete and non-solicitation agreement to prevent the President from soliciting the agency’s clients for the purpose of selling or marketing any products or services that would compete with the agency, and it was able to obtain a temporary restraining order (TRO).  However, the trial court refused to convert the TRO into a temporary injunction.

The reason the company lost at the temporary injunction hearing is because both the non-compete and non-solicitation clauses in the agreement stated that the President could not compete with or solicit the agency’s clients “during the term of CMC Account Development Sub Agent Agreement, and for a period of two (2) years after the termination of the Agreement.”  However, the agency’s representative and the President both testified that he was never a sub agent (i.e. sales person) for the agency and that he did not have a CMC Account Development Sub Agent Agreement.  

Basically, the non-compete and non-solicitation restraints were tied to the length of a non-existent agreement between the agency and the President. In most likelihood, the language was left over from the standard contract form that the agency used for its sales representatives, and was included in the President’s agreement due to oversight.  As the result, the company was unable to stop the President from competing. 

TexasBarToday_TopTen_Badge_VectorGraphicTakeaway:  This case demonstrates why the  companies should conduct an audit of their non-compete and non-solicitation agreements at least once a year to make sure that (1) the agreements are enforceable, (2) they have a legible copy of the agreements signed by both parties, and (3) the agreements will adequately protect the company if they have to be enforced. 

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete dispute, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Fox Goes to War with Netflix Over Two Programming Executives Who Jumped Ship

160916165507-netflix-fox-logos-780x439In a move that suggests that Fox might be feeling the burn of Netflix competition, the network Goliath has recently sued the king of online streaming over hiring of its two programming executives.  In the lawsuit, Fox claims that Netflix induced these employees to breach their employment agreements with Fox and thus tortiously interfered with their contracts causing it irreparable harm. It alleges that the conduct was illegal since Neftlix knew about the employment agreements – in fact was warned by Fox about them –  but decided to poach the executives anyways.

Coming out swinging, Fox described Netflix’s actions in the complaint as follows:

Netflix is engaged in a brazen campaign to unlawfully target, recruit, and poach valuable Fox executives by illegally inducing them to break their employment contracts with Fox to work at Netflix.  This action is necessary to enforce Fox’s rights, to hold Netflix liable for its wrongful conduct, and to prevent Netflix from continuing such illegal conduct.

Fox did not sue the two executives, who are now working on drama programming development for Neftlix. However, it seeks injunctive relief against Netflix to restrain it from interfering with the executives’ employment agreements claiming that Netflix’s conduct caused it “great and irreparable harm, including loss of Fox’s ability to contract for a stable workforce, the disruption to Fox’s corporate planning, and the injury to Fox’s business reputation and goodwill.”  Thus, while the executives are not named as defendants in the lawsuit, should the court grant Fox’s injunction, the order will necessarily affect the executives’ employment with Netflix. 

Takeaway:  2016 has been the year of high-profile non-compete battles in several industries. Nike, Fitbit, Lyft, and now Fox, have all been involved in lawsuits arising out of departure of key employees who ended up working for a competitor. Given the uptick in such litigation, companies should approach the process of hiring from competitors with caution and conduct their factual and legal homework before extending offers to such hires.  

TexasBarToday_TopTen_Badge_VectorGraphic

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Is Donald Trump Crossing the Line with Non-Competes for Volunteers?

ddDonald Trump has been criticized for everything under the sun – from having small hands to being racist. However, the most recent critique surrounds Trump’s campaign volunteer agreements that contain strict non-compete, non-solicitation and non-disparagement clauses. Several media outlets have questioned whether such agreements would be enforceable in court.  

According to the Daily Dot, which claims to have obtained a copy of these six-page volunteer agreements, such documents  contain the following restraints:

No Disparagement.  During the term of your service and all times thereafter you hereby promise and agree not to demean or disparage publicly the Company, Mr. Trump, and Trump Company, any Family member, or any Family Member Company or any asset any of the foregoing own, or product or services any of the foregoing offer, in each case by or in any of the Restricted Means and Contexts and to prevent your employees from doing so.

No Competitive Services. Until the Non-Compete Cutoff Date you promise and agree not to assist or counsel, directly or indirectly, for compensation or as a volunteer, any person that is a candidate or exploring candidacy for President of the United States other than Mr. Trump and to prevent your employees from doing so.

No Competitive Solicitation.  Until the Non-Solicitation Cutoff Date you promise and agree not to hire or solicit or hiring, or assist any other person, entity or organization to have or solicit for hiring, any person that is an independent contractor of, employee of an independent contractor of, or employee of Company or any other Trump Person and who at any time provides services for the project or objective for which you or your employer, as applicable, are being hired.

So, could these restraints be enforceable? Without knowing which state’s law applies to the agreement, it’s impossible to say for sure.  However, under Texas law, these restraints could be enforceable.  You are probably wondering how is that even possible. Here’s how. 

First, under the Texas Covenants not to Compete Act, a non-compete clause must be ancillary to an “otherwise enforceable agreement.”  If Trump’s volunteer agreements contain a confidentiality clause and he shares confidential information with the campaign volunteers, then any non-compete and non-solicitation restraints are ancillary to the confidentiality agreement.  Thus – no different from a typical employer-employee agreement – if Trump’s volunteers get confidential information related to his campaign, he can demand that they may not compete with him.

Second, under Texas Covenants not to Compete Act, the non-compete restraints must have “reasonable” geographic area, time, and scope of activity limits. Since the presidential campaign spans the entire country, a nationwide non-compete area is arguably reasonable.  The time limit could be reasonable depending on what is the “Non-Compete Cutoff Date.” In this case, it would have to be tied to the current elections cycle.  Finally, the scope of activity restraint could be reasonable depending on what tasks a particular volunteer performed for Trump’s campaign.  If his tasks included bringing coffee and making copies, then a non-compete would that prohibits him from working in any capacity for another candidate would not  be enforceable.  However, if a particular volunteer organized rallies, participated in the campaign strategy or polling, or was engaged at a high-level within Trump’s campaign, then the non-compete’s scope could be upheld as “reasonable.”

Takeway: Many employees firmly believe that non-compete agreements are not enforceable. It doesn’t help that many internet sources use words like “right to work” or “right to compete” that mislead employees into believing that they have certain rights that their employment contracts cannot trump. That is not true.  Employers also often err in thinking that the broader their non-compete agreements are, the better off they’ll be when the time comes to enforce them.  This is also not true as this approach may backfire in those states like Texas where non-compete statutes have built-in mechanisms that punish employers for having overboard non-competes.  Thus, both employees and companies should have their non-compete agreements reviewed and/or drafted by lawyers familiar with non-compete law in their particular state before such agreements become a subject of a heated dispute.

Leiza litigates non-compete and trade secrets lawsuits on behalf of COMPANIES and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

What You Should Know About Non-Compete Agreements in Your Industry

kkAccording to a recent study,* at least one in four workers have signed a non-compete during their work-life, and at least 12% of the U.S. labor force are currently working under one. However, only 10% of the study participants reported bargaining over the terms of their non-compete agreements before signing them.

According to this study, the chances of being bound a non-compete increase with the higher level of education – 9% without college degree v. 27% of those with a graduate degree are bound by a non-compete. They also rise with the increase in salary, with one in three workers making over $100K a year having agreed to a non-compete.  So, if you are an MBA/Ph.D. graduate who makes over $100K, your employment paperwork will most likely have some version of a non-compete clause.

The researchers found that the following occupations tend to have non-compete agreements most frequently:

  • Engineering and architecture (30%)
  • Computer and mathematical occupations (28%)
  • Business and financial (23%)
  • Managers (22%)
  • Life, Physical & Social Sciences (20%)

Not surprisingly, the study also determined that non-compete agreements are more likely to be signed in states with higher non-compete enforcement policies. Texas is one of such states.

Furthermore, according to the study, the biggest predictor of whether an employee will be asked to sign a non-compete is whether he or she will be working with trade secrets.  About 10-20% of those who work with clients or have access to client-specific information sign non-competes, and about 24-30% of those who have access to trade secrets sign non-compete agreements, regardless of income, education, occupation, industry or firm size.

Out of all the participants in the study, 40% reported that they either did not read their employment contract or read it very quickly and only 8% stated that they consulted with a lawyer before signing one.

TAKEAWAY FOR EMPLOYEES: Employees should not blindly sign their employment paperwork, without carefully reading it first. Understanding whether an employment agreement contains a non-compete clause and what its limitations are, can help employees negotiate the reach and length of the clause, negotiate a higher salary, and/or plan exit strategy for when they want to leave their employer.

TAKEAWAY FOR EMPLOYERS:  Explaining to a potential or a new hire their non-compete restraints before they sign an employment agreement can help create a transparent working relationship and set everybody’s expectations, which leads to employees being more productive.   The above study found that, overall, employees who sign non-compete agreements typically get more training and advancement opportunities.  If that is the case in your organization, pointing that out to an employee how is asked to sign a non-compete may help employee understand that the non-compete agreement is mutually beneficial.

Leiza litigates non-compete and trade secrets lawsuits on behalf of EMPLOYERS and EMPLOYEES in a variety of industries, and knows how such disputes typically play out for both parties. If you need advice regarding your non-compete agreement, contact Ms. Dolghih for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

* The study titled “Noncompetes in the U.S. Labor Force” is authored by Mr. Evan Starr, University of Illinois at Urbana Champaign, School of Labor and Employment Relations and the Department of Economics (estarr@illinois.edu); Mr. Norman Bishara, University of Michigan, Ross School of Business (nbishara@umich.edu); and JJ Prescott, University of Michigan Law School (jprescott@umich.edu).