5 Ways to Challenge Non-Compete Agreements
We live in a country where we enjoy many freedoms, including the freedom to work . . . well, sort of. Some of you have probably experience the painful scenario in which you land a great job with a new employer, only to have a cease-and-desist letter arrive in the mail. Your previous employer says that you are working for a competing business in violation of the non-compete agreement you signed, and then threatens to file an injunction to stop you. What can you do?
While it may seem overly restrictive, non-compete agreements are legal in the United States and in many states. Under a non-compete agreement, you agree to not work for a competing business after leaving the company you signed the non-compete agreement with. Companies are able to get away with this as your continued employment was the valid consideration to enforce this promise. Don’t assume, however, because you signed such an agreement that you have no way out and must quit this amazing new job -- or if you are the employer, that you have to let your new employee go.
Here are five ways to fight a Non-Compete Agreement:
1. Your state doesn’t support non-compete agreements.
The beauty of America is that different states have different rules depending on the subject matter. Labor is one of those (with some exceptions). State Courts’ approaches to non-compete agreements vary state by state, so be sure to check your state’s non-compete statutes.
A few states, such as California, prohibit non-compete agreements except in limited circumstances. Their stance is that non-competes inhibit the mobility of workers. It is rare in California for any employer to be able to enforce a non-compete, even if the employee is from a state that enforces non-compete agreements. Virginia on the other hand allows non-compete agreements, but favors the employee tremendously if a dispute ever arises.
2. The scope of restrictions is overbroad.
Generally, courts will refuse to enforce a non-compete agreement that is unreasonable in its restrictions, particularly as to time, geography or activities. For example, a 10-year restriction or a prohibition against “selling advertising” likely would be unreasonable and overbroad. Be sure to check your state’s non-compete statute, which probably has a maximum number of years allowed. An example of an unreasonable geographic limitation is one that’s beyond locations in which you actually worked.
3. The employer breached the contract.
A court might refuse to enforce the non-compete agreement if your employer first breached a material provision of the employment contract. Determine whether your employer failed to fulfill any of its contractual obligations, such as paying all compensation due (e.g. wages, bonuses, benefits, and unused but accrued vacation pay) within the time frame established in the contract. Even if your employer didn’t breach any explicit terms of the contract, you might be able to assert a breach of implied terms, such as a requirement under your state’s labor statute.
4. The employer doesn’t have a legitimate business interest.
To enforce a non-compete agreement, your employer must show a legitimate business interest over and above ordinary competition. Generally, the following are legitimate business interests: trade secrets, valuable confidential business or professional information, substantial relationships with specific customers, goodwill associated with an ongoing business, or specialized training. If you only signed the non-compete agreement as part of standard procedure for all employees, you might be able to show there was no legitimate business interest. You also can assert a defense against trade secret or confidential business information by showing that it’s publicly available. For example, you can use online vendors to obtain the same “secret” customers lists as those belonging to your employers.
5. The employer has unclean hands.
A well-known legal doctrine is that someone “who seeks the aid of equity must do so with clean hands.” Essentially, courts don’t look kindly on a party who engages in unjust and unlawful conduct that is connected to the matter of the litigation. An employer might have unclean hands by ordering an employee to engage in illegal or fraudulent acts, or by unlawfully discriminating against the employee. Other examples include withholding compensation and retaliation against the employee for whistleblowing. As a practical matter, an employer might want to cease litigation just to protect the skeletons in its closets.
