Question on Non-Compete Agreements

[Bevo 13659]

If an employee goes to another company and solicits your company's clients, that is a violation of the NCA. Obviously, you can go after the employee but the damages would be a lot more than you could collect from a single employee. Can you go after the company where he/she works? Do they need a warning first to know that their employee is violating a non-compete? How do you do that without putting your company at jeopardy for causing employment problems for your ex-employee? In other words, what is the best way to handle a violation of a non-compete? Just thinking through things, by the time one goes through the legal proceedings, it may have been better to send a legal letter to the employee and just take the loss.

[3adays 454]

Take the loss, pussy. 

[TwiceHorn 31705]

Generally, pursuing the new employer takes the form of tortious interference with contractual relations.  And whatever form it takes, it requires the new employer's knowledge of the covenant and either active steps to promote the prohibited activity or hiring the employee and positioning him in such a way that the prohibited activity is an inevitablity.

So yes it is worthwhile if not necessary to send a letter to the new employer.  As long as it is confined to notice of the employee's contractual obligations, there won't be any viable objection from the employee.

In most cases, employers pursue this kind of case not to obtain damages, but to remove/insulate the ex-employee from a position of competitive harm, and, more importantly, to scare the shit out of current employees.

If you have solid evidence of soliciting clients, and that's prohibited by the agreement, and it can be shown either that the clients are not generally known in the industry or that secret information (comparative pricing, etc.) was used to solicit the client, then it should be a pretty good case. One typical defense is that the ex-employee knew the client(s) in question before employment with the ex-employer.

[Updawg 2334]

Seems cheaper to have just given them more money to stay

[LarryTT 26]

14 hours ago, Updawg said:

Seems cheaper to have just given them more money to stay

Doesn't always work. I had an employee that I knew always had an entrepreneurial spirit. She was one of the highest paid type of employees in her field in the state. I even offered to make her a partner if she wanted to buy in. Bitch started her own company while still working on my dime for 4 months. I would not have had the lawyer send her a nice letter if she had just left and fucking THEN started her own. (And she will NOT be making even close what I was paying her for at least 3 years, if she even survives that long)

[Chewbacca 7807]

28 minutes ago, LarryTT said:

Doesn't always work. I had an employee that I knew always had an entrepreneurial spirit. She was one of the highest paid type of employees in her field in the state. I even offered to make her a partner if she wanted to buy in. Bitch started her own company while still working on my dime for 4 months. I would not have had the lawyer send her a nice letter if she had just left and fucking THEN started her own. (And she will NOT be making even close what I was paying her for at least 3 years, if she even survives that long)

Gee, I wonder why she left?

[Big D 249]

If you have a non-compete with your current employer and then leave and go to a competitor,  but not call on any of your customers you called on would that be a breach of the non-compete.

As an example, if you currently sell to public school districts but at your new company you will now sell to city agencies and universities.  Still selling the same products, just to a different set of customers.

Any feedback would be appreciated. 

[TwiceHorn 31705]

First, it kind of depends on the language of the covenant.  Second, there might be an argument that selling to a different kind of customer, whether forbidden by the language of the covenant, or as interpreted by the employer, might be unreasonable, particularly if the employer has no ability to expand into the new, but related, markets.

Also, recognize that notwithstanding the covenant not to compete, the ex-employer may have a trade secret claim if you are using customer lists or other information that could be considered proprietary.

Unless the ex-employee is really in direct competition (selling same product to same people or similar bad facts), these suits tend to go as follows:  A two-week TRO is granted, maybe extended by agreement.  If it goes to a temporary injunction hearing without settling somehow, the TI is probably denied, and then it settles.  Still a monstrous and expensive pain in the ass for everyone.

Edited October 7, 2019 by TwiceHorn

[elfenix 34396]

texas needs to stop enforcing this shit.  make the economy more competitive.

[DalTxHornFan 3124]

There is a great deal of very current information about Texas non-compete litigation located here (full disclosure -- the author is a good friend and a client).  https://fiveminutelaw.com/

[Nice Guy Eddie 13568]

Unless you have some extremely secret info, its bs that an ex-employer prevents you from earning a living based on your own experience, network and knowledge. Now if an ex-employer wants to pay you to sit at home, I'm ok with that but I don't think that will occur.   Instead the employers springs the non-compete on someone on their first day, or sometimes even after they started. The employee basically has no choice but to sign.

I get that some jobs do involve proprietary or sensitive data that should be protected but most non-competes seem to be related to scaring current employees from either leaving and/or asking for a raise. Right out of school, I had an employer that forced low level nobodies to sign non-competes and then later enjoyed suing someone earning less than 30K/year because the went to go work for a competitor..

[LarryTT 26]

1 hour ago, Chewbacca said:

Gee, I wonder why she left?

Because she thinks in 2 years she is going to be able to sell out to a larger company for gazillions. She had been with us 8 years, getting a 2% bonus of gross sales

Edited October 7, 2019 by LarryTT
just cause

[Chewbacca 7807]

1 minute ago, LarryTT said:

Because she thinks in 2 years she is going to be able to sell out to a larger company for gazillions

I don't think that's it...

[LarryTT 26]

1 minute ago, Chewbacca said:

I don't think that's it...

You think Im not a good employer?   I have 35 employees that have been with me an average of 10 years or more, 6 that have been with me over 25 years. I mean I get people wanting to start out on their own and I've never even sent a letter out to those that have gone on before. But this was just too much.

[Big D 249]

1 hour ago, elfenix said:

texas needs to stop enforcing this shit.  make the economy more competitive.

I think it also sucks that employers will keep non-compete documents somewhat secret and as soon as you ask for a copy of a non-compete, the HR department will raise all kinds of red flags as if you plan on leaving.  Doesn’t seem too fair.

[elfenix 34396]

1 hour ago, Nice Guy Eddie said:

Unless you have some extremely secret info, its bs that an ex-employer prevents you from earning a living based on your own experience, network and knowledge. Now if an ex-employer wants to pay you to sit at home, I'm ok with that but I don't think that will occur.   Instead the employers springs the non-compete on someone on their first day, or sometimes even after they started. The employee basically has no choice but to sign.

I get that some jobs do involve proprietary or sensitive data that should be protected but most non-competes seem to be related to scaring current employees from either leaving and/or asking for a raise. Right out of school, I had an employer that forced low level nobodies to sign non-competes and then later enjoyed suing someone earning less than 30K/year because the went to go work for a competitor..

iirc some fast food place makes non-managerial employees sign non competes as a condition of employment.  yeah, how many slices of salami you put on a sandwich is a real competitive advantage.

[horn4life 3819]

It's been a while but the majority of Non-Competes do not stand up because they are too broad.  For instance a contract that limits the area to Travis, Williamson country and 35 miles from the borders of said counties is a LOT more enforceable than limiting to say, a geographic limit to the state of Texas. 

Ninety percent of folks who start businesses do so by competing directly against their former employer.  Non-competes are as much as anything a way to money whip an employee should they leave and want to compete.  Most employees do not have the funds to do battle with their prior employer.  A buddy of mine had to sit out a year selling medical devices. When he got forced out and had to find some completely different product lines to sell into his contact network.  He honestly had never fully financially recovered. 

On the other hand I have a buddy who should have had folks sign non-competes because he taught them a specialized skill set, and now one of the guys he taught is undercutting him on work.  What I think sucks is the employee getting fired and then getting fucked after finally finding a new job for not a lot of money getting sued by the ex that fired him.

[NeverMarryAStripper 22055]

24 minutes ago, Big D said:

I think it also sucks that employers will keep non-compete documents somewhat secret and as soon as you ask for a copy of a non-compete, the HR department will raise all kinds of red flags as if you plan on leaving.  Doesn’t seem too fair.

Who doesn't get a copy of every agreement that they sign?

[Nice Guy Eddie 13568]

6 minutes ago, horn4life said:

On the other hand I have a buddy who should have had folks sign non-competes because he taught them a specialized skill set, and now one of the guys he taught is undercutting him on work.  What I think sucks is the employee getting fired and then getting fucked after finally finding a new job for not a lot of money getting sued by the ex that fired him.

I hear you but say I work for your buddy for 10 years mainly delivering via this specialized skill set. If I want to leave but have a non-compete, my only option is to start over in a different field? If that is the case, it would be tempting to underpay that employee as they have few replacement options.

In theory I agree and understand that some knowledge is proprietary and requires protection, but I think it's incredibly short sighted to protect your industry/company via non-competes. It's most likely a sign of some level of inefficiency. And if you have an entrepreneurial-minded employee that wants to strike out on their own, look to see if you can partner with them.  

and for the OP, I can understand about a non-compete requiring them to stay away from their previous accounts for a certain period of time. maybe 6-12 months tops. 

[Bevo 13659]

Do ya'll have any concerns for lower level positions? Say a personal assistant went to work for a competitor and gave the competitor all the names of your clients and details about your agreements with those clients and personally tried to call some clients to tell them about her new employer. And I am speaking hypothetically btw so don't read into it.

[NeverMarryAStripper 22055]

Depends on the size of her tits.

[Nice Guy Eddie 13568]

7 minutes ago, NeverMarryAStripper said:

Who doesn't get a copy of every agreement that they sign?

Almost everyone that works for a major employer.  Usually you sign it on Day 1, and it's taken away because they haven't signed it yet. It also seems to occur when there is a change in ownership due to M&A.

2 minutes ago, Bevo said:

Do ya'll have any concerns for lower level positions? Say a personal assistant went to work for a competitor and gave the competitor all the names of your clients and details about your agreements with those clients and personally tried to call some clients to tell them about her new employer. And I am speaking hypothetically btw so don't read into it.

I would think that client agreements should only be read by someone that has a legitimate business need. Now a personal assistant could have a business reason to read one, or have the opportunity to steal a copy but that would seem to go beyond just a non-compete.

[Chewbacca 7807]

1 hour ago, LarryTT said:

You think Im not a good employer?   I have 35 employees that have been with me an average of 10 years or more, 6 that have been with me over 25 years. I mean I get people wanting to start out on their own and I've never even sent a letter out to those that have gone on before. But this was just too much.

I think you're wound a little too tight if this made you that upset.  

[NeverMarryAStripper 22055]

17 minutes ago, Nice Guy Eddie said:

Almost everyone that works for a major employer.  Usually you sign it on Day 1, and it's taken away because they haven't signed it yet. It also seems to occur when there is a change in ownership due to M&A.

I guess I don't understand that.  I've signed a lot of agreements on the first day and made sure that I received a copy of every one.  Usually I made a copy after signing and then replaced it when got the one signed by the employer.  Who would work for an employer that refused the let you have a copy of an agreement you signed.  That sounds like shit scammers pull on old people.

[TwiceHorn 31705]

There are situations where enforcement of a covenant not to compete makes a ton of sense. Most of the time it's a bunch of bullshit.

Refusing to enforce them entirely risks throwing the baby out with the bathwater.

Perhaps, if they were refused enforcement entirely, trade secrets would take up the slack.  There tends to be a lot of overlap, particularly when the problem is real.  Trade secrets suits can be similarly abused, but I don't believe anyone would seriously suggest refusing to enforce trade secrets.

[Nice Guy Eddie 13568]

4 hours ago, NeverMarryAStripper said:

I guess I don't understand that.  I've signed a lot of agreements on the first day and made sure that I received a copy of every one.  Usually I made a copy after signing and then replaced it when got the one signed by the employer.  Who would work for an employer that refused the let you have a copy of an agreement you signed.  That sounds like shit scammers pull on old people.

I didn’t say it was impossible to get a copy, I was saying that few people ask for it.  I agree that you should get the copy early on.  Ask for a copy of the non compete during year 3, and hr will tell your boss you’re quitting soon.

On day 1 of a job, people will just about sign anything.  “If you quit, you owe us 2 months salary”. Where do I sign. 

Edited October 8, 2019 by Nice Guy Eddie

[Hefeweizen 5362]

This shit is why I refused to sign a non compete. I think they are bullshit and a crutch for shitty employers.

I encourage everyone who has skills to reject them, but also realize many people feel they have no choice.

[troph 24929]

On 10/7/2019 at 5:24 PM, Bevo said:

Do ya'll have any concerns for lower level positions? Say a personal assistant went to work for a competitor and gave the competitor all the names of your clients and details about your agreements with those clients and personally tried to call some clients to tell them about her new employer. And I am speaking hypothetically btw so don't read into it.

NC's against lower level employees aren't going to be enforceable. but misappropriation of confidential information/trade secrets is still actionable, agreement in place or not.

[TwiceHorn 31705]

3 minutes ago, troph said:

NC's against lower level employees aren't going to be enforceable. but misappropriation of confidential information/trade secrets is still actionable, agreement in place or not.

I'm still stuck in the Light era, where you pretty much had to have trade secrets to have an enforceable covenant not to compete.

Is common calling back?

[troph 24929]

I’m just saying you don’t need a non-compete to establish a claim for misappropriation of confidential information (or trade secrets). Maybe there isn’t a claim but the existence of a faulty non-compete or none at all isn’t determinative.

 

[TwiceHorn 31705]

On 10/10/2019 at 6:57 AM, troph said:

I’m just saying you don’t need a non-compete to establish a claim for misappropriation of confidential information (or trade secrets). Maybe there isn’t a claim but the existence of a faulty non-compete or none at all isn’t determinative.

 

Got it.  Low-level unlikely to have trade secrets, which I think was kind of the root of common calling anyway.

[troph 24929]

Probably don’t have the coke formula but a customer list, pricing strategies and the like very well could be, at a minimum at least confidential. A lot of folks seem to skip over that part. No non-compete or a seemingly unenforceable one? Sheeeeit I can do *anything* I want. Uh, not true.

[TwiceHorn 31705]

For the record, some people draw a distinction between "trade secrets" and "confidential information," with confidential information being less important somehow, perhaps non-technical  I have never seen the point, at least in Texas, at least when it was a Restatement state, in drawing any distinction.  I'm not convinced UTSA changed anything, either.

When I say "trade secrets," I mean anything maintained in sufficient secrecy that it derives value from it and is protectable as a result.  So, any damn thing:  any formula, pattern, device or compilation of information which is used in one's business . . . .

[troph 24929]

In my mind when counseling clients they are one and the same. But if I think someone is trying to make a distinction then I respond like above. I wasn’t sure you’re approach based on prior commentary.

 

[TwiceHorn 31705]

Yeah, I just wanted to make it clear that when I say "trade secrets," I mean anything, no matter how pedestrian or prosaic, that may be protected in a lawsuit as a result of its relative secrecy.  Not necessarily the formula for Coke, or methods of DNA transcription, or recipes for an alloy.

[Wiler77 1591]

On 10/7/2019 at 5:03 PM, horn4life said:

What I think sucks is the employee getting fired and then getting fucked after finally finding a new job for not a lot of money getting sued by the ex that fired him.

Wait, if an employer fires you they can still enforce the non-compete?  Surely not.  Or I guess it depends on why they fired you.

[Sbbruin 21938]

3 minutes ago, Wiler77 said:

Wait, if an employer fires you they can still enforce the non-compete?  Surely not.  Or I guess it depends on why they fired you.

Well., certainly if any severance package was tied to signing one.  We do that.  "You can sign this and take this check, or not sign this and take that check."

[Wiler77 1591]

OK that makes sense.

[TwiceHorn 31705]

Yes a covenant not to compete can still be enforced if you are terminated.  Might make it a little harder, but it's not an absolute bar.

[3adays 454]

Any recommendation on an attorney to look over a non-compete. Live in Austin, but employer is in MN….if that matters. 

[Bevo 13659]

 

To answer the question right above this post, Troph, I think does that type of work.

On 10/12/2019 at 5:28 AM, troph said:

Probably don’t have the coke formula but a customer list, pricing strategies and the like very well could be, at a minimum at least confidential. A lot of folks seem to skip over that part. No non-compete or a seemingly unenforceable one? Sheeeeit I can do *anything* I want. Uh, not true.

 

So setting aside trade secrets, etc.  Say you opened a new law practice in Marble Falls and you hired an attorney to run the practice... 3 years later that attorney decided he had the money to open a practice himself. So, he opened a practice on the other side of town - since it is Marble Falls, that is only 3 miles away and clearly within your 10 mile non-compete. Since that former employee knew the clients better than the owner, I would assume they would stick with the ex-employee. As the owner, how do you prevent that from happening? I'm risk adverse so if the non-compete is largely non-enforceable, I think the possibility of the employee going out on his own would preclude me from ever opening the office. If the non-compete was enforceable, what kind of damages would be involved?

[TwiceHorn 31705]

8 minutes ago, Bevo said:

 

To answer the question right above this post, Troph, I think does that type of work.

So setting aside trade secrets, etc.  Say you opened a new law practice in Marble Falls and you hired an attorney to run the practice... 3 years later that attorney decided he had the money to open a practice himself. So, he opened a practice on the other side of town - since it is Marble Falls, that is only 3 miles away and clearly within your 10 mile non-compete. Since that former employee knew the clients better than the owner, I would assume they would stick with the ex-employee. As the owner, how do you prevent that from happening? I'm risk adverse so if the non-compete is largely non-enforceable, I think the possibility of the employee going out on his own would preclude me from ever opening the office. If the non-compete was enforceable, what kind of damages would be involved?

That situation is complicated by the fact that a client has the pretty much absolute right to choose their lawyer.  I believe it is unethical for two lawyers to enter into an agreement like that.  There are certain contexts where it might be enforceable, but generally not.

With most "IP" type cases, your first concern as a plaintiff should be obtaining an injunction against the offending activity.  If the injunction does not justify the cost of litigation, then you probably shouldn't undertake it.

Damages in these types of things tend to be some form of lost profits:  I no longer have the business because of defendant's wrongdoing, so I deserve the profit that I would have made but for the wrongdoing.

[troph 24929]

24 minutes ago, Bevo said:

 

To answer the question right above this post, Troph, I think does that type of work.

So setting aside trade secrets, etc.  Say you opened a new law practice in Marble Falls and you hired an attorney to run the practice... 3 years later that attorney decided he had the money to open a practice himself. So, he opened a practice on the other side of town - since it is Marble Falls, that is only 3 miles away and clearly within your 10 mile non-compete. Since that former employee knew the clients better than the owner, I would assume they would stick with the ex-employee. As the owner, how do you prevent that from happening? I'm risk adverse so if the non-compete is largely non-enforceable, I think the possibility of the employee going out on his own would preclude me from ever opening the office. If the non-compete was enforceable, what kind of damages would be involved?

Non-competes are unenforceable against lawyers, I’m not a litigator so monetary damages isn’t my area but injunctive relief is the usual remedy sought. That is, stopping the competitive action all together.