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Employee Non-Compete Agreements

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Given the present tough competition among many industries in the United States, many companies are forcing their employees to sign non-compete agreements upon recruitment in their companies. This issue has rapidly intensified mainly because industries are swiftly shifting from manufacturing towards service provision. This shifting means that jobs by service providers are rate higher than the manufacturing sector jobs. In addition, employees in the world today have become more aggressive, where they can easily leave a job and open their own business or firm using the experience they have gained from their former employers.

What is Employee Non-Compete Agreement and what is its importance? This is the questions that will be the point of focus for this paper. This study will discuss some of the acts related to this topic that have been passed over the years and how in the United States they apply differently in different states. This paper will discuss protections that these acts provide to employers and what an employee should know before signing the agreement. This paper will also discuss the necessary steps a worker can take to obtain protection when compelled to sign the agreement.

A non-compete clause applies under the contract law where one party usually, the employee agrees to sign an agreement that forbids them from entering or starting a similar business or occupation in competition against the other party that is usually the employer. A non-compete clause is, therefore, a contract provision bound by various customary contract requirements such as the consideration doctrine. The use of these clauses is based on the possibility that the employee might start working for the rivals or start a similar business upon their termination or resignation, exploiting confidential information of the former employer's operations or business secrets as their competitive advantage.

Non-compete agreements may arise in various circumstances. The most common areas are in employment relationships between the employer and the employee, between stockholder agreements and in cases of a business disposal. The provision of a non-compete agreement has been enforced different in different states. This paper will look at how this provision has been enforced in Florida and Middlesex. The provision will mainly address non-compete agreements under Florida law and also analyze a court case titled ARS, Inc. v. Baker, et al., Civil Act No.12-00105 Middlesex Superior Court so as to understand how the clause has been enforced in the past.

Case Study 1: Florida Law

The enforcement of a non-compete agreement in Florida is not a new concept given the historical nature of Florida as one of the most employer friendly states in the United States. Gretchen, is a 28 year old IT expert who was working in a Broadcasting company in Florida. She

says that her employer intimidated her to sign a non-compete form after working for six months, failure to which she would be fired. She signed the agreement but subsequently lost her job from that company. However, she says that she was unable to secure another job as the agreement forbade her from working for their competitors. The single mother of two narrates the difficult moment she went through and says that she had to start another career from scratch. Her second career has currently been stricken by serious challenges and she is now wondering what might be the recourse of a worker who has signed such an agreement.

On July 2012, Polselli, the owner of Ripe Delights, which is a fruit bouquet business based in Palm Beach, Florida, sued two of her employees in the Arden Courts, Florida. She says, “as a small business owner, your business is the entire resource you have, if they looked for work in some textile firm or designer shop, I would have had no problems."

Barbara Poole is a legal expert who works in a litigation law firm located in Broward County. She says that signing the non-compete form is like signing a prenuptial contract. “In states like Florida, it is unfortunate that the chances for an employee’s recourse is next to zero if an employee knowingly signed such an agreemen” says Poole. His caution to employees is to think first before signing such an agreement, “otherwise, you are signing at your own peril.”

Case Study 2: Middlesex County, Massachusetts

When David Baker formerly an employee of ARS Services which is an emergency restoration company that does business in Massachusetts, Connecticut, Rhode Island and New Hampshire, a non-compete agreement that David had signed with the company bound him. The agreement stated that Mr. Baker could not work in the disaster restoration field for one year or undertake any project in a space of 40 miles of any of the 6 ARS’s offices. Despite this agreement, Mr. Baker went ahead and began to work for one of ARS’s direct rivals, Harvey Remodeling, in the capacity of a sales manager in the emergency restoration operation. His new position made him have direct contact with insurance adjusters and other business development contacts he had developed while at ARS.

ARS turned to a litigation attorney with Hemenway & Barnes for help. Mr. Joel Bierwirth the attorney filed for an injunction in Massachusetts’s Middlesex Superior Court. His argument was that Mr. Baker’s activities as a sales manager with Harvey Remodeling Restoration Division breached his non-compete agreement. He disclosed to the court how the company had invested in Mr. Baker’s career development and sales exertions while as an employee with ARS.

The court granted a preliminary injunction on Feb. 21, 2012. Judge Thomas Murtagh in the Superior Court decided that “ARS had demonstrated comprehensively that the enforcement of the Agreement was necessary to prevent the company from suffering irreparable harm. He stated, “If Baker is allowed to continue working for Harvey Remodeling Restoration Division, ARS may face the distinct possibility of losing its goodwill to its customers and risk losing those customers to Harvey Remodeling.”The decision, therefore, held that Mr. Baker could not be employed by Harvey, nor any other company in a disaster restoration related work within the stated geographic area in the non-compete agreement.

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What Employees Should Know

Mark is an attorney who works with Wasserman & Gora in Boca Raton, Florida. He says that a company is not obligated by the court to provide evidence that the employee is causing damage to the company by working for a rival company. The signed agreement according to Mark is satisfactory evidence in the court for the company. However, employee may be at liberty to provide evidence to defend themselves. However, finding such evidence that is convincing is a difficult task.

He advises the employees to think and weigh the options before signing such an agreement especially in states like Florida where courts have a history of favoring employers in such matters. Mark also advices the employee to find out how the non-compete clause in your state applies. This information can be found from the labor department. He also states that Non-compete agreements are a tricky part of law and tough choice for the employee because the employer may refuse to hire an employee if he or she refuses to sign the agreement. He, therefore, asks the employee to carefully read through the document, preferably with a lawyer’s assistance to fully understand what you are signing.

Conclusion

It is important to know whether the non-compete clause law prohibits restraints on trade. In Florida, the law prohibits restraints on trade with the exception being on a non-compete agreement that meets Florida Statute 542.335 requirements entered in 1996. These requirements can be summarized as follows:

  • The clause in the non-competeagreement must be reasonable in the areas of time, area, and line of business
  • There must be an existence of legitimate business interests that justifies the restrictive non-compete agreement

The non-compete must protect the legitimate business interests in a reasonable way.

The employee should understand the list of legitimate business interests that the statute provides before signing it. This can be accomplished with the help of an attorney or a lawyer. Some of the most common legitimate business interests that most non-compete clause provides include trade secrets, substantial business relationships with specific existing or prospective customers, confidential business information, specialized and/or extraordinary training. Typically, trade secrets that involve confidential business information are claimed as the "legitimate business interests" by nearly all non-compete clauses.

In the case such as the ARS Services case discussed, the court will first establish a legitimate business interest where the court looks to whether the non-compete agreement is reasonably necessary to protect those interests. This mainly depends on the facts and the circumstances presented in the court which involves the individual case. However, the court’s much is mostly on:

  1. the non-compete duration
  2. the range of the geographic limitation.

This is the issues that were captured in the ARS case looked in this paper. Florida’s statute provides guidelines to the drafters of the covenant whether the duration and the geographical limitation is convincingly reasonable or unreasonable. For instance, less than six months in case of employment is presumptively reasonable and over two years is unreasonable.

Geographic limitations are trickier since the statute provides no guidance in this area. However, a noble rule of thumb is, the court would unlikely apply the non-compete to areas where the accusing party does not do business. For instance, if the party enforcing the agreement does not do business outside of Miami-Dade County, the court will probably not grant an injunction to enforce the non-compete covenant in, for example, Hillsborough County