3. Post Employment Restrictions on Employee: Noncompete Agreements (8 cases) 10%
List five questions that you would ask a client to help determine if a certain time limitation is reasonable e.g. two-years
1. How long is the training period for new salespeople at XYZ Co.? This question helps to determine the length of time that the employer invests in training its employees, which can be a factor in justifying a longer noncompete period. 2. How long does it typically take to build a relationship with a customer in the accounting software industry? frequency and regularity of contact as an important factor in determining the reasonableness of the time restraint; AKA How frequently do you visit your customers helps us evaluate the length of time during which customers would likely continue to be influenced by the departed employee 3. What is the sales cycle for accounting software products? Does it usually take a week, a month, a year, or longer between first contact and sale/delivery of the product? This question helps to determine the length of time that it will take an employer to replace the departing employee in the minds of prospective customers. 4. Is the accounting software product manufactured by XYZ Co. unique or highly specialized? This question helps to determine whether the departing employee possesses unique knowledge or expertise that is difficult to replace. Also, the nature of the product could be important (let's say public health software applications) as this question would help us evaluate the potential harm to the general public if Sally were prevented from working in her dield for the two-year duration of the noncompete restriction, as the court in Standard noted that the interests of the general public are a factor to consider when determining the reasonableness of a time restraint in a restrictive covenant. 5. How many customers do you typically have regular contact with? This question would help us assess whether Sally could reasonably develop a sales base without being unduly burdened, as the court in Standard noted that the number of customers a salesperson has may affect the duration of the noncompete restriction.
The Vantage court found that the weighing of the hardships against the employee and consideration of the public interest did not preclude enforcement of the employer's noncompete agreement for what reasons?
1. Not enforcing the covenant will allow the employee to unfairly use the benefits bestowed upon him by the employer AKA Allowing an employee to violate the noncompete agreement and use these benefits to compete with Vantage would be unfair to Vantage, which invested time and resources in developing Cross's skills and knowledge. 2. Without enforcement of the noncompete agreement there may be a disincentive to Vantage to properly train and inform its employees AKA enforcing the noncompete agreement would serve a public interest by incentivizing employers like Vantage to properly train and educate their employees, knowing that they will be protected from unfair competition by noncompete agreements. Without this protection, employers may be less willing to invest in employee training, which could ultimately harm the public by reducing the quality of goods and services offered. Overall, this case demonstrates that a noncompete agreement must be reasonable in order to be enforceable, taking into account the employer's legitimate business interest, the harm to the employer, and the hardship on the employee, as well as the time limit and geographic scope of the agreement.
What is a noncompete?
A non-compete agreement is, in its basic form, a contract between the employer and employee. As such, the agreements are generally analyzed under basic contract principles. However, it is clear that the law treats these contracts differently than other types of contracts due to public policy reasons.
What factors did the court consider in determining whether the noncompete agreement in Davies was supported by consideration?
A: Davies received substantial economic and professional benefits after signing the contract, including - continued employment for 10 years, - advancement to a selling position, - informal training, - support for license applications, - and sole responsibility for many of the agency's customers. The court also noted that Richard's brother, John, who refused to sign a noncompete agreement, was limited to a largely clerical position during his tenure with the agency. This suggests that the noncompete agreement was an important factor in Richard's professional advancement and success within the agency.
What is the significance of an employee's frequent contacts with customers in a noncompete agreement?
A: In Standard Register Co. v. Cleaver, the court found that an employee's frequent contacts with customers was a factor that supported a two-year time limitation in a noncompete agreement. This was because the personal relationships established with customers during the employee's tenure would cease to have an influence on them after a certain period of time, and a two-year time limitation was reasonable to protect the employer's interests. AKA the customers would continue to be influenced by the employee's personal relationships and expertise even after leaving the employer in other words, ask questions that would help determine how long it will take an employer to replace the departing employee in the minds of prospective customers.
Q: What is the significance of Davies & Davies Agency, Inc. v. Davies?
A: The case established that adequate consideration for a noncompete agreement may exist even if the signing employee did not receive immediate financial benefits from the agreement. The court found that benefits such as a promotion and training, along with the opportunity to gain expertise and obtain licenses, provided sufficient consideration for the agreement.
What factors did the court cite to support its determination that a two-year limitation was reasonable in Standard Register Co. v. Cleaver?
A: The court cited the following factors: the employee made frequent contacts with his customers, he was able to develop personal relationships with them, he only had a handful of customers, so he could still develop a sales base without being unduly burdened, and he had knowledge of the ordering process of his customer's business. These factors were helpful in supporting the determination that a two-year limitation was reasonable because they showed that the employee had established personal relationships with a small group of customers through frequent contacts, and had knowledge of their ordering processes, which made it likely that the customers would continue to be influenced by the employee's personal relationships and expertise even after leaving the employer. Additionally, the fact that the employee only had a handful of customers meant that the restriction did not unduly burden his ability to develop a sales base with new customers, while still protecting the employer's interests. Overall, these factors demonstrated that a two-year limitation was reasonable in terms of protecting the employer's interests without unduly restricting the employee's ability to pursue his occupation.
What is the significance of the court's ruling in Davies regarding the enforceability of noncompete agreements?
A: The ruling in Davies indicates that noncompete agreements may be enforceable even if the signing employee did not receive an immediate financial benefit, as long as other forms of consideration are present
Can a noncompete agreement be supported by consideration if the signing employee does not receive an immediate financial benefit from the agreement?
A: Yes, as demonstrated in Davies & Davies Agency, Inc. v. Davies, noncompete agreements may be supported by consideration that includes non-monetary benefits such as promotions, training, and career opportunities
According to Medtronic, what is sufficient grounds for denying a temporary injunction in a noncompete dispute?
Answer: Failure to show irreparable harm by an applicant for injunctive relief is, by itself, sufficient grounds for denying a temporary injunction. Explanation: In Medtronic, the court denied the appellant's motion for a temporary injunction because he failed to show irreparable harm.
In what situation can irreparable harm be inferred from the breach of a restrictive covenant according to Medtronic?
Answer: Irreparable injury can be inferred from the breach of a restrictive covenant if the former employee came into contact with the employer's customers in a way which obtains a personal hold on the "good will" of the business. Explanation: In Medtronic, the court found that the appellant's contact with the employer's customers could cause irreparable harm to the employer's business.
What five Dahlberg factors does a court balance in its choice of law analysis in a noncompete dispute involving multiple states? POSAA
Answer: POSAA: The predictability of result, maintenance of interstate and international order, simplification of the judicial task, and application of the better rule of law. Explanation: In Medtronic, the court balanced these factors to determine whether Minnesota or California law applied. Note: advancement of the public interest is NOT one of the factors the court must balance in its choice of law analysis:
According to Medtronic, what is the first step in determining the likelihood of success on the merits in a noncompete dispute involving multiple states?
Answer: The court must determine if there is an actual conflict between the laws of the two states. Explanation: In Medtronic, the court had to decide whether Minnesota or California law applied to the dispute. The court first determined that there was a conflict between the two states because California only upholds noncompete agreements in limited factual situations.
According to Medtronic, what is the public policy factor in a choice of law analysis in a noncompete dispute?
Answer: The public policy factor concerns whether the state has a strong interest in having contracts executed in that state enforced in concordance with the parties' expectations. Explanation: In Medtronic, the court found that the public policy factor favored Minnesota because it had a strong interest in enforcing contracts executed in the state according to the parties' expectations. the court decided to enforce the noncompete agreement because Minnesota has a strong interest in enforcing valid contracts, even though California generally disfavors noncompete clauses.
What is the role of consideration in a non-compete agreement?
Consideration is necessary for a non-compete agreement. ALL courts AGREE if the non-compete agreement is signed PRIOR to the commencement of employment, the employment itself provides the consideration for the contract. e.g. Let's say that Jane applies for a job at ABC Company, and during the interview process, ABC Company presents her with a non-compete agreement. Jane agrees to the terms of the non-compete and signs it before she starts working for ABC Company. In this scenario, the employment itself provides the consideration for the contract, as Jane's promise to work for ABC Company is sufficient consideration for ABC Company's promise not to compete with her after she leaves the company.
3. temporal limitation aka time (How long can't worker work)
Courts will carefully scrutinize all aspects of the non-compete agreement to determine if it is reasonable. Courts generally look at four categories. The third category is the temporal limitation. The court will also closely analyze the length of time the employees are precluded from certain types of employment. Again, this amount of time must be reasonably related to the employer's legitimate business interests. All non-compete agreements have a specific time after which the agreement expires. Once again, the court will carefully scrutinize this temporal limitation to ensure that it is reasonable. A non-compete agreement that prohibits a former employee from working for a direct competitor for 6 months after leaving the employer may be deemed reasonable, as it allows the employer enough time to replace the employee and for the employee to find new employment. A non-compete agreement that prohibits a former employee from working for a direct competitor for 10 years after leaving the employer may be deemed unreasonable, as it severely limits the employee's job prospects and potential for career growth.
The reasonableness of the terms will be analyzed based on which 4 factors?
Courts will carefully scrutinize all aspects of the non-compete agreement to determine if it is reasonable. Courts generally look at four categories. 1) whether the employer has a legitimate business interest, 2) an analysis of the types of positions the employee is precluded from taking 3) geographical limitations, and 4) temporal limitations. Note: The analysis of these factors is highly factual.
1. legitimate business interest vs. simply trying to diminish competition
Courts will carefully scrutinize all aspects of the non-compete agreement to determine if it is reasonable. Courts generally look at four categories. The first is legitimate business interest. The courts will determine if the employer has a legitimate business interest it is trying to protect or if it is simply trying to diminish competition. An employer in the technology industry may have a legitimate business interest in preventing a former employee from working for a direct competitor for a certain period of time, as the employee could use confidential information or trade secrets to benefit the competitor.
4. Geographical limitation AKA how far from the employer can worker not work
Courts will carefully scrutinize all aspects of the non-compete agreement to determine if it is reasonable. Courts generally look at four categories. The fourth category is the geographical limitation. Finally, the court will look at the geographical limitation of the precluded employment. It is a very fact-intensive determination and it's decided on a case-by-case basis. A retail store requiring its employees to sign non-compete agreements that limit them from working for a competitor within a certain radius of the store location.
2. scope of the precluded employment - aka what duties/job positions would it prevent the worker from pursuing
Courts will carefully scrutinize all aspects of the non-compete agreement to determine if it is reasonable. Courts generally look at four categories. The second category is: scope of the precluded employment The court will also look to see if the non-compete agreement is narrowly tailored so that the employment options that the employees are precluded from are not overly broad and are only as broad as necessary to protect the legitimate business interests of the employer. A non-compete agreement may prohibit an employee from working for a competitor in a similar position or in a related field.
True/False: must consideration for a noncompete agreement always be direct or immediate?
False: indirect benefits that an employee may receive in exchange for signing the agreement can constitute valid consideration The takeaway from Davies is that consideration for a noncompete agreement may not always be direct or immediate, but can still be found as long as there is a link between the agreement and some benefit received by the employee. In this case, the signing brother received a promotion and training, which were considered substantial benefits for his 10-year career in the insurance business. Wheras, the non- signing brother did NOT, and remained a clerk. Therefore, when studying noncompete agreements, it is important to consider both direct and indiecrt benefits that an employee may receive in exchange for signing the agreement.
What was the difference between Davies and Freeman in terms of consideration for the noncompete agreement?
In Davies, the employee received substantial benefits that were tied to signing the noncompete agreement, while in Freeman there was no clear connection between the noncompete agreement and any additional benefits provided to the employee. The key factor was whether there was a clear connection between the noncompete agreement and any additional benefits provided to the employee.
What factors taken together demonstrate a "protectable business interest" for employers that could be protected by a covenant not to compete?
In Vantage, the court found that the employer had a legitimate interest based on: the specialized relationship with doctors because it was a valuable and unique business asset that the employer had developed over time AKA The relationships the employee had developed with customers The confidential information that flowed through that relationship was also valuable because it was not generally known outside of the employer's business and gave the employer a competitive advantage AKA The condential information possessed by the employee Additionally, the employee's training was a significant investment of the employer's time and resources, and the employee's unique skills, if gained through training at the employer's expense, were also valuable to the employer AKA The employee's unique skills, if gained through training at the employer's expense (Note: this does not include employee's general knowledge despite it being learned on the job) All of these factors taken together demonstrated a legitimate interest that could be protected by a covenant not to compete.
1a: Factors analyzing whether an employer is protecting a legitimate business interest; such as training, customer contacts, trade secrets
Let's take a closer look at each of these factors. Most decisions analyzing non-compete agreements begin with an analysis as to whether the employer is protecting a legitimate business interest. In enforcing the non-compete agreement, courts will look at several factors, such as training, customer contacts, trade secrets, and more. Training: An employer may have invested significant time and resources in training an employee in a particular skill set or industry-specific knowledge. In this case, the employer may argue that a non-compete agreement is necessary to protect their investment in the employee's training. Customer contacts: An employer may have a significant amount of business with particular customers, and the employee's departure could result in the loss of those customers. In this case, the employer may argue that a non-compete agreement is necessary to protect their customer relationships and ensure that the employee does not take those relationships to a competitor. Trade secrets: An employer may have proprietary information, such as trade secrets or confidential business information, that the employee could use to the detriment of the employer if they were to work for a competitor. In this case, the employer may argue that a non-compete agreement is necessary to protect their intellectual property and business secrets.
Can a noncompete agreement be used as a blanket prohibition on an employee working in an entire region, state, or country, if the employee only worked with a limited number of customers or in a specific department?
No, a noncompete agreement cannot be used as a blanket prohibition on an employee working in an entire region, state, or country, if the employee only worked with a limited number of customers or in a specific department.
let's say a salesperson worked for a large national retail chain and had very infrequent customer contacts, only visiting each customer once or twice a year. The salesperson did not have any significant personal relationships with these customers, and there were hundreds of customers in their portfolio. Additionally, the salesperson did not have any specialized knowledge of the ordering process of their customer's business. Would a two-year noncompete agreement to restrict the salesperson from working in the same industry be reasonable?
No, this is the opposite of Standard In this scenario, it would likely not be reasonable for a noncompete agreement to restrict the salesperson from working in the same industry for two years. Bc the customers would likely not be significantly influenced by the salesperson's personal relationships or expertise, and the large number of customers and lack of specialized knowledge means that the salesperson could reasonably establish a new sales base without being unduly burdened.
A former employee signed a non-compete agreement that prevents them from disclosing their former employer's trade secrets. The former employee starts working for a competitor but does not disclose any information that would be considered a trade secret. i.e. there's nothing to protect. Can the former employer take action agains the employee i.e., enforce the non-compete agreement here?
No. The court found that the paragraph of the non-compete agreement, which precluded the ex-employee from divulging trade secrets, was not enforceable because none of the information the employer sought to protect was a trade secret or was confidential AKA Non-compete agreements should only restrict disclosure of information that is truly a trade secret or confidential.
Assume that the geographical and temporal limitations are reasonable. Will finding that the employer has a protectable interest end the court's inquiry?
No; next the court must also look at 2) the economic hardship on the employee and 3) consideration of the public interest
Can a noncompete agreement preclude an employee from working in a geographical area in which the employee never provided services.
No; too strict The scope of the noncompete agreement needs to be limited to areas in which the employee actually had contact with customers or confidential information.
When is an agreement considered to have sufficient consideration if it is signed after the commencement of employment?
Some courts find that continued employment is enough to provide sufficient consideration, while others require that the employee receive something above and beyond simply continued employment. Most courts are going to scrutinize the consideration issue in a non compete agreement contract closer than they do in most contract situations. Most courts construe this provision strictly in analyzing the validity of a non-compete agreement.
Approach #2: Knock Out Unreasonable Term:
Some jurisdictions allow the court to remove the unreasonable portion of the noncompete agreement, leaving the rest of the agreement intact. Also known as the "blue pencil" doctrine. The court must determine if the unreasonable portion is severable. Enforces the remainder of the agreement
Approach #3: Rewrite Unreasonable Portions:
Some jurisdictions allow the court to rewrite the unreasonable portion of the noncompete agreement to impose reasonable restrictions. Also known as the "blue pencil" doctrine. For example, in Texas, the court will rewrite the agreement to protect the employer's interests. Prioritizes protecting employers' interests over employees' freedom to switch jobs.
Approach #1: Void Entire Agreement:
Some jurisdictions, such as Wisconsin, void the entire noncompete agreement if a term is found to be unreasonable regarding time or geography. Prioritizes employees' freedom to switch jobs. Employee is not bound by any terms, even the reasonable ones.
What three exceptions to courts look for in determining whether or not the court will modify and rewrite non-compete with unreasonable terms to enforce it to the extent necessary to protect the employer's legitimate interests?
The Ingram court cited by the Durapin court held that when a noncompete covenant contains unreasonable terms, a court may modify it and enforce it to the extent necessary to protect the employer's legitimate interests. However, there are three exceptions to this general rule. The court may not modify and enforce the covenant if: A. The modification would impose undue hardship on the employee (promisor); B. The modification would adversely affect the public interest; or C. There are circumstances indicating bad faith or deliberate overreaching on the part of the employer (promisee). These exceptions ensure that the noncompete agreement is not overly burdensome on the employee's ability to earn a living and that the public interest is not negatively impacted. The court will weigh these factors when deciding whether to modify and enforce an unreasonable covenant.
How does the Valley Medical Specialists v. Farber case differ from the Durapin case in terms of the approach to unreasonable terms and noncompete agreements?
The Valley Medical court was concerned that allowing courts to rewrite the unreasonable terms of the noncompete agreement may: Encourage employers to create ominous agreements, knowing that if the agreements are challenged the court will rewrite The Valley Medical court was concerned about allowing courts to rewrite unreasonable terms of a noncompete agreement. This is relevant to the topic at hand because it relates to the issue of remedies for unreasonable noncompete agreements. The court was wary of employers creating overly broad noncompete agreements, knowing that the court could simply rewrite them if they were challenged. This would potentially give employers an unfair advantage over employees. In contrast, the Durapin court was more open to the court rewriting unreasonable terms, as long as it was necessary to protect the employer's legitimate interests and did not unduly burden the employee's ability to earn a living. This difference in approach highlights the varying public policy concerns and priorities among different jurisdictions when it comes to noncompete agreements.
What did the court modify in the noncompete agreement in Vantage and why?
The court modified the geographic scope of the noncompete agreement in Vantage to exclude certain areas that were not reasonably related to the Company's business interests. This was necessary to make the noncompete agreement reasonable and not overly restrictive on the employee's ability to find new employment.
What is the first step in the choice-of-law analysis?
The first step is to determine whether there is an actual conflict between the laws of the two states.
What are the five Dahlberg factors the court balances in a choice-of-law analysis? (POSAA)
The five Dahlberg factors are predictability of result, maintenance of interstate and international order, simplification of the judicial task, advancement of the forum's governmental interest, and application of the better rule of law. Predictability of result: The court will consider which state's law provides a more predictable outcome and which law is more certain and consistent. Maintenance of interstate and international order: The court will consider which state's law will promote the best outcome for interstate and international relationships. Simplification of the judicial task: The court will consider which state's law will make the case easier to handle in court. Advancement of the forum's governmental interest: The court will consider which state's law will serve the public policy interests of the state in which the case is being heard. Application of the better rule of law: The court will consider which state's law is better suited to the particular issue in dispute. In the Medtronic case, the court applied these factors to determine which state's law should apply to the dispute. The court ultimately concluded that Minnesota law should apply because the agreement contained a valid choice-of-law provision and because Minnesota had a strong interest in enforcing contracts executed in the state."
What factors should be considered in determining the reasonableness of a time restraint in a restrictive covenant?
The reasonableness of a time restraint should be based on its relation to the employer's protectable interest, the possible injury to the employee by precluding him from pursuing his occupation as a means of support, and whether it will interfere with the interests of the general public by depriving it of the restricted party's services.
2a. analyzing scope of the precluded employment
The second factor is the scope of the precluded employment. Non-compete agreements are generally framed in terms of precluding the employee from working in a specific industry and/or a specific competitor. Sometimes this is accomplished by precluding the employee from contacting certain customers. Let's say that John is a sales representative for a company that sells computer software to various clients. His employer asks him to sign a non-compete agreement that prohibits him from working for any competitor within the computer software industry for a period of two years after he leaves his current job. The scope of the precluded employment in this case would be the computer software industry. This means that John would not be able to work for any company that competes with his current employer in the computer software industry. Additionally, the non-compete agreement may also include specific provisions that prohibit John from contacting certain clients or customers that he worked with while employed by his current employer. This would further limit the scope of his precluded employment to only those companies and clients that are in direct competition with his current employer in the computer software industry.
What is the test for determining whether the time restraint in a noncompete agreement is reasonable?
The test is "After what period of time will the customer cease to be influenced by the personal relationship the employee was able to establish while in the employ of his employer?" In Standard Register Co. v. Cleaver, the court determined that a two-year time limitation was reasonable based on factors such as: - the frequency of the employee's contacts with customers, - the personal relationships he had developed with them, and - his knowledge of their ordering processes. AKA for how long will the customers continue to be influenced by the employee's personal relationships and expertise even after leaving the employer in other words, ask questions that would help determine how long it will take an employer to replace the departing employee in the minds of prospective customers.
How many Approaches in dealing with an unreasonable term in a noncompete agreement AKA Remedies?
Three approaches in dealing with an unreasonable term in a noncompete agreement AKA remedies 1. Void Entire Agreement 2. Knock Out Unreasonable Term (Blue Pencil) 3. Rewrite Unreasonable Portions (also Blue Pencil) AKA Modifying the agreement to make the unreasonable terms reasonable in order to protect the promisee's legitimate business interests
What is necessary to make a noncompete agreement reasonable and not overly restrictive on the employee's ability to find new employment?
To make a noncompete agreement reasonable and not overly restrictive on the employee's ability to find new employment, the noncompete agreement must be narrowly tailored to protect the employer's legitimate business interests, without placing undue burdens on the employee's ability to earn a living.
T/F: Advancement of the public interest is not one of the factors the court must balance in its choice-of-law analysis?
True Advancement of the public interest is not one of the factors the court must balance in its choice-of-law analysis. The factors the court must balance are predictability of result, maintenance of interstate and international order, simplification of the judicial task, advancement of the forum's governmental interest, and application of the better rule of law.
True/False: the determination of the reasonableness of a non-compete agreement is a very fact-intensive process and it is almost always needed to be decided on a case-by-case basis .
True is a very fact-intensive process and it is almost always needed to be decided on a case-by-case basis because each employee and each employment situation, job duties and past job history are different. That's why litigation continues today on non-compete agreements.
True/False: As to consideration, do ALL courts find that if a non compete agreement is signed PRIOR to the commencement of employment, there is sufficient consideration.
True. ALL courts AGREE if the non-compete agreement is signed PRIOR to the commencement of employment, the employment itself provides the consideration for the contract. Where courts differ, is when an non compete agreement is signed after commencement of employment.
T/F: According to the Valley Medical opinion, noncompete agreements are prohibited between attorneys in all situations.
True. In addition, the AMA recognizes that free choice of doctors is the right of every patient, and free competition among physicians is a prerequisite of optimal care and ethical practice. For similar reasons, restrictive covenants are prohibited between attorneys AKA restrictive covenants between attorneys are prohibited because they may limit a client's ability to choose their preferred legal representation and hinder competition among attorneys, potentially leading to reduced quality of legal services and higher costs for clients.
T/F: the doctor-patient relationship a unique and special relationship that is entitled to more protection?
True. The AMA (American Medical Association) recognizes that a patient's free choice of doctors is an essential right, and competition among physicians is necessary for ethical practice and optimal care In Valley Med. Specialists v. Farber, the court recognized that the doctor-patient relationship is a unique and special relationship that is entitled to protection. This is because physicians have an ethical duty to provide the highest standard of care to their patients, and this duty can be compromised if a physician is restricted from practicing in certain areas. Furthermore, the court noted that covenants not to compete between physicians are subject to strict scrutiny because they can potentially limit patient access to medical care, which is a matter of public policy. As a result, noncompete agreements between physicians must be narrowly tailored to protect the employer's legitimate business interests without placing undue burdens on patient access to care. In this case, the court held that the noncompete agreement between Valley Medical Specialists and Dr. Farber was unenforceable because it was too broad and violated public policy. The court noted that the duration and geographic scope of the agreement were unreasonable and would have limited patient access to medical care in the area. This case illustrates the importance of balancing the employer's legitimate business interests with the public policy interests at stake when evaluating the reasonableness of noncompete agreements in the medical field.
Three key questions to ask for consideration, in terms of benefits & uniformity?
Was there valuable consideration given in exchange for signing the non-compete agreement? Benefits: Was the employee who signed the non-compete agreement provided with additional benefits or opportunities that were tied/linked to the agreement? Uniformity: Are the benefits provided to all employees, regardless of whether they signed the non-compete agreement, the same? AKA there must be some additional benefit, though it doesn't nec have to be direct/immediate
What is a choice-of-law question?
When a dispute involves parties from different states, a choice-of-law question arises, which means that the court must decide which state's law applies to the dispute
Let's say that John is a salesman for a printing company called PrintCo. John has been working with a client named ABC Corp for the past five years and has developed a strong relationship with them. However, John decides to leave PrintCo and joins a competing printing company called PrintTech. If there is a non-compete agreement between John and PrintCo, it may include a provision similar to Paragraph 9(a) in the Cleaver case, which restricts John from contacting any person or firm to which he sold any PrintCo product during the year preceding his termination. would it be reasonable to restrict John from contacting ABC Corp?
Yes. In this case, it would be reasonable to restrict John from contacting ABC Corp because he had developed a strong relationship with them while working for PrintCo. However, if the non-compete agreement also includes a provision similar to Paragraph 9(b), which restricts John from contacting any person or firm whom he "solicited, contacted, or otherwise dealt with" on behalf of PrintCo during the year preceding his termination, it may not be reasonable to restrict John from contacting ABC Corp because merely soliciting or contacting a customer does not establish the type of relationship that creates goodwill. In this case, it would be unreasonable to restrict John from contacting ABC Corp because he did not establish a relationship with them solely through soliciting or contacting them, but rather through years of building a strong relationship and providing quality service.
Do the Different approaches have different public policy implications?
Yes; Different approaches have different public policy implications and can have significant impacts on both employers and employees. For example, in Texas, the court will rewrite the agreement to protect the employer's interests. Whereas in Wisconsin, the courts void the entire noncompete agreement if a term is found to be unreasonable regarding time or geography, thus the employee in Wisconsin is not bound by any terms, even the reasonable ones. Prioritizes employees' interests to switch jobs.
What facts did the Davies court rely upon in finding that the noncompete agreement signed by Richard Davies was supported by consideration?
a. He continued employment for 10 years b. He advanced to a sales position within the agency which would not have been open to him without signing d. His brother John refused to sign and remained in a clerical position
In Davies, the court lists several reasons which other jurisdictions have pointed to in support of a requirement of additional consideration beyond continued employment. Among the factors noted by the court are: a. Significance of the position for which the employee is hired b. Lack of bargaining power for the employee c. The employee gets no more from his employer than he already has d. The employer may simply be seeking to impose barriers to alternative employment for the employee
b. Lack of bargaining power for the employee c. The employee gets no more from his employer than he already has d. The employer may simply be seeking to impose barriers to alternative employment for the employee Significance of the position for which the employee is hired is NOT a relevant factor
According to the Davies court, the adequacy of consideration for a noncompete agreement: a. Is determined based upon an objective standard b. Is determined by the employer and employee c. Is dependent upon the facts of each case
c. Is dependent upon the facts of each case
Non-compete agreements consist of what three primary components, that are used when a court finds that a term (or terms) in the non compete agreement is reasonable/unreasonable?
consideration, reasonableness of the terms, and the remedies
Much of the analysis and litigation surrounding non compete agreements focuses on the ____ of the terms of the non compete agreement.
reasonableness Because non-compete agreements are disfavored, the courts will carefully scrutinize the terms of the agreement to make sure that they go no further than is necessary to protect an employer's legitimate business interests.
in determining the reasonableness of a non-compete agreement's geographical limitation, what factors will the court consider?
the court will consider factors such as the nature of the employee's relationship with customers and the scope of the employer's business. The limitation must be narrowly tailored to protect the employer's legitimate business interests without imposing undue hardship on the employee. The court in Standard Register Co. v. Cleaver found that the limitation to customers with whom Cleaver had developed goodwill was reasonable because it was limited to those customers with whom he had the closest relationship. Essentially, the court was saying that it's okay to restrict an ex-employee from doing business with certain customers if those customers are the ones with whom the employee has developed relationships and goodwill during his or her time with the employer. This helps to protect the employer's interests without being overly broad or burdensome to the ex-employee. However, merely soliciting or contacting a customer does not establish the type of relationship that creates goodwill, and therefore, a restriction on contacting any person or firm whom the employee merely solicited or contacted may be deemed unreasonable.
What was the key factor in Freeman that led the court to find that the noncompete clause was not supported by consideration?
there was no distinction between those who signed the noncompete agreement (here, Freemen) and those who did not. In other words, all employees, whether they signed the agreement or not, received the same benefits. Since there was no additional benefit or consideration provided to those who signed the noncompete agreement, the court found that the noncompete clause was not supported by consideration AKA not fair for company to take advantage of employee like that. In Davies, the non- signing brother remained a clerk, while the signing brother received a promotion and training. On the other hand, in Freeman the non- signing doctors received the same benefits as the signer. Any increased referrals to the signing doctor could not be linked to the agreement because it was not generally known which doctors signed and which did not.
The Freeman court seems to assume that the doctor's income rose in the approximately 2-3 years between the signing of the noncompete agreement and the doctor's termination. Why was the increase insufficient to provide consideration?
three reasons: All physicians received an equal increase, regardless of whether or not they signed His increased bookings could not be linked to the signing of the contract since the general public was not aware of the noncompete The names of the signers and non-signers were not known amongst the doctors and therefore increased referrals could not be linked to the signing
