What Happens When You Hire an Employee With a Noncompetition Agreement?
It can get very ugly, particularly if you do everything wrong. Littler Mendelson cites a recent case in which employees of a retail establishment had a noncompetition agreement with its employer that precluded the employees from working with a competitor within one mile from the store for three years. Additional consideration was provided in exchange for employees entering into the noncompetition agreement. The defendant's general counsel indicated that the restriction was unenforceable and gave the OK to hire the two employees. In addition, the defendant further agreed to indemnify the employees in the event of litigation on the issue.
Seems that it got very interesting at that point. The employees took information, labeled as confidential, from the employer when they left and, curiously, the new employer apparently knew about it and looked away.
After a multitude of claims by the new employer against the old employer, the court found that the restrictive covenant was reasonable and enforceable, the employees were enjoined from working at the new employer. Among some other interesting holdings, the court awarded $548,611 in compensatory damages that was trebled under Virginia law to $1,654,833.
Here are some of Littler's suggestions about how to avoid this kind of disaster:
- Solicit and hire skills and abilities but not client information and relationships.
- Get advice from independent counsel - here the defendant had no attorney client relationships with the employees before they joined the company. Smart, eh?
- Set up entry barriers to competitor's trade secrets. Or, in other words, educate employees that it is not appropriate to steal prior employer information and bring it with you!
- Avoid up front indemnity agreements.
I had some other suggestions, but I'll not include them here. They're not very nice. Suffice to say that this deserves a medal for stupidity. For the article, go here.