New Hampshire Enacts Non-Compete and Non-Piracy Legislation Effective July 14, 2012

August 1, 2012 by

New Hampshire has joined the ranks of numerous other states with non-compete statutes. On July 14, 2012, New Hampshire’s non-compete and non-piracy law became effective and aims to ensure that advance notice will be provided to employees who will be required to sign a non-compete or non-piracy agreement as a condition of their employment or change in job position:

Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any non-compete or non-piracy agreement that is part of an employment agreement to the employee or potential employee.  Any contract that is not in compliance with this section shall be void and unenforceable.

Under the new law, an employer is prohibited from sandbagging a new employee by presenting him/her with a non-compete or non-piracy agreement on his/her first day of work after he/she has already accepted the offer, particularly in situations where the employee has quit a job to begin work with the new employer only to learn of the “surprise” agreement at that time.  Now, not only must the employee be informed that a non-compete or non-piracy agreement will be a term of his/her employment should he/she accept an offer, but also the employee must be provided with a copy of the actual agreement itself.  The employee then has an opportunity to review and consider the agreement and the impact thereof, and decide whether to accept the offer and the agreement and if employed, quit his/her current job.  This same analysis applies in the case of an employee who is offered an internal job change (e.g., lateral move, promotion, etc.) which will require him/her to sign a non-compete or non-piracy agreement.

New Hampshire courts will continue to handle “traditional” disputes as to the reasonableness of the geographic scope and duration of non-compete agreements and whether the employer has a legitimate protectable interest.  But, after July 14, those same courts will undoubtedly be asked to decide and handle a variety of debacles arising as a result of the new law and the questions it leaves unanswered, such as whether non-solicitation, non-recruitment, and/or nondisclosure agreements constitute “non-piracy” agreements.  That said, as the penalty for noncompliance with the new law is steep – i.e., invalidation of the entire agreement – employers would be wise to act conservatively and avoid any missteps by ensuring reasonable advance notice is provided, written acknowledgment of the notice is given by the employee, and non-solicitation, non-recruitment, and non-disclosure agreements are treated as non-piracy agreements subject to the new law.

 

Filed Under: New Hampshire, Non-Compete Agreements, Non-Solicitation Agreement Tagged With: , , , , , , , , ,

Weeding through the Legal Uncertainty of Garden Leave

July 11, 2012 by

Employers seeking to limit employees from taking customers with them to new jobs should consider including “garden leave” provisions in their form employment agreements, in addition to or in place of the more traditional non-compete and non-solicitation covenants. A garden leave clause requires an employee to provide a certain period of notice to the employer before voluntarily terminating employment (usually 30-60 days) and restricts the employee from competing against his or her employer during the notice period.  During the notice period, the employee is paid full salary and benefits and is usually directed not to report to work during the notice period. Thus, the  “garden leave” term comes from the notion that, at least metaphorically, the employee will stay at home and tend to his garden during the restricted period, while the employer secures relationships with its customers before the employee goes to work for a competitor.

The potential benefit to garden leave clauses is that they are viewed more favorably by Courts from an enforcement standpoint because the employee is still being paid during the restricted period. Because the concept is relatively new in the United States (as opposed to its common use in the United Kingdom), there is not a lot of case law guidance about their enforceability.   As with non-competes, the law controlling these provisions is very jurisdiction-specific.  For example, garden leave provisions have been regularly enforced in New York. See Estee Lauder Co. v. Batra, 430 F. Supp. 2d 158, 182 (S.D.N.Y. 2006) (granting preliminary injunction of five months against employee in charge of developing strategies for certain brands of employer’s skin care products and finding that risk of employee’s “loss of livelihood is entirely mitigated by the fact that [employer] will continue to pay [his] salary of $375,000 per year for the duration of the ‘sitting out’ period”); Ayco Co., L.P. v. Frisch, 795 F. Supp. 2d 193, 197 (N.D.N.Y 2011) (granting preliminary injunction against employee financial advisors and finding that agreement by employees to “give [employer] ninety days notice of termination, during which time they would remain . . . employees and continue to receive their base salary or salary draw, but would no longer participate in [employer’s] compensation plan” was enforceable).

The law in the Southeast is significantly less developed.  The last word in Georgia, for instance, came in Carvalho v. Credit Suisse Securities (USA) LLC, 2007 U.S. Dist. LEXIS 80651 (N.D. Ga. October 31, 2007).  Carvalho indicates that courts applying Georgia law may view garden leave provisions less favorably than those applying New York law.  In Carvalho, the Northern District of Georgia considered the enforceability of a garden leave provision, which provided that the employees were entitled to their base salary and benefits during an unspecified notice period.  The court denied a temporary restraining order and preliminary injunction, reasoning that “[t]he income of these employees is substantially higher than their base salary [and] the employer has the ability to significantly reduce their income and prohibit them from working for another employer of any kind during the notice period.”  The Court also expressed doubt as to whether the covenant was enforceable in light of Georgia’s at will employment standard codified at O.C.G.A. § 34-7-1, reasoning that “because the employee may resign at any time, the Court questions whether he can be ordered to continue in his employment, especially under less favorable terms of employment.”

BURR POINT: Employers should consider adding garden leave provisions in addition to or in place of non-compete provisions in employment contracts.

If you would like to add a garden leave provision to your employee agreements, the Burr & Forman team would be happy to assist you. Please contact us at any time.

Filed Under: Georgia, Non-Compete Agreements, Non-Solicitation Agreement Tagged With: , , , , , , , , , , , ,

Specific Limitation on Soliciting Class of Persons May Substitute for Territorial Limitation

May 9, 2012 by

Though disfavored in Tennessee, non-compete agreements can be enforced if an employer has a legitimate business interest to be protected and the time and geographical limitations are reasonable.

Non-compete agreements are not analyzed in the abstract, but in the context of the specific circumstances under which they are to be enforced. The question is whether the employer has a legitimate business interest to be protected by the non-compete agreement. Tennessee courts hold that there is no “legitimate interest in protection from competition, only from unfair competition.”  An employer must show special circumstances over and above ordinary competition creating an unfair advantage for the former employee without the non-compete agreement.

Hence, only if a court first finds the non-compete agreement protects the employer from unfair competition by a former employee, will it determine whether the non-compete agreement is reasonable. The time and geographic limitations of the non-compete agreement must not be greater than necessary to protect the employer’s interest against unfair competition.

A non-compete agreement may lack a geographic limit which, in some cases, is fatal to the agreement.

However, Tennessee courts have held a requirement prohibiting former employees from soliciting the employer’s customers and this can substitute for a geographic limitation.

In the most recent case examining this issue, the non-compete agreement lacked a geographic limitation, but prohibited the former employee from soliciting the same type of business for one year from any of the employer’s current customers, customers with whom the employee did business on behalf of the employer, and prospective customers with respect to whom the employee acquired confidential information from the employer. The employee argued that the agreement’s lack of any geographic limitation rendered it unenforceable.

The court held because the non-compete agreement prohibited the former employee from soliciting the same business from the employer’s customers, the agreement was enforceable even without a geographic limitation. The court reasoned that as the specificity of the class of persons with whom contact is prohibited increases, the need for a geographic limitation decreases. Additionally, the restriction on who the former employee may contact, rather than where the former employee may work, gives the former employee greater freedom to practice her profession in the same area as her former employer.

A non-compete agreement which omits a geographic limitation, but prohibits soliciting the same business from the employer’s customers, satisfies the threshold requirement of protecting the employer’s legitimate interest against unfair competition without imposing an undue restraint on trade. The risk, however, of not having a geographic limitation is that the former employee may directly compete for the employer’s potential customers which fall outside of the parameters of the agreement.

In some instances, the former employee could use specialized training received from the employer to compete for those potential customers. Therefore, careful consideration should be given when substituting a restriction against solicitation for a geographic limitation.

For more information on non-compete agreements and their state requirements contact Burr Forman for more insights on the enforceability of non-compete clauses.

Filed Under: Non-Solicitation Agreement Tagged With: , , , ,

Welcome to Burr & Forman’s Non-Compete and Trade Secrets Law Blog!

April 11, 2012 by

Welcome to Burr & Forman’s Non-Compete and Trade Secret Law Blog!

In an increasingly competitive and mobile workplace, non-compete agreements and trade secret laws have become necessary tools for employers to protect their valuable customer relationships and confidential information and to avoid unfair competition from former employees and competitors. Continual changes in non-compete and trade secrets law, as well as technological advances providing increasing avenues for unfair competition, make it imperative that businesses in all fields stay abreast of the latest developments in this area.

For these reasons, the attorneys of Burr & Forman’s Non-Compete and Trade Secrets Group have launched this blog to help employers, executives and attorneys keep up with news, statutory changes, legal opinions and practical tips involving all areas of unfair competition law:  non-competes, trade secrets, customer non-solicitation, non-recruitment, non-disclosure, confidentiality agreements, tortious interference with business relations, employee piracy, computer theft, breach of fiduciary duties, employee loyalty, and intellectual property rights.

Because the law relating to most of these areas is state-specific, we will focus on developments in Burr & Forman’s Southeastern focus of Georgia, Alabama, Tennessee, Mississippi and Florida. However, we will also cover any particularly impactful or interesting events in other parts of the country relating to unfair competition. If you need help in a state outside of Georgia, Alabama, Tennessee, Mississippi or Florida, let us know. We’ve aligned our firm with trusted practices across the country and around the world and we will get your questions answered at the right law firm.

We hope that our clients, as well as other employers, executives and their attorneys, will find this blog informative and entertaining and will make it a regular part of their business reading. If you ever have a question about something on the blog or have an unfair competition issue, feel free to contact any of the Burr & Forman’s Non-Compete & Trade Secrets team members and we will be happy to assist you.

Thanks for reading!

Filed Under: Florida, Georgia, Non-Compete Agreements, Non-Solicitation Agreement, Tennessee, Trade Secrets Tagged With: , , , , , , , , , , , , , , , , ,
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