Trump, Captain America, Deadpool and the Impact on Florida Non-Competition Agreements

*Co-authored by Charles LeCocq.

Competition is the name of the game this summer. The presidential hopefuls travel the country competing for votes. After knocking out Marco Rubio and Ted Cruz and more than a dozen other Republican Presidential hopefuls, Trump now competes against Hillary Clinton, while also competing for the votes of his former competitors. Hillary, meanwhile, battles Trump while still competing against Bernie. It is hardly a coincidence that our summer movie blockbusters in this heated election year feature themes of titan against titan. Batman fighting Superman. Iron-Man fighting Captain America. Of course, they ultimately compete for the hard-earned money and attention of the American people. Although audiences may want to see more of these dynamic crossover battles, well-crafted non-compete agreements can impact the ability of employees to leave their current position for a competitor’s new opportunity.

Employers can use non-compete agreements to retain uniquely valuable or skilled employees, or at least to keep them from using their talents at an employer’s direct competitor. If the agreement allows, the former employer can seek an injunction barring disallowed future employment, in addition to seeking damages. In a recent Florida case, a medical weight loss facility obtained an injunction when the trial court determined that a doctor breached his non-compete agreement. (See JDJ of Miami, Inc. v. Valdes, Fla. 11th Cir. Miami, 2016). In the contract, the doctor agreed that upon termination of his employment, he would not dispense prescription weight loss medicine or work at a competing weight loss clinic for an agreed period of time and within an agreed geographic area.  If a former employer can demonstrate to the trial court that the non-competition agreement is intended to protect a legitimate business interest, Florida courts typically enforce non-competition agreements. However, Florida law demands that an enforceable non-competition agreement contain reasonable geographic restrictions and expires after a reasonable period of time. In the doctor’s case, if he had wished to prescribe weight loss medication after his job ended, he should have waited 15 months or worked at a medical practice or facility located beyond the area of the agreed geographic restriction.

Starting in 2008, Marvel Studios began a system whereby studio-employed actors frequently reprise their characters in films loosely tied together within the same “universe.” Robert Downey, Jr., has reprised his role as Tony Stark/Iron-Man in at least seven feature films. Of those, only three were in the Iron-Man series. So what’s the concern with an actor playing the same character in multiple films? The concern is that Marvel has licensed several of its properties to other film studios. These studios employ actors to play those roles. Marvel recently acquired the right to use the famous web-slinger Spider-Man in the most recent Captain America film. Prior to this, Sony Pictures held exclusive film rights to the very popular crime-fighting arachnid. (Interestingly, Marvel only obtained the right to the Spider-Man character, not to the actor that currently portrays Spider-Man.)

So what happens when property and performer are intricately connected? Take the foul-mouthed, 4th-wall breaking Deadpool, the comic-book juggernaut that exceeded all box office expectations. Upon the colossal success of the Deadpool film, Marvel’s biggest stars and biggest fans now clamor for Deadpool to appear in a Marvel Studios film. Twentieth Century Fox owns the exclusive film rights. Unlike Spider-Man – a character that different actors have successfully portrayed – critics credit much of Deadpool’s success to actor Ryan Reynolds’ passionate performance. (Reynolds was a driving force behind the Deadpool project.) Without Reynolds, some industry analysts opine, future Deadpool films may not replicate the initial success.

Non-compete agreements and protection of signature art styles are more common in the entertainment industry than many people realize. While Pierce Brosnan was playing James Bond, he was contractually forbidden not to wear tuxedos in any non-Bond film. To see the translation of these agreements to real life, you can note that for a black-tie scene in The Thomas Crown Affair, Mr. Brosnan wore an unbuttoned dress shirt with an undone tie. Classy perhaps, but certainly unlike the always-dapper 007.

Donald Trump has proven that a Presidential hopeful need not have a resume reflective of a life in politics. Hillary Clinton has proven that perseverance can pay off. Bernie Sanders has proven that with a tailored platform, even a long-shot can make an impressive run. The competition for President of the United States continues. If competition drives your business, consider having in place well-drafted non-compete agreements to protect you from the inevitability of departing employees aiding the bottom line of your competitors. At Burr & Forman LLP we have attorneys across the Southeast capable of handling and advising on all of your non-compete and business issues. Now, about that wall…

**LeCocq is a 2016 Summer Associate in the Orlando office of Burr & Forman LLP. He is a law student at Florida State University College of Law.

Continued Employment is Enough for a Severance Agreement

Here’s one where the tables were turned. Former employees often argue that a non-compete agreement is unenforceable because there was inadequate “consideration.” Consideration is the exchange parties to a contract make, what one side gives to the other that makes the contract binding. Consideration can be in the form of a promise for a promise, money for services or goods or some other thing of value the parties exchange.

When a former employee says there was inadequate consideration, he is saying he did not receive anything of value in exchange for his agreement to not compete with his former employer. In Tennessee, the employee almost always loses that argument. In Tennessee, as in many other jurisdictions, the fact that the employer continued to employ the employee is sufficient consideration or value to the employee to enforce the non-compete agreement.

It turns out that continued employment can also be used against the employer. In a recent case, the Tennessee Ct. of Appeals held that the fact the employee continued to work for the employer was sufficient consideration, or value to employer, to enforce a severance agreement.

The employee Hensley v. Cocke Farmer’s Cooperative had worked for his employer for 28 years when, in 2010, when he signed a severance agreement. The severance agreement was effective until August 2024 and provided the employer agreed would pay the equivalent of the employee’s current salary and monthly health insurance premiums from the date of termination until August 2024. The only exception was if the employee was terminated as a result of death, merger, disability or “for cause,” which meant criminal acts related to the company or shareholders which led to a conviction.

Several months after the employee signed the severance agreement, the employer’s board terminated him “without cause.” Facing responsibility for several hundred thousand dollars in severance benefits, the employer refused to pay.

After finding that the severance agreement was clear, definite, unambiguous, and not difficult to understand, the court looked at whether there was adequate consideration supporting the agreement.

Up to this point, there had been no Tennessee case addressing what constitutes a sufficient exchange of value between an employer and employee to support a severance agreement. But, the court found that severance agreements were analogous to non-compete agreements, and Tennessee law is clear that continued employment is sufficient consideration to enforce the non-compete. The twist is that it is the employee’s agreement to continue working for the employer, not the employer’s agreement to continue employing the employee, that supports enforcing a severance agreement.

Because the employee in Hensley agreed to continue working for the employer, the employer was liable for $380,236.21 in accrued severance benefits and $6,125 per month for the employee’s health insurance premiums.

It is clear that the employer experienced buyer’s remorse, believing it had made a bad deal with the employee. However, as the court stated, “contract law in Tennessee plainly reflects the public policy allowing competent parties to strike their own bargains… Accordingly, the courts do not concern themselves with the wisdom and folly of a contract, and will not relieve a party of its contractual obligations simply because the contract later proves to be burdensome or unwise.”

While this rule does not always hold to be true, as there are many instances where Tennessee courts will modify or refuse enforce a contract, in this case, the court chose to enforce the severance agreement as written.

Attorneys who practice in the field of commercial contracts and employment related matters would have predicted this result. Sophisticated parties are presumed to be competent enough negotiate their own contracts. What’s interesting about this case is the continued-employment argument, which is usually used against the employee in a non-compete context, was used against the employer in the severance agreement context.

When Planning and Football Go Hand-in-Hand

As summer winds down and the temperatures cool, many parts of our economy and the business world tend to heat up.  The heat typically starts on the gridiron, where rabid fans of college football begin to analyze every important snap of every important play for their very important team.  The analysis continues for every snap of the rivals of their very important team (and perhaps some snaps of other conference foes or even – dare we suggest – the snaps of teams in other conferences).  My law firm opened its first office in Birmingham, Alabama more than 100 years ago and now has offices through the southeast.  Trust me on this: the heat starts on the gridiron.

College football aside, companies often want to conclude deals before the close of their fiscal year, or before the end of the calendar year.  Bank of America Merrill Lynch recently reported (amid questions of whether anticipated rising healthcare costs would impede growth) that “Economic optimism is the highest in five years, and global business abounds…”  Many companies assess their cash positions and take the opportunity whenever possible to purchase items at the close of the year in order to use the capital expenditure to reduce income taxes.  In the world of commercial litigation, summer schedules (and the inevitable summer vacations) give way to longer hours, increased numbers of evidentiary hearings and trials, and an array of settlement conferences and other forms of alternative dispute resolution intended to clear the slate of 2013 in preparation for the new business ahead.

Our clients typically take this opportunity to plan for the upcoming year.  Budgets are in the works.  Forecasts are made.  Among the forecasts is often the question: “Who will take over my business when current management decides to retire?”  And thus we segue into succession planning and the value of non-compete agreements to this discussion.

While a non-compete agreement is intended to ensure that a departing employee does not steal away to a competitor to the detriment of the former employer, it also provides an excellent opportunity to secure strong leadership in succession planning.  It goes without saying that an excellent employee who perceives little opportunity for future advancement is more likely to seek opportunities elsewhere than an employee who genuinely has an opportunity to advance within the company’s leadership.  When an employee’s contract limits the ability to compete within certain industries or within a certain geographic area for a defined period of time, the knowledge of that possible restraint can make the open door to advancement appear all-the-more attractive.

It is important, therefore, to regularly review your non-competition agreements.  Are there employees within your organization who are ready for more involved leadership positions?  Consider whether or not these employees are so vital to the business that their departure would immediately have a negative impact on the company’s bottom line.  Consider also whether the company would benefit from a planned, informed and intentional transition from current leadership to future leadership.  Although having a non-competition agreement in place is certainly no guarantee for a smooth transition from the existing regime to a company’s new leadership, the argument certainly exists that having a carefully drafted and impactful non-competition agreement in place can allow you to initiate important conversations without the fear that current employees will prematurely head for the doors.

Yes, the economy is heating up.  As is the football season.  If your company is also experiencing growth, consider this a good time to do some planning of your own.  If you believe it is important for your favorite football team to put together a game plan intended to defeat its weekend opponent, then you surely must also recognize the importance of planning for your own business.  This is the part of the blog where you are encouraged to seek a professional’s advice to discuss non-competition agreements and how they could impact and benefit your own business planning.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

Do Non-Competes Help or Hinder the Growth of Business?

With the increasing use of non-competes across the business spectrum, a debate is starting to rage in state legislatures and in business forums about whether the prevalence of such agreements helps or hinders economic growth.  The proponents say that the agreements are necessary to protect successful businesses from being harmed by unscrupulous employees and these agreements actually encourage employers to involve more employees in the inner workings and strategic decisions of a company (since, the argument goes, employers are more comfortable that key information won’t be used to compete against them).   Detractors, on the other hand, say that non-competes chill entrepreneurship.  An interesting four-minute version of the debate was recently aired on Fox Business.  Even the entrepreneurs concede, however, that trade secrets and confidential business information should always be protectable.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

Does Bird’s Eye View Render Executive Non-Compete Unenforceable?

So here’s a good one for employers to ponder.  Let’s say you have an executive subject to a valid and seemingly enforceable non-compete agreement.  Because the agreement concerns an executive, we would normally presume that a court is likely to strictly read the terms of a non-compete agreement and enforce it accordingly.  Well, the Second Circuit Court of Appeals recently affirmed a decision that an executive whose level of seniority limited his knowledge of the details rendered him not subject to the terms of his otherwise-valid non-compete agreement.

In the typical case, an employee with specific knowledge – let’s use the example of an engineer – enters into a non-compete agreement that states, for instance, that he will not work for a competitor within the same geographic area of his current job responsibilities for one year after his departure, regardless of the reason for his departure.  If the agreement is otherwise enforceable, a Florida court would typically view the above-described restriction as valid.  After all, the engineer has specific knowledge the details of which could, in theory at least, give a competitor an advantage over the former employer.

Taking this analysis one step further, however, led at least one court to determine that the senior executive was so far removed from the mundane specifics of the actual work product, he was actually no longer subject to the non-compete agreement he voluntarily executed.  Which brings us to IBM v. Visentin, 2011 WL 672025 (SDNY 2011), aff’d 437 Fed Appx 53 (2d Cir. 2011).  I’ll keep the facts short, although the somewhat unique nature of the facts obviously resulted in a seemingly unexpected opinion.  Visentin worked at IBM, very successfully, for over a quarter of a century.  So successfully, in fact, that at the time he departed IBM for competitor Hewlett Packard he was in charge of a multi-billion dollar business unit.  He had executed a non-compete with a one year work restriction that on its face appeared to encompass his prospective employment with Hewlett Packard.  The agreement Visentin executed included a relatively standard three-year look-back stating that the agreement only pertained to those areas of IBM’s business in which Visentin worked in the three years prior to his departure.

When Visentin left, IBM sued, seeking injunctive relief based on Visentin’s alleged violation of the non-compete described above.  The federal district court denied the motion for a preliminary injunction.  (In cases to enforce non-compete agreements, denial of the preliminary injunction usually ends the dispute… unless the former employer appeals.)  IBM appealed, only to have the 2nd Circuit Court of Appeal affirm the lower court’s ruling.

While the denial of the preliminary injunction motion in Visentin presents a unique situation due to Visentin’s high level executive position, the district court’s lengthy holding contains some valuable insight in the analysis of non-compete issues.  Among the points raised was that the high level of the former employee’s position allowed him a supervisory capacity (he was a manager of a business line with expertise in making operations “efficient”), and yet insulated him from the specific technological goings-on and to detailed data potentially protected as a trade secret.  So in essence, because he maintained a bird’s-eye view of operations, rather than a position with direct creative input or a position “on the line,” he was insulated from information that would negate his former employer’s presumed competitive advantage.

The district court opinion went even further, at one point discussing that among known competitors with significant resources, the open flow of intelligence in the marketplace rendered the probability of harmful disclosure somewhat remote (if even possible).  Also interesting was the emphasis that success on a motion for preliminary injunction was challenging in the absence of known instances of disclosures of detailed information that clearly violated the non-compete agreement, or detailed information that the employee’s new position would require improper disclosure.  Given the bird’s-eye view Visentin had over the IBM business unit, pointing out specific instances of wrongful disclosures proved difficult.

So where does that leave employers seeking to enforce these agreements?  Certainly in Florida, there a many instances in which the courts uphold these agreements.  What is important to keep in mind, however, is the necessity of providing either enough detail in your non-compete/non-disclosure agreement to make enforcement easier, or to allege with enough specificity the actual information or trade secrets the disclosure of which could cause actual harm.  The case discussed in this article also points out that despite possible factual similarities, each non-compete rests on its own merits and brings to the dispute its own facts.  It is the nature of the information the employer seeks to protect and the factual circumstances surrounding the former employee’s duties and experience that will form the foundation of any successful argument regarding enforcement.

This is the part where I counsel you to get counsel.  Better yet, make sure you get counsel familiar with these issues.

Author Peter C. Vilmos, Esq. works in the Orlando office of Burr & Forman LLP, 407-540-6600.  Contact Peter or any attorney in Burr & Forman’s Non-Compete and Trade Secrets group for more information or for further inquiries.

Tennessee’s “Rule of Reasonableness” Allows Courts to Modify Non-Compete Agreements

On August 22, 2012, we reported on the Veit v. Event Logistics, Inc., a case pending in the Davidson County Chancery Court, Docket No. 12-945, in which an employee challenged her employer’s non-compete agreement.  The agreement prohibited the employee for a period of two years from (1) engaging in activities competing with the employer within a 50 mile radius of employer’s office in Nashville; (2) soliciting the employer’s customers with whom the employee had contact while employed by the employer; and (3) soliciting any of employer’s employees to terminate his/her employment.

At the temporary injunction stage of the litigation, the Court did not completely enforce or reject the non-compete agreement.  Rather, the Court modified the agreement to allow the employee to engage in certain activities so she could make a living while offering some level of protection for the employer.  In particular, the Court allowed the employee to engage in the same activities she did with the employer (with a monetary cap), but prohibited her from engaging in those activities with the employer’s clients.

The Court’s modification of the non-compete agreement in Veit is a good example of the “Rule of Reasonableness” Tennessee courts apply to non-compete agreements.  Generally, there are four approaches courts around the country will take in enforcing or rejecting a non-compete agreement.

  1. The court will not enforce the non-compete agreement because non-compete agreements are void as a matter of law.
  2. The court will enforce the non-compete agreement as written.
  3. The court will “blue-pencil” the non-compete.  This means the court will only strike offending provisions from the non-compete agreement, but will not add new provisions or otherwise modify the non-compete agreement.  If the “blue-pencil” approach leaves the non-compete agreement incomprehensible or cannot eliminate the offending provision, the court will reject the agreement all together.
  4. The court will equitably reform the non-compete agreement which can result in rewriting the agreement.  This approach balances between the goals of encouraging a free market place and preventing unfair competition.

Recognizing that the “all or nothing” approach of either enforcing or rejecting a non-compete agreement in its entirety and the “blue-pencil” approach led to undesirable results, Tennessee courts adopted the Rule of Reasonableness (“ROR”).  Under the ROR, Tennessee courts may rewrite the non-compete agreement to balance between the employer and employee’s competing interests.  The ROR is consistent with and is an extension of the rule that the terms of the non-compete agreement, including time and geographical limitations, must be reasonable.  The restrictions of the non-compete agreement must be no greater than necessary to protect the employer’s legitimate business interest.  (For a further discussion on the “reasonableness” requirements, see our May 9, 2012 blog post.)

Applying the ROR, the Court in Veit modified the non-compete agreement to allow the employee to make a living while protecting them employer’s interest in its customer base.  Though Tennessee Courts have the power to modify non-compete agreements, employers should carefully draft their agreements to avoid costly and uncertain litigation.  Though the ROR seeks to strike a balance between the employer and employee’s competing interests, a modified non-compete agreement could result in significant harm to the employer.

If you would like additional information on trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

Alabama Supreme Court Reverses Overly-Broad Injunction Prohibiting Competition Among Defense Contractors

Earlier this year, the Alabama Supreme Court reversed a preliminary injunction entered by the trial court in a case involving competing defense contractors at the Redstone Arsenal in Huntsville. See Monte Sano Research Corp. v. Kratos Defense & Securities Solutions, Inc., — So. 3d —, 2012 WL 1890693 (Ala. May 25, 2012).  The underlying litigation remains on-going, but the Alabama Supreme Court’s ruling can provide insight for those involved in non-compete litigation in Alabama courts or in non-compete disputes involving government contracts.

By way of background to Monte Sano, the U.S. government awards certain defense contracts (in this case, “Army Aviation and Missile Command Express” contracts) via multi-year “blanket purchase agreements” awarded to “prime contractors” in four different “domains”:  (i) logistics, (ii) programmatic, (iii) technical, and (iv) business and analytical.  In 2005, the Army awarded one such blanket purchase agreement in the technical domain to Computer Science Corporation (“CSC”), who thus became a prime contractor for certain work to be performed at the Redstone Arsenal.  One of the plaintiffs in Monte Sano, Kratos Defense & Securities Solutions, Inc. (“Kratos”), via a predecessor corporation, was part of CSC’s team (i.e., a potential sub-contractor) in obtaining this blanket purchase agreement for the technical domain.  However, simply being a member of the team does not guarantee that individual tasks will be awarded to a particular sub-contractor; additional bidding is involved at the task level.

In Monte Sano, two of the defendants, Steven Thornton and Steven Teague, previously worked for Plaintiff Kratos.  Thornton and Teague both left employment with Kratos in 2011 to work for defendant Monte Sano Research Corp. (“MSRC”).  MSRC was formed in 2009 and was allegedly partially owned by Teague (but not Thornton) at the time of its formation.  Prior to the departure of Thornton and Teague, CSC had entered into various sub-contracts with both Kratos and MSRC to perform work for a “task” under its “blanket purchase agreement” for the “technical” domain at the Redstone Arsenal.   Upon the departure of Thornton and Teague, Kratos immediately filed suit against MSRC, Thornton, and Teague, and obtained from the trial court a preliminary injunction prohibiting MSRC, Thornton, and Teague from procuring work from any “prime contractor” at the Redstone Arsenal.

Notably, although Thornton and Teague had previously entered into non-competition agreements with Kratos, these agreements were of limited duration and expired at the end of 2010.  As such, there were no explicit non-competition agreements in force when Thornton and Teague left Kratos’s employment.  There were, however, more generalized provisions in Kratos’s employee handbook regarding the duty to maintain confidential information and not to solicit Kratos’s employees or otherwise encourage employees to leave Kratos’s employment.  The handbook provisions regarding the duty to maintain confidential information had no time limit, and the duty not to encourage other Kratos employees to leave purported to last one-year beyond the end of employment.  Moreover, in Monte Sano, Kratos alleged that Teague had arranged lunches in which Kratos employees were informed of new opportunities with MSRC.  In bringing claims against Thornton and Teague, Kratos alleged that they had (i) breached their duties of loyalty and their fiduciary duties; (ii) tortiously interfered with Kratos’s contractual relations with the “prime contractor” CSC; and (iii) breached their contractual obligations as set out in Kratos’s employee handbook and elsewhere.  Kratos also brought tortious interference claims against MSRC.

The Alabama Supreme Court, however, reversed the preliminary injunction, noting that the injunction was overly broad because it prohibited MSRC from performing work for any prime contractor at the Redstone Arsenal, in any domain, and not just the technical domain implicated by Kratos’s contract with CSC.  (The evidence in this case showed that MSRC had also been negotiating with prime contractors, other than CSC, in other domains.)  The Alabama Supreme Court also noted that the trial court’s injunction order did not comply with Rule 65(d)(2) of the Alabama Rules of Civil Procedure because it did not provide specific reasons for its decision and did not address why Kratos did not have an adequate remedy at law.  In a concurring opinion, Justice Murdock noted that, because the preliminary injunction would have prevented MSRC from performing its sub-contract with CSC, CSC should also have been named as a party to the litigation.

As to “take aways” from the Monte Sano decision, the Alabama Supreme Court’s holding demonstrates the importance of having written non-competition agreements, such that employers faced with departing employees are not forced to rely on more generalized duties of loyalty and more generalized handbook provisions.  Monte Sano also emphasizes the risks of bringing “tortious interference” claims against a competitor who hires away employees when such claims are not supported by non-competition agreements with specific employees.

This said, the fact that the Monte Sano litigation made it as far it did (and is still on-going) shows that employers without explicit non-competition agreements are not without hope.  Had the preliminary injunction in Monte Sano been limited to the technical domain work covered by Kratos’s contracts with CSC, the Alabama Supreme Court’s decision might have been different, even in the absence of a non-competition agreement.  Thus, perhaps the biggest take away from Monte Sano is that it helps to be specific (and not over-reach), whether in drafting a non-competition agreement at the outset of employment or in seeking relief from a court after a competitor has hired away a key employee. For more clarification on the topic of non-compete agreements and clauses, please contact one of the Burr & Forman team members for assistance.

The Inevitable Disclosure Doctrine — A Glimmer of Hope in the Absence of a Non-Compete Agreement

In the hilarious movie Dumb and Dumber, the imbecilic and unattractive character played by Jim Carrey is told by the beautiful woman he is pursuing that the chances of them winding up together are about one in a million, to which he excitedly replies, “So you’re telling me there’s a chance!” Similarly, if an employer wants to enjoin a former employee from working for a competitor, but the employee is not under any sort of non-compete agreement with the former employer, has taken no company records and property, and has not revealed any confidential information or trade secrets to the new employer, the inevitable disclosure doctrine of trade secrets law provides the employer with at least a “chance” of getting the desired injunction.

The inevitable disclosure doctrine is used by employers to stop former employees from working for competitors, even in the absence of a non-compete agreement, on the basis that it is inevitable that the employee will use or disclose the former employer’s trade secrets in connection with the new employment. The significance of this theory is that the employer is not required to prove an actual misappropriation of a trade secret, but rather that the disclosure of the trade secret is inevitable based on the nature of the information and the circumstances of the employee’s new position.

As with all trade secret issues, the law on inevitable disclosure varies somewhat from state to state. For instance, California courts have rejected the doctrine as creating a “de facto covenant not to compete”, Bayer Corp. v. Roche Molecular Sys., Inc., 72 F. Supp. 2d 1111, 1120 (N.D. Cal. 1999), and held that the doctrine “cannot be used as a substitute for proving actual or threatened misappropriation of trade secrets.”  Whyte v. Schlage Lock Co., 125 Cal. Rptr. 2d 277, 294 (4th Dist. 2002). The Third Circuit Federal Court of Appeals, however, applied a relatively lenient standard under Pennsylvania law for successfully using the theory, holding that an employer need only show a “substantial likelihood” of disclosure of a trade secret. Bimbo Bakeries USA, Inc. v. Botticella, 613 F.3d 102,110 (3d Cir. 2010). (For an excellent nationwide survey of the doctrine, see Ryan A. Wiesner, A State-by-State Analysis of Inevitable Disclosure: A Need for Uniformity and a Workable Standard, 16 Intellectual Property L. Rev. 211 (2012)).

The Georgia Supreme Court has recognized the inevitable disclosure doctrine, although not referring to it by name, in the case of Essex Group, Inc. v. Southwire Corp., 269 Ga. 553, 501 S.E. 2d 501 (1998). In that opinion, the court upheld the trial court’s injunction prohibiting Southwire’s former employee from working for Southwire’s direct competitor’s logistics department for a period of five years. As the basis for its ruling, the court concluded that the competitor had “sought to obtain, by the simple act of hiring [Southwire’s former employee], all the logistics information it had taken Southwire millions of dollars and years of testing and modifications to develop as part of Southwire’s plan to acquire a competitive edge over other cable and wire companies ….” Id. at 557. There was neither mention in the opinion of the employee having a non-compete agreement nor any mention of an actual misappropriation by the employee of the alleged trade secret. Instead, the implication of the decision was that disclosure of Southwire’s logistics system was inevitable because of the identity of Southwire and its competitor’s business.

BURR POINT: Even in the absence of an enforceable non-compete agreement, the inevitable disclosure doctrine provides a means for enjoining a former employee’s competitive activities in certain circumstances. For more information on the inevitable disclosure doctrine or how it might apply to your business, don’t hesitate to contact one of the Burr & Forman team members.

Court Says It’s Time to Pay The Piper, Even if the Piper Hasn’t Paid: Fee Provisions and Third Party Payments

Employers who have the foresight to draft a non-compete agreement often fail to consider some of the potentially adverse financial ramifications from enforcing the non-compete agreement through litigation. Most employers seeking to enforce a non-compete agreement unhappily discover that they may be on the hook to pay the attorney’s fees a subsequent employer funds in defense costs.  Yet that is exactly what could happen if the employer doesn’t correctly draft the fee provision in the non-compete agreement.

Substance of the matter aside, one of the key questions after non-compete litigation is a simple one:  who pays the often high attorney’s fees and costs?  Recent developments in Florida law highlight how important it is to properly draft attorney’s fee provisions in non-compete agreements.  In Rogers v. Vulcan Manufacturing Co., Inc., 37 Fla. L. Weekly D1309a (Fla. 1st DCA June 1, 2012), the Florida First District Court of Appeals found the language of the non-compete agreement at issue entitled an employee to attorney’s fees even though its subsequent employer, a third-party, wholly funded the non-compete litigation.  The non-compete agreement language at issue read: “In any action to enforce any term, condition, or provision of this agreement, the prevailing party shall be entitled to recover the reasonable attorney’s fee incurred to enforce the same.” (Emphasis added).  The court found this language demonstrated that the parties intended for the loser to pay attorney’s fees regardless of the source of the funds – even if the source was a subsequent employer.

The court noted that if the parties had intended to limit fee reimbursement to situations in which the prevailing party personally paid the attorney’s fees and costs ─ or incurred an obligation to pay the attorney’s fees and costs ─ then prevailing party language within the non-compete agreement should have clearly said so. In Rogers, the court gave the employee the benefit of the prevailing party fees despite the fact that the new employer, and not the former employee, actually paid the attorney’s fees and costs in response to the former employer’s lawsuit.  The Rogers court reasoned that the non-compete agreement entitled the former employee to reimbursement of attorney’s fees and costs because the clause provides that “the prevailing party shall be entitled to recover the reasonable attorney’s fee incurred to enforce” the agreement, rather than saying that the prevailing party is entitled to the attorney’s fees “it/he/she” incurred.  Thus, the court interpreted the provision as intending for the loser to pay the winner’s reasonable attorney’s fee, regardless of the source of the funds.

The Rogers court further noted that a non-assignability clause will not affect the obligation of attorney’s fees under the agreement. The court found it irrelevant whether the former employee was ultimately responsible to reimburse his new employer for advancing attorney’s fees on the employee’s behalf.  Because the former employee did not actually assign his rights or benefits under the non-compete agreement, the court found that no violation of the non-assignability occurred, despite the fact that the burden of paying attorney’s fees and costs rested solely on the new employer.

Losing valuable employees to competitors poses substantial business risks.  Carefully drafted non-compete agreements can help minimize these risks.  Among the risks are future litigation costs and the possibility that fee-shifting provisions can increase litigation expense, and thus add even more risk.  The Rogers case clearly illustrates the importance of properly wording non-compete agreements.  If minimizing financial exposure from an unsuccessful attempt to enforce a non-compete agreement is important to your business, then you should consider revising your agreement to limit the risk of paying attorney’s fees that subsequent employers advance or fund outright. Our team at Burr & Forman would be happy to aid you in such matters. Please contact any of the Burr & Forman Non-Compete & Trade Secrets team members for assistance.

“Full Time and Attention” Provisions Provide an Additional Weapon in Non-Compete Cases

An employer seeking to stop or slow down a former employee who is unfairly competing with business needs to examine every possible legal claim as options to use against the employee. In many cases, the employee spent time laying the groundwork for new employment or business ventures while still employed by the previous employer. These situations present another legal opportunity to employers, in addition to the usual considerations of non-compete, non-solicitation and trade secret violation claims. The employer and its attorney should consider a claim against the former employee based on a common provision in employment contracts: the requirement that the employee devote his “full time and attention” (or similar language) to the employment.

There’s not a lot of case law interpreting these provisions, but the cases that do show that this boilerplate language can potentially provide another arrow in the employer’s quiver. In example:

BURR POINTWhile non-compete claims focus on what an employee did after they left their employment, the employee’s activities prior to their departure could lead to a claim for breaching a contractual duty to devote their “full time and attention” to the former employer’s business.