EMPLOYERS’ UNCLEAN HANDS

As stated before, I don’t like non-compete clauses because they unfairly prevent an individual from earning a livelihood. One defense which may work to defeat an employers’ attempt to enforce a non-compete clause is the illegality or unclean hands defense.

The doctrine of unclean hands states that he who comes into equity must come with clean hands and must not himself have been guilty of any inequitable or wrongful conduct with respect to the transaction or subject matter sued upon. If he is not guilty of inequitable conduct toward the defendant in that transaction, his hands are as clean as the court can require.

The illegality or unclean hands defense turns the focus of the dispute on the employers’ actions, not the employees. If your employer has directed you to engage in illegal conduct such actions may provide a defense to the enforcement of the non-compete clause. The illegal conduct might include discriminatory actions, copyright violations, fraudulent sales, fraudulent tax documentation, and participation in regulatory violations.

FARMERS’ MARKET DISPUTE OVER NON-COMPETE

Who knew the business of selling fruits and vegetables at a farmers market could be so political?

A public food fight of sorts has kicked up because of a "non-compete" clause being enforced by the Lexington (Kentucky) Farmers Market. One local farmer says the clause led market organizers to boot him after he made it clear that he wanted to sell his heirloom tomatoes at a rival market in south Lexington.

Read the Lexington Herald-Leader news story here.

EVEN IF NON-COMPETE IS UNENFORCEABLE – EMPLOYEE MAY NOT BE ENTITLED TO STOCK

As many know, consideration must be given by an employer to an employee to create a valid and enforceable non-compete contract. Often, the consideration is a bonus or increase in pay but sometimes the consideration is the transfer of stock in the company and this situation can lead to interesting problems

For example, what happens when an employer gives stock to an employee in exchange for a non-compete agreement but the non-compete is later held to be unenforceable? This very scenario occurred in Texas (Ray & Sons, Inc. v. Stroman, 923 S. W. 2d 80). An employer prepared a stock certificate in the employee’s name (transferring 10% of the company’s stock) but retained possession of the stock certificate. Approximately one year later, the employee left the employer and took a job with a competing company. The employer claimed the employee had violated the non-compete and was not entitled to receive the stock.

The employee sued the employer for the stock. At trial, the court ruled the non-compete was unenforceable due to the fact that it was unlimited in duration and extended to customers with whom the employee had no association. Surprisingly, the trial court also ruled that the employee was still entitled to receive the stock. The employer appealed the case and the appellate court also determined the non-compete provision to be unenforceable but reversed the trial court on the issue of the stock certificate.

The appellate court held that the promise of stock and the promise not to compete were “mutually dependent promises.” Meaning that but for the employee’s promise not to compete the employer would have never promised to give him stock.

Wonder what would have happened if the employee had possession of the stock certificate before the relations soured?

NON-COMPETES ARE EVERYWHERE!

It appears that almost all employers are putting non-competition clauses in their employment agreements. More and more employers are making employees sign non-compete agreements to keep them from taking critical information like customer lists or trade secrets to competitors.

Read about the legal battle between the Pioneer Press and Star Tribune in Minnesota. Pioneer Press has gone to court to try to block former its former publisher, Par Ridder, from running the Star Tribune.