CLOTHES RETAILER AWARDED $1.5 MILLION FOR BREACH OF NON-COMPETE

You could call it a plus-sized legal victory for Casual Male, the leading retailer for big and tall men. A Massachusetts court awarded the clothier $1.5 million in damages stemming from a non-compete clause it had with a former employee.

Casual Male alleged that Robert Yarborough, an employee of its Rochester Big & Tall store had been maintaining its call center and Internet service operations through his company RKC Mail. It was charged that he helped another retailer for big and tall men to establish an Internet and catalog business in violation of his non-compete employment contract. Read the story from The Motley Fool.

Casual Male has been the premier men's retailer in the big-and-tall category, outpacing Men's Wearhouse and Jos. A. Bank, and obviously intends to stay that way. A similar lawsuit, brought by Saxs Fifth Avenue, Inc., in Virginia made its way all the way to the Virginia Supreme Court. Read how the Virginia Supreme Court handled this non-compete dispute involving a dispute between men’s clothing retailers here.

PIGS GET FAT … BUT HOGS GET SLAUGHTERED!

This good advice is given by Susan McGreevy, an attorney in Kansas City, Missouri in an article appearing in Contractormag.org, the news magazine for mechanical contracting. McGreevy tells her readers, presumably mechanical contracting companies, to use reasonable restrictions on its employees or run the risk that a judge may decide not to enforce the agreement.

Read Ms. McGreevy’s article.

VIRGINIA LITIGATION OVER NON-COMPETE

We have heard from our friends in the Beach / Tidewater area of Virginia, about an on-going legal action regarding non-compete agreement that was allegedly breached.

Read all about it here & here. So what is going on?

Mike Schwartz of Inside Business reported June 18th, that the "dispute between Resource and Monarch banks over the exodus of more than 70 employees."

"Resource Bank filed a lawsuit June 11 against 14 of its former employees and their new employer, Monarch Bank, claiming that two top former executives of Resource Mortgage planned the mass resignations of the employees. Ted Grell, president and CEO of Virginia Beach-based Resource, said a group of about 70 employees carried out “an orchestrated wholesale defection of almost the entire staff,” including all but two of the company’s loan officers from the Chesapeake and Virginia Beach offices. Court documents claim the employees removed hundreds of customer and mortgage files and that all of it took place in a matter of days. William “Tree” Rountree, CEO of the Chesapeake-based, $400 million Monarch, said at all times the bank has acted “properly and above board with respect to our new hires.” Robert McFarland, a McGuire Woods attorney in Norfolk representing Monarch, said the 14 new hires and ex-Resource employees acted loyally, merely following their former leaders to a new, smaller company. And now, Rountree said, they are being retaliated against by the larger Resource and its multi-billion dollar parent company, Pennsylvania-based Fulton Financial. “This is a classic case of David versus Goliath, with $15 billion Fulton Financial coming after a small local community bank without any justification,” Rountree said.

So what has happened in 10 days?

An "emotional" injunction hearing in Virginia Beach Circuit Court late on June 15 was reported on by Mr. Schwartz, who attended. Counsel for the plaintiff company played a video tape, stating “Under the cover of darkness,” "these employees came in and removed what Resource believes were documents that could cause the company harm. Only a day later they all resigned.”

..."Then came the testimony of Crystal Breeden, an accounts coordinator from Resource. With the first question she was asked, before she even began to answer, her eyes filled with tears and her voice was choked with emotion. “I was asked by my manager, Clayton Hicks, if I could stay late and asked if I would copy some documents,” Breeden said. Hicks, a defendant, is a former Resource employee and is now employed at Monarch. But it kept coming back to showing the irreparable harm. “If you don’t get to something that has to do with irreparable harm pretty soon, I’m going to end this hearing,” the judge said. Kevin Martingayle, an attorney with Stallings & Bischoff, put the nail in the coffin as far as Resource’s injunction was concerned when he cross examined Shelly Armitrout, a compliance officer at Resource. “You don’t know if any ongoing harm is occurring to Resource do you?” Martingayle asked Armitrout. Her answer was no. In a last minute attempt to prove irreparable harm, Grell was called back to the stand. Grell said he personally viewed the contents of the 10 boxes that were returned to Resource from Monarch and some did contain customers’ personal information. “When word gets out on the street that we let all these files get out,” Grell said, “that’s irreparable harm to our reputation.”

"After nearly two and half hours, Shadrick had heard enough. He said he understood the importance of the cases for all involved. He said he recognized what a difficult position Resource was in after losing so many employees and fiduciary responsibilities Resource has regarding its customers information. “Evidence here today indicates some files were taken and returned,” Shadrick said. “I understand the reason for Resource asking for an injunction.” Resource lost its request for the injunction but did persuade the judge to order any previous employees who have in their possession any property belonging to Resource Bank to return that property as it could be argued as grand larceny or embezzlement.

“Return it immediately or face the repercussions,” Shadrick ordered.

CASE REPORT: COMPANY SUES CONTRACTOR FOR VIOLATION OF NON-COMPETE

This report comes to us from Texas…but could easily be from Virginia. A former trucker for a delivery company (KDSI) left the company to start his own delivery business. To stop the employee from stealing clients, KDSI filed a request for a temporary restraining order with the local court.

According to KDSI’s petition, the employee signed a Non-Disclosure and Non-Competition Agreement with KDSI prohibiting him from stealing the company's customers during or after his employment. The petition alleges the employee left KDSI to start his own business, with the intent of providing "the same services" to a welding supply company that he was providing as an employee of KDSI. In addition to asking the court to enter a restraining order to stop the employee from stealing customers, KDSI also claimed it suffered damages equal to the lost income for the worth the employee had been providing to the welding supply company.

Follow the story and the lawsuit here.

"CONFIDENTIAL INFORMATION"

Many employment contracts / non compete agreements will include language that prohibits the sharing of confidential information, or even, making use of confidential procedures once someone leaves the business.

Is this enforceable? Well - maybe, depending on the business and the circumstances.

Example 1 - you work at The Ice Cream Parlor and sign a non-compete that you will not engage in any business activity, for 1 year after you leave the Ice Cream Parlor, where you use confidential information such as ice cream ingredients, and or methods of serving ice cream. The company however, begins to publish the ingredients on the internet. Is the information still "confidential" such that you could be prevented from using it? Probably not.

Example 2 - you work at Apple and are inventing the I-phone. Agreement states you will not share any confidential information or make use of that information for any reason. Is this enforceable. YES - most likely (at least in VA).

SO - each contract must be examined differently, and considered in light of all the facts.

WHO SIGNS NON-COMPETE AGREEMENTS?

The answer? Anyone could.

The purpose of a non-compete from an employer's point of view, is to "protect the investment." If you spend years learning the tricks of the trade, making client contacts etc. - you could destroy your employer by creating the exact same business - maybe that costs slightly less to the customer. So employers ask employees to sign them, in order to protect the information they shared during your employment.

But why would an employee object? We all have to earn a living, and sometimes moving far away just to do what you like best, is not an appealing option - so employees want the freedom to work when, where and for whom they please, when they please.

We most often see non-compete agreements however, in the following professions:

• Technology
• Professional Athletics
• Service Industries where secrets are the keys to the trade (anything from secret client lists to recipes)
• Government Contractors
• Consumer / Retail Organizations - from car dealerships to high-end clothing stores

They could be anywhere - if you have an employment contract, you likely have a non-compete. Now whether it is binding depends on the state, and the language used - so if you are out looking for a new job, be careful - they are everywhere!

WHAT IF YOU DON'T WANT TO SIGN?

A great Q/A in the Washington Post from April - keep reading. Ms. Garcia is right on the money:

Can a Non-Compete Clause Be Too Competitive?
By Lily Garcia Special to washingtonpost.comThursday, April 26, 2007; 1:59 PM
I have worked for the same small company in Virginia for almost three years now. Yesterday, my boss presented the entire staff with hastily drafted contracts stating that we could not start a similar business or solicit clients within a few miles of our location for two years after leaving the company.
I live in a small town in a right-to-work state. I could be fired at any time for any reason. As a result, I am uncomfortable signing this contract. Can he fire me if I refuse?
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The short answer is "Yes." Unless you have an employment contract stating otherwise, you can be fired for a good reason, a bad reason, or no reason at all. (The law, of course, has created some exceptions to that rule -- you cannot be discriminated upon for such factors as sex and race, for example, or fired for reporting illegal corporate conduct. But it does not sound like that is what you describe.)
I am not aware of any law under which you could seek redress if you are fired for refusing to sign. Many employers require the signing of agreements limiting an employee's ability to compete with their business. And as aggravating as this may be, the timing of the new policy is not illegal.
You appear to be at an uncomfortable crossroads -- you can either risk losing your job or risk limiting your ability to start a business in the future.
That said, it may be helpful to know that non-competition agreements that are overly broad -- in the scope of their time period, geographical reach, or type of work, for example -- cannot be enforced. If you believe your employer's non-competition agreement may be unenforceable, your least risky alternative might be to sign the agreement and, if needed, challenge it later on.
How do you know whether an agreement is solid? It is impossible to predict with absolute accuracy whether a non-competition agreement will be rendered unenforceable by a court. In your case, it sounds like the agreement is fairly limited geographically, but it may contain other language that reaches too far.
For a nominal fee, a contracts lawyer licensed in Virginia should be able to review the agreement and give you an intelligent opinion regarding its validity. Should you need a referral, the Virginia State Bar is a good place to start -- or you can call the Virginia Lawyer Referral Service at 1-800-552-7977.
Lily Garcia has offered employment law and human resources advice to companies of all sizes for 10 years. To submit a question, e-mail lilymgarcia@gmail.com. We reserve the right to edit submitted questions for length and clarity and cannot guarantee that all questions will be answered.




http://www.washingtonpost.com/wp-dyn/content/article/2007/04/26/AR2007042601163.html

LENGTH OF NON-COMPETE

Lets say I signed the following agreement with my boss and the company:

"I will not contact any customers of the Frith Company, for two years after my employment, and/or solicit their business."

Then I quit - and for 1 year and 362 days, contact the old customers thus violating my agreement. Mr. Frith, on day 1 year 363 days, learns of this, and files an injunction against me in the Court. I don't worry because the agreement is only binding for another 2 days, right?

WRONG

Virginia Courts will re-start the clock in a manner of speaking, and will start the two years over, from the entry of the injunction. So be careful. Just because you haven't been caught yet, doesn't mean anything. There isn't a statute of limitations on the term in the contract - as long as the lawsuit is filed in time, the Court can start the time clock again.

"IS THIS IN VIOLATION?"

We receive calls frequently from employees that are leaving their jobs, and ask "if I open this kind of a business, and hire employee Smith from my old one, will I violate my non-compete?"

The next question is then, "Will the Court find it enforceable?"

My answer is always - "It depends." We need to review the contract, and research recent court rulings on the issues and language in each specific agreement.

The Supreme Court of Virginia has held that the validity of employer-employee non-competition agreements is determined by applying the following criteria:
(1) Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest?
(2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood?
(3) Is the restraint reasonable from the standpoint of a sound public policy?
If the answer is no to any of the above, then the agreement is not enforceable. But what does "unduly harsh" or "oppressive" mean? Again - this is decided on a case by case basis - upon examination of the terms in your contract.

The moral of this story? Each contract is different - one may be enforceable, and another not. Better not to gamble and face possible lawsuit - better be prepared.

DOCTORS AND NON-COMPETE CLAUSES

Yes, even doctors face unfair non-compete clauses. A family practice physician in Wyoming has been served with an injunction preventing her from practicing family medicine in the same town as her previous employer/physician partners. The doctor signed a non-compete clause which prevented her from practicing within 75 miles of her partners for a period of one year. Does this sound like good public policy? I don’t think so. Follow the story here.

The Supreme Court of Tennessee ruled in 2005 that physician non-competes were unenforceable but now the state legislator is considering a law which would allow such unfair provisions in physician contracts.

Read what other healthcare providers are saying.

Non-compete clauses in the healthcare industry reduce the availability and affordability of medical care for all of us. They only protect the corporations which run the medical industry at the expense of the individual doctors and more importantly, those seeking medical care.

IMPORTANT QUESTION: DID YOUR EMPLOYER ALLOW OTHERS TO BREACH THEIR NON-COMPETE?

One question we always ask our clients is whether their employers have consistently enforced the non-compete agreement. In other words, have other employees left the company, after signing the same non-compete, and nothing happened when they directly competed with their prior employer?

This is an important question as the answer may allow you to avoid the employer’s attempt to enforce the non-compete against you! Here is why. How can the employer take the position that the non-compete is necessary to protect “confidential” information or secrets yet allow such secrets and information to walk out the door with other departing employees and the company never even attempts to enforce the non-compete? The failure to consistently enforce the non-compete sure makes it look like the agreement is not necessary to protect the employer’s legitimate interests.

NON-COMPETE CLAUSES AND THE WORLD OF SPORTS

Non-compete clauses are everywhere from restaurants and their chefs to basketball teams and their coaches. That’s right – now coaches have to deal with non-compete provisions in their contracts.

Billy Donovan, whose University of Florida basketball team won the NCAA title this year, walked away from that job and was hired by the Orlando Magic of the NBA. It was reported the Magic had agreed to pay Donovan $27.5 million over 5 years! The only problem is that now Billy wants to go back to the University of Florida. No problem says the owner of the Orlando Magic except for the non-compete clause in the contract you signed. You see, the Magic owners don’t want Billy Donovan to return to the University of Florida and then next year agree to coach another NBA team and compete with the Magic!

In my opinion this is ridiculous! How can this be fair?

Read the Jacksonville newspapers account on the issue.

DID YOUR CHEF SIGN A NON-COMPETE?

We have previously discussed the fact that non-compete clauses often appear in hiring agreements or contracts for doctors, salesman, retailers, etc. But what about that great meal you had last night at your favorite restaurant? Can the chef who prepared that great meal move down the street, open her own restaurant, and serve the same dishes? Maybe and maybe not.

Big business leaves no stone unturned….or maybe no stone unprotected! Many such employment agreements prohibit departing chefs from taking or using recipes in their next gourmet food business. Are these agreements legal? They can be but must be analyzed like any other non-compete agreement. Does the agreement protect a valid business interest? Is the restriction greater than it needs to be to protect the former employer’s business interest? Does the agreement effectively prevent the departing chef from finding gainful employment?

Read about whether this is an issue in Atlanta.

How about Tennessee?