The financial news could not be much worse! Bears Stearn died several months ago and now Lehman Brothers has run to the bankruptcy court for help. AIG is on life support!
This is truly a difficult time for America's foremost financial institutions but the people I feel sorry for are the employees of these failing companies who signed noncompete or non-solicition agreements. Does this mean that not only do you lose your job at one of these reorganizing (or downscaling) companies but you also lose the right to work in the financial industry applying the same skills and knowledge you have built up over the years? It might.
In Virginia, as in other states, there are limitations on what type of noncompete agreement is enforceable. Make sure you know your options and whether your agreement is valid.
Know your options....Know your risks!
Wednesday, September 17, 2008
Thursday, September 11, 2008
NON-COMPETES, EMAILS, AND COMPUTERS
I know the title of today's blog seems disconnected...but its not!
Smart employees, who have signed a noncompete agreement, seek legal counsel BEFORE they consider leaving their current job to work for a competitor. These clients hear the same advice from us every time:
DO NOT USE COMPANY COMPUTERS OR EMAIL TO PLAN YOUR DEPARTURE AND YOUR NEW COMPETING BUSINESS!
DO NOT DOWNLOAD OR COPY CUSTOMER LISTS OR PRICING INFORMATION FROM YOUR CURRENT EMPLOYER!
Why do we tell all of our clients this? Because this type of activity leaves "foot prints" even if the emails have been erased. The critical information remains on the computer hard drive or the email server. In many cases, the first thing the employer's attorney does is to hire a computer forensic expert. The expert then examines the company's computer system to see what evidence the ex-employee left behind...what files accessed...what files copied, etc. The employer's attorney may even request a court order for the ex-employee (now defendant in a lawsuit) to turn over his/her hard drive on their home computer so the forensic computer expert can examine it as well. The type of evidence discovered can make or break the case.
Here is a great article on computer evidence in noncompete cases.
Smart employees, who have signed a noncompete agreement, seek legal counsel BEFORE they consider leaving their current job to work for a competitor. These clients hear the same advice from us every time:
DO NOT USE COMPANY COMPUTERS OR EMAIL TO PLAN YOUR DEPARTURE AND YOUR NEW COMPETING BUSINESS!
DO NOT DOWNLOAD OR COPY CUSTOMER LISTS OR PRICING INFORMATION FROM YOUR CURRENT EMPLOYER!
Why do we tell all of our clients this? Because this type of activity leaves "foot prints" even if the emails have been erased. The critical information remains on the computer hard drive or the email server. In many cases, the first thing the employer's attorney does is to hire a computer forensic expert. The expert then examines the company's computer system to see what evidence the ex-employee left behind...what files accessed...what files copied, etc. The employer's attorney may even request a court order for the ex-employee (now defendant in a lawsuit) to turn over his/her hard drive on their home computer so the forensic computer expert can examine it as well. The type of evidence discovered can make or break the case.
Here is a great article on computer evidence in noncompete cases.
Tuesday, September 9, 2008
FEDERAL COURT IN VIRGINIA FOLLOWS KENTUCKY LAW
The United States District Court in Norfolk handed down an interesting decision this week in Senture, LLC v. Dietrich and Swider. The case is only in the early stages of litigation but some pretty novel arguments were made and ruled upon by the court.
Dietrich and Swider were employees of Senture, a Kentucky company that offers services
for national security programs. At Senture, the employees marketed services developed specifically for the government's new Transportation Workers' Identification
Credential ("TWIC") security program. After the employees left their employment at Senture they went to work for a Senture competitor. Senture filed suit alleging the employees breached the covenant not to compete (Count I) and confidentiality provisions (Count II) in their employment agreements, tortiously interfered with Senture's business expectancy (Count III), and engaged in a statutory business conspiracy(Count IV).
One of the interesting twists to the case is that Senture's noncompete agreement contained a "choice of law" provision requiring the application of Kentucky law to any decision about the validity of the noncompete agreement. The employees' creatively argued that applying Kentucky law to a dispute filed in Virginia courts was against "public policy" and should render the noncompete agreement unenforceable. Despite the employee's unique argument, the court found that choice of law provisions in noncompete agreements were not in violation of public policy in Virginia.
The lesson: Just because your noncompete states that some state's law (other than Virginia) controls your agreement doesn't mean the agreement is invalid. If you are in Virginia and your noncompete agreement applies another state's law....you may just need legal advice from an employment attorney who practices in that other state!
Dietrich and Swider were employees of Senture, a Kentucky company that offers services
for national security programs. At Senture, the employees marketed services developed specifically for the government's new Transportation Workers' Identification
Credential ("TWIC") security program. After the employees left their employment at Senture they went to work for a Senture competitor. Senture filed suit alleging the employees breached the covenant not to compete (Count I) and confidentiality provisions (Count II) in their employment agreements, tortiously interfered with Senture's business expectancy (Count III), and engaged in a statutory business conspiracy(Count IV).
One of the interesting twists to the case is that Senture's noncompete agreement contained a "choice of law" provision requiring the application of Kentucky law to any decision about the validity of the noncompete agreement. The employees' creatively argued that applying Kentucky law to a dispute filed in Virginia courts was against "public policy" and should render the noncompete agreement unenforceable. Despite the employee's unique argument, the court found that choice of law provisions in noncompete agreements were not in violation of public policy in Virginia.
The lesson: Just because your noncompete states that some state's law (other than Virginia) controls your agreement doesn't mean the agreement is invalid. If you are in Virginia and your noncompete agreement applies another state's law....you may just need legal advice from an employment attorney who practices in that other state!
Saturday, September 6, 2008
LEGAL CONSIDERATION: WHAT IS IT AND WHY IS IT IMPORTANT?
A noncompete agreement is a contract. As such, the contract must be supported by what is called "consideration." Consideration is value paid for a promise. For example, if you sign a contract with a man, agreeing to buy his car, his consideration is the car which he promises to give to you. Your consideration is the money that you pay for the car.
In the employment context, an employer must give the employee consideration for signing a noncompete agreement. If the employee signs at the time of hiring, the consideration is the salary paid to the employee.
The more difficult question is, "what happens when the employee has already been working on the job for months or years and is then confronted by his employer with a request to sign a noncompete"? In a recent case from Texas (Powerhouse Prods., Inc. v. Scott, 2008 WL 3196174, Dallas Aug. 8, 2008), the court ruled that the noncompete was not valid because continued employment cannot support a non-compete agreement. In other words, the court required the employer to give or pay the employee something more for in return for signing the noncompete.
Virginia courts, disappointingly, have been very inconsistent on this issue. In 1989, the Virginia Supreme Court (in Paramount Termite Control v. Rector) found continued employment did constitute sufficient consideration to uphold a noncompete agreement signed after employment began. However, a Circuit Court from the City of Richmond one year later in 1990 held (in Johnson v. E. R. Carpenter) that the employee's future at-will employment did not constitute consideration for the employee's execution of a noncompete agreement.
My take: These cases are very complicated and fact specific. Don't sign anything without first having your situation and the noncompete agreement reviewed by an experienced employment attorney.
In the employment context, an employer must give the employee consideration for signing a noncompete agreement. If the employee signs at the time of hiring, the consideration is the salary paid to the employee.
The more difficult question is, "what happens when the employee has already been working on the job for months or years and is then confronted by his employer with a request to sign a noncompete"? In a recent case from Texas (Powerhouse Prods., Inc. v. Scott, 2008 WL 3196174, Dallas Aug. 8, 2008), the court ruled that the noncompete was not valid because continued employment cannot support a non-compete agreement. In other words, the court required the employer to give or pay the employee something more for in return for signing the noncompete.
Virginia courts, disappointingly, have been very inconsistent on this issue. In 1989, the Virginia Supreme Court (in Paramount Termite Control v. Rector) found continued employment did constitute sufficient consideration to uphold a noncompete agreement signed after employment began. However, a Circuit Court from the City of Richmond one year later in 1990 held (in Johnson v. E. R. Carpenter) that the employee's future at-will employment did not constitute consideration for the employee's execution of a noncompete agreement.
My take: These cases are very complicated and fact specific. Don't sign anything without first having your situation and the noncompete agreement reviewed by an experienced employment attorney.
Friday, September 5, 2008
A PROMISE - NOT BOUND BY NON-COMPETE
A friend of mine is on the job hunt - and she was on a few private, non-profit, state and federal job websites this week. On one site (she can't remember which), before you could apply for a job, post a resume or even view the postings, you had to confirm that the following statement was true: I am not bound by or limited by a non-competition agreement.
When told of this, I was very surprised. Also, concerned about some of the ethical and legal issues this threshold statement creates.
In Virginia, a non-compete must first and foremost, be held to be reasonable. If a court finds it to be unreasonable, you are not bound by it. Also, the employer must prove they have been damaged. You could be in breach of the agreement, but if the employer has not been damaged, they may not get an award (although they could still seek an injunction for you to stop working).
And the tricky part, is that you don't have an "unreasonable" contract until a Court says it is unreasonable.
(1) DOES APPLYING FOR JOB 2 - BREACH AGREEMENT WITH EMPLOYER 1?
So are you in breach of a non-compete for applying for another job? I DOUBT IT. So why would a future employer ask you to make a statement about it? Likely the motivation is both financial. Who wants to invest hours of interview and or training time in you, only to find out you are bound by a contract, not to take the job. Also, what employer wants their new employee wrapped up in litigation - justified or not.
(2) IS IT LEGAL TO ASK IF YOU HAVE A NON-COMPETE?
So can they ask if you have a non-compete, legally? SURE they can. There are few questions off limits in a job interview - questions about your religion, whether you are married, in some states your sexual orientation... but I don't know of a single state that prohibits an employer from asking you either before or after an application is filed - DO YOU HAVE A NON-COMPETE? Imagine the awkwardness of not knowing, and having job #2 call job #1 for a reference. I am certain this has happened before.
(3) DO I HAVE TO DISCLOSE I HAVE A NON-COMPETE?
It's just a little white lie if I say no, right? If you share incorrect information in a job interview or application process, and are hired, that is certainly reason enough to un-hire you. So is your new employer going to sue you for not disclosing that fact? I doubt it (unless it was part of the contract and they were damaged) - but it sure isn't a good way to start a new business relationship.
So bottom line - Be aware that when you sign a non-compete, there are consequences. And now, employers realize this, and are looking for employees with as little "baggage as possible."
When told of this, I was very surprised. Also, concerned about some of the ethical and legal issues this threshold statement creates.
In Virginia, a non-compete must first and foremost, be held to be reasonable. If a court finds it to be unreasonable, you are not bound by it. Also, the employer must prove they have been damaged. You could be in breach of the agreement, but if the employer has not been damaged, they may not get an award (although they could still seek an injunction for you to stop working).
And the tricky part, is that you don't have an "unreasonable" contract until a Court says it is unreasonable.
(1) DOES APPLYING FOR JOB 2 - BREACH AGREEMENT WITH EMPLOYER 1?
So are you in breach of a non-compete for applying for another job? I DOUBT IT. So why would a future employer ask you to make a statement about it? Likely the motivation is both financial. Who wants to invest hours of interview and or training time in you, only to find out you are bound by a contract, not to take the job. Also, what employer wants their new employee wrapped up in litigation - justified or not.
(2) IS IT LEGAL TO ASK IF YOU HAVE A NON-COMPETE?
So can they ask if you have a non-compete, legally? SURE they can. There are few questions off limits in a job interview - questions about your religion, whether you are married, in some states your sexual orientation... but I don't know of a single state that prohibits an employer from asking you either before or after an application is filed - DO YOU HAVE A NON-COMPETE? Imagine the awkwardness of not knowing, and having job #2 call job #1 for a reference. I am certain this has happened before.
(3) DO I HAVE TO DISCLOSE I HAVE A NON-COMPETE?
It's just a little white lie if I say no, right? If you share incorrect information in a job interview or application process, and are hired, that is certainly reason enough to un-hire you. So is your new employer going to sue you for not disclosing that fact? I doubt it (unless it was part of the contract and they were damaged) - but it sure isn't a good way to start a new business relationship.
So bottom line - Be aware that when you sign a non-compete, there are consequences. And now, employers realize this, and are looking for employees with as little "baggage as possible."
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