Times are tough in America...as evidenced by the demise of some of our largest financial institutions. In addition to the failures of corporate America, employees are being forced into signing unfair and over broad noncompete agreements.
For example, take the retention agreement offered by Bank of America as a part of its purchase of Merrill Lynch. Bank of America wants all of Merrill's financial advisors to sign a new noncompete agreement which could prevent those financial advisors from taking their clients/customers with them should they ever decide to leave their employment.
A Merrill spokesman says the noncompetes don't change Merrill's "Protocol for Broker Recruiting." I don't know what is in the "Protocol" but I do know that state law controls the issue regardless of the "Protocol."
My take: If you are one of the thousands of Merrill Lynch financial advisors, your best bet is to consult with an experienced attorney (licensed in your state) and understand the serious implications of what you are being asked to sign. I gave the same advice to Registered Rep Advisor magazine.
Friday, October 31, 2008
WHY DOES YOUR EMPLOYMENT CONTRACT HAVE AN ARBITRATION CLAUSE
I doubt anyone has ever read the contract when purchasing a cell phone. If you have read your cell phone contract, you know there is an arbitration clause in the agreement which states that if you have any legal right against the cell phone company, you waive your right to sue them in state or federal court, and instead agree to arbitration in X State.
Interestingly, these are also appearing in employment contracts across the country.
Arbitration is system of dispute resolution, that does not involve a judge or jury. Rather, an arbitrator (usually a retired judge or lawyer) will hear limited evidence on both sides, and decide the matter. There is limited right to appeal, and the decision is binding.
There is a rumor out there that arbitration saves money on both sides. I have not found this to be true as arbitration associations charge parties extra fees not required in court. There is also a rumor that arbitration saves time. This may be true given the busy nature of our local state courts.
While I do not think arbitration agreements help plaintiffs in medical malpractice or personal injury cases, in an employment context, they don't scare me as much.
If you have already signed an Arbitration clause in an employment context - don't freak out. If you are being asked to, I would question it. Likely, the attorney put the clause in the contract and your employer may not even know why.
Interestingly, these are also appearing in employment contracts across the country.
Arbitration is system of dispute resolution, that does not involve a judge or jury. Rather, an arbitrator (usually a retired judge or lawyer) will hear limited evidence on both sides, and decide the matter. There is limited right to appeal, and the decision is binding.
There is a rumor out there that arbitration saves money on both sides. I have not found this to be true as arbitration associations charge parties extra fees not required in court. There is also a rumor that arbitration saves time. This may be true given the busy nature of our local state courts.
While I do not think arbitration agreements help plaintiffs in medical malpractice or personal injury cases, in an employment context, they don't scare me as much.
If you have already signed an Arbitration clause in an employment context - don't freak out. If you are being asked to, I would question it. Likely, the attorney put the clause in the contract and your employer may not even know why.
Monday, October 27, 2008
NON COMPETE BUY OUTS
The average attorney that represents corporations in Virginia, probably charges at LEAST $150 an hour.
So in order for your ex-employer to file a Complaint to either prevent you from working elsewhere, or alleging breach of contract, you can count on at least $2000 in legal fees. Add in meetings, discussions, legal research, and your old employer is looking at around $5000 just to file the lawsuit. All the way to trial, I think around $20,000 or MORE is likely.
Want to save everyone the time and money. Many employees will offer cash settlements or buyouts on their non-competes.
Sometimes this saves everyone time and money --- so think about it! I know you may not want to give that jerk a dime (the "principle" of it) - but sometimes a good business decision is better for everyone.
So in order for your ex-employer to file a Complaint to either prevent you from working elsewhere, or alleging breach of contract, you can count on at least $2000 in legal fees. Add in meetings, discussions, legal research, and your old employer is looking at around $5000 just to file the lawsuit. All the way to trial, I think around $20,000 or MORE is likely.
Want to save everyone the time and money. Many employees will offer cash settlements or buyouts on their non-competes.
Sometimes this saves everyone time and money --- so think about it! I know you may not want to give that jerk a dime (the "principle" of it) - but sometimes a good business decision is better for everyone.
Thursday, October 23, 2008
NON COMPETES IN TENN
We practice in Virginia and West Virginia. This gentlemen does Corporate non-compete work in Tennessee..... And he is sharing his secrets!
He is discussing Damages in Non-Compete cases, and how you prove the corporation has been damaged. It is a high burden, and I recommend to any employee leaving, to contact an attorney to make sure you haven't done anything that could cause damage..
He is discussing Damages in Non-Compete cases, and how you prove the corporation has been damaged. It is a high burden, and I recommend to any employee leaving, to contact an attorney to make sure you haven't done anything that could cause damage..
MILITARY AND NON-COMPETES
Here is a very large Defense contractor, stating he doesn't want military men and woman to be subject to non-competes, so they can come work for him.
Question - do you think Blackwater will have them sign a non-compete when they get there? My guess is yes~
Question - do you think Blackwater will have them sign a non-compete when they get there? My guess is yes~
GREAT ARTICLE ON NON COMPETES ACROSS THE US
Here is a firm that clearly represents Employers - but their article is great. A good reminder that every state is different and every contract will be treated individually. Read it in full here
Firm of Obermayer Rebmann Maxwell & Hippel, Joseph Centeno and Terri Gillespie
15 October 2008
I. INTRODUCTION
Many companies utilize non-compete agreements in order to prevent their employees from working for a competitor while they are still working for the company, or for a period of time after leaving that employment. Because courts often look with disfavor on non-compete agreements, it is important that companies carefully draft these agreements in order to ensure their enforceability. The law governing the enforceability of covenants not to compete varies from state to state. Therefore, in order to increase the chances that a non-compete agreement will be enforced, you must be sure to plan ahead, draft the agreement with specificity and be certain that the agreement is supported by adequate consideration.
II. PLAN AHEAD
Proper planning is the first step in creating an enforceable covenant not to compete. Courts are more likely to enforce non-compete agreements that are tailored to the company's specific needs. Therefore, before drafting a non-compete agreement, you must identify the interests that your company seeks to protect through the non-compete agreements. The planning process also must include a review of the applicable state law in order to ensure that the agreement will be held enforceable by the courts of that state.
A. Identify the Objectives of the Non-Compete Agreement
B. Be Aware of the Applicable State Law
III. DRAFT WITH SPECIFICITY
Determining whether a non-compete is reasonable requires a balancing of the employer's interests against the interests of the employee and the public, in order to ensure that the restraint is neither overly harsh nor oppressive to the employee, and does not cause injury to the public. Determination of the reasonableness of a non-compete agreement also requires an analysis of whether the restraint is no greater than necessary to protect the company's legitimate interests.
Generally speaking, over-broad non-compete agreements that prohibit an employee from performing any work for a competitor will not be enforced. In order to be enforceable, the non-compete agreement must be narrowly tailored and no more restrictive than is necessary to protect the company's legitimate business interests.
Specific Questions relating to this article should be addressed directly to the author.
Firm of Obermayer Rebmann Maxwell & Hippel, Joseph Centeno and Terri Gillespie
15 October 2008
I. INTRODUCTION
Many companies utilize non-compete agreements in order to prevent their employees from working for a competitor while they are still working for the company, or for a period of time after leaving that employment. Because courts often look with disfavor on non-compete agreements, it is important that companies carefully draft these agreements in order to ensure their enforceability. The law governing the enforceability of covenants not to compete varies from state to state. Therefore, in order to increase the chances that a non-compete agreement will be enforced, you must be sure to plan ahead, draft the agreement with specificity and be certain that the agreement is supported by adequate consideration.
II. PLAN AHEAD
Proper planning is the first step in creating an enforceable covenant not to compete. Courts are more likely to enforce non-compete agreements that are tailored to the company's specific needs. Therefore, before drafting a non-compete agreement, you must identify the interests that your company seeks to protect through the non-compete agreements. The planning process also must include a review of the applicable state law in order to ensure that the agreement will be held enforceable by the courts of that state.
A. Identify the Objectives of the Non-Compete Agreement
B. Be Aware of the Applicable State Law
III. DRAFT WITH SPECIFICITY
Determining whether a non-compete is reasonable requires a balancing of the employer's interests against the interests of the employee and the public, in order to ensure that the restraint is neither overly harsh nor oppressive to the employee, and does not cause injury to the public. Determination of the reasonableness of a non-compete agreement also requires an analysis of whether the restraint is no greater than necessary to protect the company's legitimate interests.
Generally speaking, over-broad non-compete agreements that prohibit an employee from performing any work for a competitor will not be enforced. In order to be enforceable, the non-compete agreement must be narrowly tailored and no more restrictive than is necessary to protect the company's legitimate business interests.
Specific Questions relating to this article should be addressed directly to the author.
Wednesday, October 22, 2008
BEAT THAT NONCOMPETE - FIRST BREACH DEFENSE
Many employees come to our firm wanting our analysis of their noncompete agreement with the question, "is this a valid restriction and, if so, how can I beat it?"
One of the most common defenses we encounter is called the "First Breach Defense." A noncompete agreement is nothing more than a contract. Typically, that contract states that in return for being paid a salary, commission, bonuses, etc., the employee agrees not to compete with the employer after he/she leaves the employment relationship. If the employer failed to live up to its end of the contract by failing to pay commissions, etc., (in other words...breached their obligations under the contract) then the employee cannot be held to the noncompete restrictions.
My take: Employees should closely analyze their relationship with their employer and if the employer has failed to live up to their contractual obligations....they might just have a good defense to an otherwise valid noncompete agreement.
One of the most common defenses we encounter is called the "First Breach Defense." A noncompete agreement is nothing more than a contract. Typically, that contract states that in return for being paid a salary, commission, bonuses, etc., the employee agrees not to compete with the employer after he/she leaves the employment relationship. If the employer failed to live up to its end of the contract by failing to pay commissions, etc., (in other words...breached their obligations under the contract) then the employee cannot be held to the noncompete restrictions.
My take: Employees should closely analyze their relationship with their employer and if the employer has failed to live up to their contractual obligations....they might just have a good defense to an otherwise valid noncompete agreement.
Monday, October 20, 2008
THE BAD ECONOMY AND SEVERANCE PACKAGES
The poor economy in the U.S. makes noncompete agreements terribly unfair for employees. However, even if you don't have a noncompete, getting fired...or laid off...or down-sized hurts! It may not hurt as bad if you are able to negotiate a "severance package" before your departure.
First, let me say that there is no law which requires your employer to pay you any severance benefits. However, employers don't want you bad-mouthing their company, contacting current employees, contacting board members, etc. There also may be some "skeletons in the closet" that the employer wishes to keep in the closet.
Here are some suggested guidelines for negotiating you severance package:
1. Negotiate with someone with decision making authority.
2. Be patient and don't let your employer bully you into making a quick decision.
3. Don't be intimidated by an unrealistic deadline.
4. Be realistic in what you want and don't give your employer your bottom line too quickly.
5. Stress the fairness of your proposal.
6. Don't be embarrassed to discuss the economic hardships you and your family will face.
7. Prepare a list of your accomplishments and remind them of your extra efforts.
If you reach an agreement, your employer will want you to sign a release which finalizes the agreement and prevents any lawsuits down the road. It is always a good idea to have legal counsel review the settlement agreement BEFORE you sign.
First, let me say that there is no law which requires your employer to pay you any severance benefits. However, employers don't want you bad-mouthing their company, contacting current employees, contacting board members, etc. There also may be some "skeletons in the closet" that the employer wishes to keep in the closet.
Here are some suggested guidelines for negotiating you severance package:
1. Negotiate with someone with decision making authority.
2. Be patient and don't let your employer bully you into making a quick decision.
3. Don't be intimidated by an unrealistic deadline.
4. Be realistic in what you want and don't give your employer your bottom line too quickly.
5. Stress the fairness of your proposal.
6. Don't be embarrassed to discuss the economic hardships you and your family will face.
7. Prepare a list of your accomplishments and remind them of your extra efforts.
If you reach an agreement, your employer will want you to sign a release which finalizes the agreement and prevents any lawsuits down the road. It is always a good idea to have legal counsel review the settlement agreement BEFORE you sign.
Thursday, October 16, 2008
EMPLOYEES SHOULD HIT BACK
The typical scenario we see is where the employee signs a noncompete agreement with her employer and everything is great for a few years. Then, the relationship turns sour and the employee leaves for greener pastures and goes to work for a competitor of her previous employer. The previous employer sends a letter threatening to sue if the employee continues to work in violation of the agreement and, when the employee refuses to quit her new job, a lawsuit is filed to enforce the noncompete agreement. The employee is left to defend herself in the lawsuit.
Lauren and I have spent a great deal of time on this blog discussing what defenses are available to those very employees when sued by a former employer. Today, I want to talk about the employee taking the fight to the previous employer.
If the previous employer's actions result in the new employer getting cold feet and either firing the employee or retracting an offer of employment for the new employee, then Virginia law provides two potential remedies or causes of action. The first is a claim for "intentional interference with existing contracts not terminable at will." The second is a claim for "intentional interference with prospective business or economic advantage." The elements for these claims are straightforward and are often present with a "heavy-handed" employer.
Where applicable, both of these remedies available under Virginia law will allow the employee to take the offensive when their business and livelihood have been wrongfully limited by their previous employer.
Lauren and I have spent a great deal of time on this blog discussing what defenses are available to those very employees when sued by a former employer. Today, I want to talk about the employee taking the fight to the previous employer.
If the previous employer's actions result in the new employer getting cold feet and either firing the employee or retracting an offer of employment for the new employee, then Virginia law provides two potential remedies or causes of action. The first is a claim for "intentional interference with existing contracts not terminable at will." The second is a claim for "intentional interference with prospective business or economic advantage." The elements for these claims are straightforward and are often present with a "heavy-handed" employer.
Where applicable, both of these remedies available under Virginia law will allow the employee to take the offensive when their business and livelihood have been wrongfully limited by their previous employer.
Wednesday, October 15, 2008
PLEASE GET ADVICE BEFORE YOU SIGN
A friend recently hired a company to do extensive work on her home. The contract called for an arbitration agreement. My friend knew she didn't want to agree to an arbitration agreement and was delighted when the contractor happily agreed to remove the provision.
I would not be surpirsed at all if your new employer was just as willing to discuss or negotiate your employment contract. Now I will say that is not true for all employers. There is a large hospital system in Virginia that has told a number of my doctor friends, they will not negotiate the terms of their employment agreements - but smaller employers may be more willing.
It is likely that corporate counsel drafted the agreement and even the employer is not wed to the terms.
Think a 50 mile 4 year non-compete is not fair? Think you don't want to agree to arbitration? It couldn't hurt to discuss these terms before you sign on to them.
Of course, if you change an overly broad agreement to a narrow one, your employer may be more likely to have a case should you breach the contract... But that aside, being involved in forming the document is always a good idea.
I would not be surpirsed at all if your new employer was just as willing to discuss or negotiate your employment contract. Now I will say that is not true for all employers. There is a large hospital system in Virginia that has told a number of my doctor friends, they will not negotiate the terms of their employment agreements - but smaller employers may be more willing.
It is likely that corporate counsel drafted the agreement and even the employer is not wed to the terms.
Think a 50 mile 4 year non-compete is not fair? Think you don't want to agree to arbitration? It couldn't hurt to discuss these terms before you sign on to them.
Of course, if you change an overly broad agreement to a narrow one, your employer may be more likely to have a case should you breach the contract... But that aside, being involved in forming the document is always a good idea.
Friday, October 10, 2008
NONCOMPETES AND TOUGH FINANCIAL TIMES
The financial news is bleak! It certainly looks like the United States, and most of the rest of the world, is headed for some tough economic times.
Many employees, who have not already signed a noncompete or non-solicitation agreement with their employers, can now expect their bosses to require the execution of these agreements. You see...your employer does not want you to compete against him/her after they fire you as a part of the "belt-tightening" required by our depressed economy.
BEWARE! DON'T SIGN ANY NONCOMPETE OR NONSOLICITATION AGREEMENT UNTIL YOU FULLY UNDERSTAND THE LEGAL AND PRACTICAL RAMIFICATIONS!
Many employees, who have not already signed a noncompete or non-solicitation agreement with their employers, can now expect their bosses to require the execution of these agreements. You see...your employer does not want you to compete against him/her after they fire you as a part of the "belt-tightening" required by our depressed economy.
BEWARE! DON'T SIGN ANY NONCOMPETE OR NONSOLICITATION AGREEMENT UNTIL YOU FULLY UNDERSTAND THE LEGAL AND PRACTICAL RAMIFICATIONS!
Tuesday, October 7, 2008
IS THIS REASONABLE
I love the law - but sometimes it is not as clear as many would like.
We receive many calls with the following questions:
(1) I HAVE A NON-COMPETE, WHAT DO I DO?
or
(2) IS MY CONTRACT VALID?
I tell prospective clients frequently, that I cannot tell them how to answer question 1. I will not advise you to breach a contract. I will not advise you on job options or choices. I can only share with you Virginia law on non-competes, and you decide where to go from there.
So regarding the second question - why does it matter if the Non-compete is valid? Virginia law is very clear on one point, if a Non-compete is UNREASONABLE restriction on your right to make a living, and/or is not tailored to protect your employer's legitimate business interest, the contract will be held INVALID and unenforceable.
So whether it is reasonable, is the answer to whether it is valid.
Prospective Clients then ask - Is my contract reasonable? And again, I wish I knew. The Court determines the reasonableness of each contract on a case by case basis (which means no attorney can tell you whether your contract is reasonable, valid or enforceable).
Is 5 years reasonable? In some cases yes, and in some, no.
Is 25 miles reasonable? In some cases yes, and in some, no.
Is a state wide restriction reasonable? In some cases yes, and in some, no.
Virginia does not provide a litmus test, per se. It provides a three part test, which the Court will apply to each and every contract and industry before determining that the contract is reasonable.
So I am sorry we can't give you job advice - but we sure can share with you our experience and knowledge of Virginia law, and go from there.
We receive many calls with the following questions:
(1) I HAVE A NON-COMPETE, WHAT DO I DO?
or
(2) IS MY CONTRACT VALID?
I tell prospective clients frequently, that I cannot tell them how to answer question 1. I will not advise you to breach a contract. I will not advise you on job options or choices. I can only share with you Virginia law on non-competes, and you decide where to go from there.
So regarding the second question - why does it matter if the Non-compete is valid? Virginia law is very clear on one point, if a Non-compete is UNREASONABLE restriction on your right to make a living, and/or is not tailored to protect your employer's legitimate business interest, the contract will be held INVALID and unenforceable.
So whether it is reasonable, is the answer to whether it is valid.
Prospective Clients then ask - Is my contract reasonable? And again, I wish I knew. The Court determines the reasonableness of each contract on a case by case basis (which means no attorney can tell you whether your contract is reasonable, valid or enforceable).
Is 5 years reasonable? In some cases yes, and in some, no.
Is 25 miles reasonable? In some cases yes, and in some, no.
Is a state wide restriction reasonable? In some cases yes, and in some, no.
Virginia does not provide a litmus test, per se. It provides a three part test, which the Court will apply to each and every contract and industry before determining that the contract is reasonable.
So I am sorry we can't give you job advice - but we sure can share with you our experience and knowledge of Virginia law, and go from there.
FIVE YEAR NONCOMPETE RULED TOO LONG
We recently represented a young professional forester who, upon graduation from Virginia Tech with a degree in forestry, was employed by a nearby forestry consulting company. As a part of his employment, our client was required to sign a noncompete agreement. Unbelievably, the noncompete stated that if our client left his job he was prevented from providing professional forestry services in an area of 90 air miles (over 25,000 square miles) for a period of 5 years.
We are happy to report, after much work and a day long trial, the Judge in the case held that 5 years was an excessively long period of time and was not necessary to protect the reasonable business interests of the employer. As such, the Judge ruled the noncompete agreement was unenforceable....thereby allowing our client to earn a living in his chosen profession.
It was a great day for our client...and we felt pretty darn good about the result as well!
Check out our client's web site: Greenwoods, Inc.
We are happy to report, after much work and a day long trial, the Judge in the case held that 5 years was an excessively long period of time and was not necessary to protect the reasonable business interests of the employer. As such, the Judge ruled the noncompete agreement was unenforceable....thereby allowing our client to earn a living in his chosen profession.
It was a great day for our client...and we felt pretty darn good about the result as well!
Check out our client's web site: Greenwoods, Inc.
Thursday, October 2, 2008
INVESTMENT ADVISORS AND NONCOMPETE AGREEMENTS
The news from Wall Street has been anything but upbeat! Merrill Lynch & Company is sold to Bank of America, AIG faced a liquidity crisis following the downgrade of its credit rating. The Federal Reserve loaned money to AIG to prevent the company's collapse. Lehman Brothers, a global financial services firm, files bankruptcy. Bad news indeed!
Many stock brokers and investment advisers of these failed financial institutions are evaluating their future employment. Do they stay with their company...and if they do, can the company survive economic disaster? Complicating this decision is the fact that most of these financial advisers have signed a non-compete agreement with their employer.
My advice to those investment professionals: Better consult with a knowledgeable attorney before you strike out on our own to open an independent financial investment business or join another company like Charles Schwab Corp., Fidelity Investments, Edward Jones, Morgan Stanley Dean Witter, and others. Whether the noncompete is valid and enforceable will depend upon the applicable state law.
Many stock brokers and investment advisers of these failed financial institutions are evaluating their future employment. Do they stay with their company...and if they do, can the company survive economic disaster? Complicating this decision is the fact that most of these financial advisers have signed a non-compete agreement with their employer.
My advice to those investment professionals: Better consult with a knowledgeable attorney before you strike out on our own to open an independent financial investment business or join another company like Charles Schwab Corp., Fidelity Investments, Edward Jones, Morgan Stanley Dean Witter, and others. Whether the noncompete is valid and enforceable will depend upon the applicable state law.
Subscribe to:
Posts (Atom)
Posts
