CHOICE OF LAW IN EMPLOYMENT CONTRACT

If you have a non-compete Agreement, or any employment agreement, it likely has what we call "A choice of law provision" in it..

That means, the parties agree to be bound by the laws of a specific state. Sometimes you will find Arbitration Agreements in the contract, where parties (or just one party) waive their right to a jury trial or their right to local courts, but instead agree to have an arbitrator decide all disputes.

Do these clauses matter?

Absolutely.

I don't like Arbitration Agreements in Health Care cases - in employment cases they offend me slightly less.

As for choice of law, why would you sign a contract agreeing to be bound by the law of a state where you have never lived, worked, etc? If your contract lists a state other than the one where you work - ask why? Answer - probably some lawyer told your employer that state had favorable laws...

But if you haven't been there, why be bound by their laws.

Do some research - you may not want to agree to be bound by a certain state's laws, especially if you have no contact to the state.

DO LAYOFFS AFFECT NON-COMPETE CONTRACTS?

In this time of economic hardships a day doesn't go by without seeing a news report about a local business laying off some of its workers due to financial hardships....and I think the economy is going to get worse before it gets better.

What happens under Virginia law if you have signed a noncompete contract with your employer but you are "laid off" due to the poor economy? Are you still bound to the noncompete contract?

The answer is almost always, "yes." Virginia is called an "at-will" employment state which means that unless you have an employment agreement for a stated duration (1 year, 5 years, etc.) you can be fired for almost any reason, or laid off. Your employer can still hold you to the terms of your noncompete. However, it will have a difficult time proving that your violations of the noncompete caused the company financial damage.

An employee may still have certain defenses to a noncompete agreement but the mere fact that he/she lost her job due to a staff lay off is not one of those defenses.

WHAT ARE LAWYERS TELLING EMPLOYERS?

It is often important to know what your opponent is thinking...and what advice they are receiving.

I ran across an interesting article written by an attorney who represents employers and businesses in noncompete and nonsolicitation disputes. There is even a great discussion about how employers can protect the disclosure of confidential business information. In my opinion, many businesses wrongfully try to protect information readily available in the public domain.

The article entitled, "Catch Me If You Can: Preventing and Dealing with an Employee’s Theft of Electronically Stored Information" is an interesting read.

NON COMPETE FORM

Here is a secret. Attorneys sometimes use forms when drafting documents, agreements etc. This of course is frowned upon greatly but it happens.

I looked at one of our "form" sources today to see what was being provided in the way of non-compete agreements.

Employee shall not compete, directly or indirectly, with Employer which renders professional services through __________ (insert speciality), for a period of ___________________ (____________________) years after the expiration or termination of this Agreement within the geographical area having as it center the Employer's office located at _________ and having as its radius, ___________________ (____________________) miles, by rendering professional services as a __________.

Well I would love to see that language in an agreement because its' junk - and hopefully in Virginia, unenforceable for a few reasons.

Here is a better one:

Employee agrees that during the term of Employee's employment and for a period of ___________________ (____________________) years thereafter, Employee shall not: (1) be employed or affiliated with, invest in, or act or work on behalf of any business that competes with or could potentially compete with the Corporation in the ___________________ area, which shall be defined as the Counties/Cities of ___________________; (2) solicit or attempt to solicit business from any client or customer of the Corporation, with whom Employee has had dealings or contact by reason of Employee's employment; or (3) disrupt, impair or interfere with the current or prospective business of the Corporation in any manner including inducing any employee, client or source of referral of business to sever their relationship with the Corporation or otherwise adversely affect the business of the Corporation. It is the intention of the parties that these covenants are intended to provide the Corporation with the full protection against competition by Employee should Employee leave the employment of the Corporation.

Yikes - the second one is better written, but would not apply in many industries. Nor does it provide an out if employee is fired, etc.

So if you are asked to sign a non-compete, check - does it look like example 1 or 2 from above? If so - why would your employer or his attorney throw a form before you and expect a signature. Might be time to discuss the agreement before you sign it!

IF I AM FIRED, THEY CAN'T ENFORCE MY NON-COMPETE, CAN THEY?

Wow - This is the question of the week.

Dear Frith Law Firm:
I was let go from my job recently. They can't enforce my non-compete after firing me, can they?

Dear potential client:
The answer depends on your individual contract... and they can always file suit, the real question is whether they will win and have a local court find the contract enforceable.

Some, but not all contracts link the non-competition agreement to "cause" of termination. More simply put, if employee chooses to leave, contract is binding, if employer asks them to leave, clause is not binding.

EVEN if you contract has this link between non-compete and cause, you must be aware you have other things to consider. No matter who decides you need to leave, they can sue for breach of fiduciary duty, trade secret act etc (if you share information you are not supposed to share)...

Most of the agreements I read do not link the enforceability of a non-compete clause to the cause of termination. This means even if the economic down turn caused the company to fire you, they may still be able to enforce a non-compete against you.

FAIR? No, I don't think so - that is why we encourage folks to consider before they sign but if we are way past that... you may want to call us before you start applying for jobs that would breach your non-compete.

TAMPA FLORIDA - NON COMPETES ARE UNENFORCEABLE? RIGHT

I am from Tampa Florida, so I occassionaly keep up with the news there. This week, Tampa Tribune had an interesting article about non-compete agreements.

The author, and employment lawyer named Randall Love writes "I am periodically surprised by potential clients who believe covenants against competition, or more frequently "noncompete" agreements, are unenforceable. To the contrary, Florida courts routinely enforce covenants against competition."

Randall - welcome to my world. I hear that all the time when clients say "I signed this, but I am pretty sure its not binding."

One difference between Florida and Virginia law, is that in Florida, according to Mr. Love, "the prevailing party is also entitled to recover attorneys' fees in either enforcing or defending against the covenant against competition." That is NOT the case in Virginia, which means my clients often have to pay thousands in fees to defend lawsuits, that have little merit.

So please know, these agreements are often enforceable, and can have major impact on your life and career.

WHAT TO DO IF YOU THINK YOU ARE ABOUT TO BE FIRED

Someone I speak to all the time told me her daughter was worried about losing her job. In anticipation of losing her job, she started "cleaning" her computer at work. Deleting personal files, old emails, etc..

I am fine with removal of personal files.. BUT WHAT IF you take information that may be deemed confidential...0r client lists, etc. Please know that if you are fired, or maybe even if you aren't - your employer can and will watch your computer.

They will know what files you changed, moved, took, deleted, copied, etc. They will know when, and if you have a non-compete agreement, or access to confidential information, you may find they are pretty upset about your "cleaning."

So if you think you may be fired and have a good working relationship with the boss, ask them - "I am going to take these personal files," can you agree to that? If they agree, it is much harder for them to say the information is confidential etc.

I know its scary - but don't let fear of losing your job give you bad judgment.

A SAD STORY ABOUT RETIREMENT AND NONCOMPETES

I just read a story about a former Merrill Lynch stock broker who worked for the company for 26 years and invested heavily in Merrill Lynch's employee stock option plan. The stock option plan was his retirement account. The stock broker rose through the ranks at Merrill Lynch ultimately becoming a a first vice president and a senior financial consultant. The broker retired in the summer of 2008.

Everyone knows what happened to Merrill Lynch. They were terribly managed, lost millions of dollars, and were purchased by Bank of America. Guess what happened to the value of the retired stock broker's retirement account? It was almost wiped out! The account dropped from a value approaching $4 million to $200,000.

The stock broker must now return to the job market and selling stocks and providing investment advice is all that he knows. Guess what? He signed a noncompete with Merrill Lynch basically preventing him from earning a living doing the one thing he knows...selling stocks and providing financial advice.

My Take: Fight these agreements to the bitter end...they are unfair and many are unenforceable.

GEORGIA LEGISLATURE STUDIES NONCOMPETES

This blog focuses on noncompete and non-solicitation disputes under Virginia law...but that focus doesn't mean we don't watch what is going on in the rest of the United States.

Georgia is taking a close look at its laws on noncompetes. Read for yourself a copy of the Georgia House of Representatives Final Report on Non-Competes. What I find most interesting is the first finding noted in the report:

The climate of hostility toward restrictive covenants makes it more difficult for Georgia to attract businesses into the state and to retain the ones that it already has.

My Take: Noncompetes are bad for innovation and bad for the United States' economy.