Non-competition agreements haven’t gotten much play on this blog. It’s like going into an ice cream shop and ordering Butter Brickle. Meh. Yet, there it is: Butter Brickle, right between classics like Vanilla and Chocolate and those newer flavors, Tahitian Vanilla and Chocolate Dreamsicle.
As a mainstay, every once and a while, I must page homage.
***spoons Butter Brickle into gaping mouth***
It’s pretty good, you know.
And non-competes….let’s discuss them too. Specifically, what happens if a former employee joins a top competitor, and, by the time a judge is ready to do something about it, the non-competition agreement is about to expire? Will the court level the playing field and restart the non-compete?
A little primer on non-competition agreements.
While some states won’t enforce covenants not to compete (e.g., California, North Dakota, Oklahoma), they’re legal in most states. In those states where a court may uphold a non-competition agreement, the enforceability test will vary. Generally, however, judges apply rules of reason:
- Is the length of the non-competition agreement reasonable? Requiring that a former employee not compete with you for 10 years is a bit harsh. One year; however, is pretty reasonable.
- Are the geographic restrictions reasonable? It may be reasonable for a company operating nationwide to require an employee not to compete with the company nationwide. However, the geographic non-competition restrictions for a regional business must be more narrowly tailored to protect its legitimate business needs.
- Is it fair to enforce the restrictive covenant? A court may balance the company’s interest in enforcement versus the employee’s need to make a living.
May a judge equitably extend the non-compete period?
Yes. That’s exactly what happened in this recent Ninth Circuit opinion (Ocean Beauty Seafoods, LLC v. Pacific Seafood Group Acquisition Company, Inc.). The employee breached his agreement not to compete for one year with his former employer by accepting employment with a competitor. However, by the time the case made its way to the appellate court, the one-year non-compete period had expired. So, the Ninth Circuit made things right:
Oregon law follows the rule—explicitly recognized in many other jurisdictions—that a court sitting in equity may devise a remedy that extends or exceeds the terms of a prior agreement between the parties if it is necessary to make the injured parties whole. We further conclude that the circumstances of this case warrant an equitable extension. A short noncompete term inures to the former employee’s benefit; the employee should not then be allowed to avoid the term altogether through dilatory tactics, or even just by taking advantage of the delays incident to litigation.
Will a judge always equitably extend the non-compete period?
No. So, if you want to improve your chances, have a reasonable, enforceable, written non-competition agreement and incorporate to that “equitable extension” language right into the non-competition agreement.
Restrictive covenant battles are expensive and the stakes can be incredibly high. Protect your investment by having an employment lawyer prepare your non-competition agreements.