Thursday, May 19, 2016

The Truth About Non-Competition Agreements That Your Employer Does Not Want You to Know - Mere Breach of Non-Compete Not Enough for Injunction

Non-Compete Clauses in Employment Contracts Generally Not Enforceable Where the Average Employee is Concerned 

A typical Employment Agreement contains three "Restrictive Covenants": 1) Confidentiality; 2) Non-Competition; and, 3) Non-Solicitation.  

Three Separate Contracts in One
Hence, while many folks collectively refer to such contracts as "my Non-Compete Agreement," that is not the case.  Moreover, in some situations only 1 or 2 of these Covenants are found to be enforceable, while the other two are not. 

For example, Pennsylvania law holds that an employee who is fired due to alleged poor performance is not bound by a Non-Competition covenant the employee signed at the outset of his/her employment.  In such cases, however, the employee is still bound by the Confidentiality and Non-Solicitation clauses.

Click Here to read our in-depth analysis of Confidentiality clauses.

Moreover, the law makes relatively clear that an employee's mere violation of a Non-Compete covenant, will not, absent aggravating circumstances, result in an injunction in favor of the employee's former employer, much less a judgment for money damages.  

The most significant aggravating factor is, by far, soliciting former customers away from your former employer, and securing new business from them on behalf of your new employer.  

However, if while working for a competitor you violate the Confidentiality and/or Non-Solicitation clauses in your Employment Agreement, problems will almost certainly arise.
If I Violate My Non-Compete Clause by Going to Work for a Competitor, but do not Use My Former Employer's Confidential Information at My New Job, and I Do Not Solicit Customers Away From My Former Employer, Will I get in Trouble?

That is the magic question and the answer is "No, unless you know a true Trade Secret owned by your former employer."  Trade Secrets are very rare, and odds are you do not know any. 

However, if you are one of 7 people who work for Bimbo Bakeries that know the recipe that results in those amazing nooks and crannies, you may want to rethink your departure to a competitor such as Hostess!

That's One Delicious Trade Secret!
A scenario that is much more common than the English Muffin matter arises when an employee goes to work for a competitor (or starts a new business), and thereafter uses Confidential Information taken from the former employer, and begins to solicit clients the employee used to service while employed with the former employer.

If You Avoid Soliciting,
You Avoid Trouble
Violations of a Confidentiality Clauses and Non-Solicitation Clauses Contained in Employment Agreements Spark Lawsuits, and Preliminary Injunctions are Often the Result

Typically, if an employee bound by a restrictive covenant goes to work for a competitor and starts to solicit clients from his/her old employer, the old employer will file suit immediately, and will ask the court to immediately grant a preliminary  injunction.  In these situations, the former employer will
not necessarily delay filing suit until it starts to lose clients; mere evidence of the former employee's efforts to solicit such business will be enough to spur a legal action.

What Can Happen at a Preliminary Injunction Hearing Relating to a Claim That an Employee Has Violated a Non-Compete Employment Agreement?

An employer seeking a Preliminary Injunction against an employee who had signed an Employment Agreement containing the aforementioned Restrictive Covenants wants to prove 3 things: 

1) the former employee is working for a competitor; 

2) the former employee absconded with the the employer's Confidential Information; and, 

3) the former employee used the Confidential Information in the course of successfully soliciting clients away from the employer and to the employee's new employer.

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Serving Area Codes 19442, 19460, 19465, 19482 and 19355.

Injunctions Come in Various Shapes and Sizes 
What Are the Possible Outcomes at a Preliminary Hearing for Breach of a Non-Compete Agreement?

There are many, but here are some permutations.

*  If the employer can prove only that its former employee is now working for a competitor, it is unlikely that an injunction will issue.

*  If the employer proves the former employee is now working for a competitor and possesses Confidential Information - but cannot prove that the employee has  engaged in solicitation -- it is possible that an injunction will issue, but if so it will likely only order the employee to destroy all of the Confidential Information he/she has.

*  If the employer proves the former employee is now working for a competitor and  that the former employee has solicited clients without success -- but cannot prove the employee has misappropriated Confidential Information -- it is possible that an injunction will issue, but it will likely only order the employee to stop soliciting the employer's clients.

Making a Sale to a Former Client in Violation of Non-Solicitation Covenant
 in Your Employment Agreement is Death Knell to Your Future Employment
What is the Worst Thing That Can Happen If I Take My Employer's Confidential Information and Violate My Non-Solicitation or Non-Competition Agreement?

In many such situations, evidence of aggravating factors often results in an injunction that also orders the former employee to immediately cease employment with his/her new employer. The two most common aggravating factors are:

1)         Evidence introduced at the Preliminary Injunction Hearing proves that the former employee had not only solicited business from his/her former clients, but had actually secured new business from these clients at the expense of the former employer, and to the benefit of the new employer; and/or, 

Evidence That Employee Misappropriated Confidential Information
and Used it at New Job in Course of Soliciting Former Customers
Will Almost Always Lead to Injunction 
2)         Evidence introduced at the Preliminary Injunction Hearing shows that, as the employee’s employment was winding down, the employee engaged in a scheme to misappropriate the employer’s Confidential Information, and used that Confidential Information in the course of successfully ferrying customers away from the former employer, and into the waiting arms of the new employer.

Injunctions are the most common relief sought when a former employee is caught soliciting clients of his/her former employer.  Obtaining an injunction (i.e. “equitable relief”) is the “holy grail” of non-compete litigation. That is so because a plaintiff does not need to prove financial loss in order to get an injunction.  Rather, it need only show that the former employee engaged in wrongdoing in violation of the Restrictive Covenants found in his/her Employment Agreement.

By comparison, in order to recover damages in a breach of contract case, a plaintiff must show that it suffered actual economic damages. Proof of bad intent or malfeasance by the former employee, while helpful, is not necessary.  
Malfeasance = Injunction
The mere fact that an employee violated restrictive covenants does not prove that a former employee had bad intent or engaged in malfeasance, so an injunction ordinarily will not issue absent some evidence of same. Toss in evidence that the former employee violated the Confidential Information and/or Non-Solicitation clauses in the Employment Agreement, however, and the "malfeasance" requirement is satisfied, and injunctive relief will most assuredly follow.   

Prosecuting and Defending
Confidentiality Clause Cases Since 1991

         Philadelphia Area Non-Compete Lawyer

John A. Gallagher is an employment lawyer who represents employees in Pennsylvania.
Click Here if you have questions about any aspect of employment law, from wrongful termination, to wage and overtime claims, to discrimination and retaliation laws, to Family and Medical Leave…

Click Here to e-mail John directly.

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