Smooth Transitions Law Blog
Addressing the legal issues arising from the departure of employees & business breakups

Non-Compete

Coaching Non-Compete Update
December 14, 2010

                                       

A few weeks ago we analyzed the enforceability of a college football coach’s non-compete agreement.  The example we cited was Texas assistant Will Muschamp.  Make that former assistant Will Muschamp.  Muschamp left Texas over the weekend to take the Florida job.  No claim of a non-compete from Texas and as we discussed unlikely it could have been enforced even if there was such a provision.

 Bobby Petrino signed a new 7 year multimillion dollar deal with Arkansas late last week.  Included in the agreement was a non-compete provision that reportedly prevents Petrino from moving to another SEC school.  Whether that agreement is enforceable under Arkansas law is an issue for the Arkansas lawyers. 

If it were in Texas, the agreement would appear to be reasonable in that excludes Petrino from working for any of Arkansas’ competitors.  It is unknown what the duration of the non-compete is under the new deal.  As pointed out previously, how a non-compete with a coach is ancillary to an otherwise enforceable agreement, a Texas requirement, is unclear.  What Arkansas is providing to Petrino that gives rise to the non-compete is the issue.  What would that be?  A lawyer will probably be able to come up with something but it will be difficult for that argument to survive appellate scrutiny.   

 

Read More
No Comment

Non-Compete Agreements

Non-Competes and Veterinarians
November 23, 2010

Illinois lawyer Kenneth Vanko provides the most comprehensive analysis of U.S. non-compete cases that I’ve seen in the legal blog world.  His latest case analysis addresses a non-compete in the context of the sale of a veterinary practice. 

In Texas, even in the sale of a business, a non-compete agreement must satisfy the requirements of Texas Business and Commerce Code Section 15.50: 

a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or business interests of the promisee.

Make sure any buy/sell agreement complies with 15.50.

Happy Thanksgiving!

Read More
No Comment

Non-Compete Agreements

Honoring a competitor’s non-compete?
November 19, 2010

                    

 Imagine a scenario where Company A hires Company B’s former employee.  A few months go by and Company A receives a demand letter from Company B informing it that: (1) the former employee has a 2 year non-compete with Company B; (2) if Company A does not end its relationship with the employee it will be sued.  (Assume the non-compete is enforceable.) 

Being both pragmatic and litigation gun shy, Company A terminates the employee.  The employee sues Company A claiming the termination violates public policy and seeks money damages.  Ludicrous?  No, it happened in California.  California lawyer Laurie Rust had the following take on the case:

When confronted with a request or demand from a former employer to honor a non-compete agreement, California employers should not respond by terminating the subject employee unless they are confident that the non-compete agreement is actually enforceable under California law.

California law disfavors non-compete agreements whereas Texas permits them as long as they comply with certain conditions discussed here previously.  I am not aware of any Texas precedent that would somehow subject an employer to liability for honoring a non-compete agreement.  That being said, it will depend on the circumstances.  Is the employee an at-will employee or does the employee have an employment agreement that would address the termination?  What is the likelihood of the enforceability of the non-compete? 

The California case certainly raises interesting issues.  Texas employers should always determine whether a prospective employee has any agreements with his or her former or current employer (non-competes, non-solicits, confidentiality agreements etc.) that could impact future employment.  If there is such an agreement try to determine whether it is enforceable.  A little analysis up front can save time and money down the line. 

 

 

 

Read More
No Comment

Non-Compete Agreements

Fireworks Choreographers and Non-Competes
November 12, 2010

        

Non-compete agreements run the gamut of industries.  Here we’ve discussed non-compete agreements involving pet care providers and rocket pack producers.  In many cases, it would seem that business owners just include them to dissuade an employee from leaving with the realization it is not enforceable.  The reality is non-compete agreements in Texas should apply in only very limited circumstances when used properly – that however is not always the case.

A recent case in Pennsylvania pitted two rival fireworks companies against each other in a non-compete dispute. These companies handle big events like firework displays at college football games and at Times Square during New Years.  Matthew Wood is a talented fireworks choreographer who had a non-compete agreement with his former employer Zambelli Fireworks.  In 2008 he left Zambelli for Pyrotecnico, a rival fireworks company.  Zambelli apparently lost business to Pyrotecnico and sued over Wood’s non-compete agreement.  The Court dismissed the suit holding:

Zambelli has failed to introduce sufficient admissible evidence to enable a reasonable factfinder to determine that its loss of business was due to wrongful conduct by Wood, as opposed to the mere loss of his services or other competitive factors.

It’s hard to see how a non-compete agreement with a fireworks choreographer would be enforceable under Texas law.  The agreement would have to be ancillary to an otherwise enforceable agreement meaning the non-compete would have to protect something provided to the employee like a trade-secret.  Employers in many instances have difficulties identifying the protectable interest and courts tend to focus on this component of any claim.  Zambelli, according to the Court could not identify how Wood’s conduct caused a loss of business and he is free to continue his work with Pyrotecnico.

 

Read More
No Comment

Non-Compete Agreements

Coaches & Non-Competes
October 13, 2010

                                       

College football is big money.  Not surprisingly, football programs that pay millions of dollars to their coaches would like to keep them  from moving to other schools.  For instance, Arkansas coach Bobby Petrino has a contract that prevents him from going to another school within the Southeastern Conference’s western division.  But, programs also want to tie down assistant coaches.

Programs on the rise or established programs generally have a bevy of up and coming assistant coaches.  Texas defensive coordinator Will Muschamp is a star coordinator.  Head Coach Mack Brown anointed Muschamp his eventual successor.  Of course Mack has not told anyone when he plans to step down.

Muschamp is a University of Georgia graduate and former player.  Georgia coach Mark Richt has had a terrible season.  Rumors are abound that Georgia may target Muschamp as a replacement. 

Texas defensive coordinator Will Muschamp

Could Texas craft a non-compete agreement that would prevent Muschamp from leaving?  Probably not.  To begin with, Texas would have to draft a clause that prevents Muschamp from going to Georgia.  Would that be reasonable in scope?  Keeping a coach from going to work for a conference competitor is one thing, but preventing him going to a school Texas rarely plays is another.   

The bigger question is could a non-compete be crafted under Texas law for a football coach that is ancillary to an otherwise enforceable agreement?  Non-competes are typically used to protect trade secrets and other proprietary information.  There aren’t really any secrets when it comes to coaching.  As a result, it would seem unlikely that a court would find an interest worth protecting vis-à-vis a non-compete.

So it seems unlikely that Texas could enforce a non-compete against Muschamp.  But, other states have more relaxed non-compete laws that might permit the enforcement of such a provision.  Especially, if the Judge happens to be an alum from that particular school – just kidding.

Read More
No Comment

Non-Compete Agreements

Top 5 Defenses to Non-Competes
October 7, 2010

                    

 

It is always nice to get a different perspective on non-compete agreements, especially from the employee’s side.  Florida employment lawyer Donna Hallman provides her top five ways to get out of a non-compete agreement in a recent article.  They include:

1.    The employer breaches the contract;

2.    There is no legitimate interest to enforce;

3.    Your agreement is for too long of a time period;

4.    The so called “confidential information” is readily available to the public; and

5.    Public health and safety would not be served. 

It’s interesting how employers and lawyers attempt to carve out non-compete agreements that address many of the defenses alleged set forth by Donna.  With respect to number 1, "an employer breaches the contract", clauses are frequently drafted where a breach by the employer is  identified as a basis not to disallow the non-compete provision. Whether such a clause works depends on the breach.

As to number 3, "the agreement is for too long a time period", Texas courts are permitted to shorten the non-compete term and make the agreement enforceable. 

Numbers 2 and 4 seem to always be the best defenses now.  Basically the claim is that what gives rise to the non-compete is not protectable.  To put it another way, I didn’t give you any information, training, or other propriety information that would give rise to the necessity for a non-compete in the first place.  The agreements have become easier to enforce in Texas, and this has become one of the last remaining defenses to non-compete agreements

Here are a few more for the list:

6.    Don’t sign the non-compete in the first place (Duh);

7.    If you are going to sign a non-compete, make sure it’s in a jurisdiction where it’s very difficult to enforce like California; and

8.    Include a buy-out provision in your non-compete so you can get buy your way out of enforcement.

 

 

 

Read More
No Comment

Non-Compete Agreements

M.D. Non-Competes in Texas
September 29, 2010

As discussed here previously, Texas non-compete and non-solicitation agreements are alive and well and the Texas Supreme Court has made them easier to enforce. Doctors are frequently the targets of non-competes and they are legal in the state of Texas. 

The Texas Legislature has gone out of its way to set forth provisions necessary to make a non-compete enforceable against a doctor in  Section 15.50 of the Texas Business & Commerce Code. The highlights:

Patient Records/Care:  The non-compete must: (1) not deny the physician access to a list of his/her patients upon departure;  (2) provide the physician access to their patients’ medical records when authorized by the patient; and (3) the physician must not be prevented from providing treatment to an acutely ill patient.

Buy-Out Provision: The statute also requires that the non-compete provide for a buy-out of the non-compete at a reasonable price or as determined by a mutually agreed arbitrator or one chosen by the court. 

 

In sum – read the statute to make sure your non-compete complies with the statute, don’t play games with patient records or care, and provide a buy-out provision.

Read More
No Comment

Doctors  / Non-Compete Agreements

Employers in the Crosshairs
August 31, 2010

                                      

As discusssed here before, a former employee with an non-compete agreement usually has two choices in terms of challenging a non-compete.  The first is to "compete" and then see what the former employer does.  This could mean a lawsuit with an application for a temporary restraining order that puts the former employee out of work.  The wait-and-see approach essentially removes the employee from any control until the former employer decides to act.  This is the most common and cheapest approach.

The second approach is to sue the employer and challenge the validity of the non-compete.  The reality is most former employees simply don’t have the money to fund such an endeavor.  In a recent lawsuit in the Houston area, a group of doctors filed suit against the Sadler Clinic.  Those doctors are challenging the enforceability of a non-compete agreement that prohibits them from practicing medicine within a 22-mile radius of Sadler’s Conroe, Texas location.  Interestingly, the employment agreements contain a buyout provision that would relieve the doctors of their non-compete allegations.

This is not the first suit involving a Sadler non-compete.  Sadler filed a lawsuit against a departing physician in August 2009.  Apparently, the doctors are seeking to intervene or join in this lawsuit since the same non-compete is at issue.

 

Read More
No Comment

Doctors  / Non-Compete Agreements

The LinkedIn Lawsuit – Follow Up
July 27, 2010

                                              

A few months ago I profiled a non-compete/non-solicit lawsuit where the Plaintiff employer used LinkedIn communications as evidence to support their claims against several former employee recruiters.  The case was covered in a number of media outlets and blogs.

In the interim the Defendants answered the lawsuit and filed a counterclaim.  Here’s what the counterclaim alleged:

  • Representatives of the employer told one employee that he could continue to work in the recruiting industry as long as he didn’t call on the Plaintiff’s customers;
  • The non-compete agreements are unenforceable; and
  • The Plaintiff is tortiously interfering with their new employment agreements.

In their answer, the Defendants allege that what the Plaintiff claims is confidential customer information was publicly disclosed through social media and is no longer protected:

Plaintiff’s claims that relate in anyway to customer and/or client information fail to the extent that Plaintiff, or its employees, have thrust said information into the public domain through the use of sites such as, LinkedIn and Facebook, and/or to
the extent Plaintiff encouraged its employees to place said information into the public domain.

The case is set for trial in August 2011.  We’ll keep you posted on any further developments.

Read More
1 Comment

Non-Compete Agreements

Are wirehouse brokers on the move?
June 8, 2010

A recent survey by Boston-based Alite Group found the following:

  • 11,000 wirehouse reps may be on the move;
  • 15% are satisfied with their employer;
  • 20% are ready to move and would like to do so in the next 2 years;
  • 2/3’s of those with retention plans in place say there is a chance they’ll leave;
  • most advisors think they can take half of their existing book of business; and
  • only 23% would go independent. 

Brokers with retention plans in place will have to consider the economic impact walking on a retention plan would have in addition to the amount of business they could potentially lose.  Also, making the move from a large wirehouse, which in most instances is a member of the Protocol, to go independent could result in a non-compete or non-solicit lawsuit that could tie up the departing broker in Court or Arbitration and be a financial drain. 

With more and more advisors unhappy with their current wirehouse employer it will be interesting to see if there is actually a significant migration to become independent and what the wirehouse reaction is.  As it stands, wirehouse to wirehouse migration is down but whether advisors are that "unhappy" remains to be seen.

(h/t Howard Stock of the Bank Investment Consultant)

 

Read More
No Comment

Financial Advisors



Weinstein Radcliff Pipkin is a litigation serving Texas, Oklahoma, Arkansas, and Louisiana. We are experience in matters of construction law, surety, contracts, commercial litigation and labor & employment. We’re passionate about providing clients with trusted service and solutions to their legal needs.

Learn More

Contact Us

  • 8350 N. Central Expressway, Suite 1550
    Dallas, TX 75206
  • 214.865.6130 (phone)
  • 469.629.5300 (fax)
  • Email