You might think that with the economy in the tank, employers would be less worried about enforcing noncompete agreements and more worried about merely staying afloat. Not so. In fact, as the active workforce shrinks — unemployment jumped up to 7.6% today, and 600,000 jobs vaporized since New Year's Day (Reuters story here) — the battle for talent has actually become fiercer. To be sure, the number of reported decisions dropped off a bit in the latter half of 2008 (see chart). But anecdotal evidence suggests that employers' appetites for protecting their stuff and their peeps are still strong.
Over the past 11 years at Shepherd Law Group, we've worked on hundreds of these matters for employers on both sides — the former (enforcing) employers and the new (hiring) employers. We've seen a lot of different ways to lose noncompete cases, if you're the former (enforcing) employer. Here are eight:
- Put your faith in the language of the noncompete agreement. I can't tell you how many times I've had lawyers for former employers tell me that they were going to win "because he signed the agreement." The court doesn't care what the agreement says if it's not absolutely necessary to protect the company's interests.
- Try to enforce against any old employee. If the employee is not in a position to give the new employer an unfair advantage by taking confidential information or customer relationships, you can forget about enforcing it.
- Make sure the noncompete is broadly drafted. Too many lawyers think that drafting an agreement is about trying to think up every metaphysical possibility and then drafting around it. They also think that it's OK to draft broadly if you include a provision that "allows" the court to scale back the scope of the agreement. That's mighty kind of you, but the court doesn't care about those provisions (often mistakenly called "blue pencil" clauses). More often than not, a court will toss the whole agreement if it decides it's too broad. And in some states, the court will automatically 86 the noncompete if it's even a little too broad.
- Focus on geography, duration, and scope. Most lawyers remember from law school that you need this particular trifecta to enforce a noncompete, and they think the analysis ends there. While it is true that noncompetes that are overbroad in these categories will fail, that's only a table stake. What's more important is the necessity of enforcing the agreement to protect secrets or relationships.
- Wait a while to file. The key to winning a preliminary injunction (which is the usual goal in a noncompete lawsuit) is to convince the judge that without it, your company will suffer immediate, irreparable harm. Waiting around to file makes that argument less persuasive. On the other hand ...
- Ask for the injunction before you've developed enough evidence. Sometimes you can win based solely on the affidavits you supply, which you got from your internal investigation. But if your evidence isn't strong enough, it's better to take some expedited discovery (depositions, documents, computer and email records) before you ask for the injunction. You usually only get one shot at the prize.
- Don't worry about which state to file in. I don't mean state of mind; I mean jurisdiction. Sometimes which state you file in can make a crucial difference in whether the agreement will be enforced. In California, as most lawyers know, you haven't got a prayer, while in Florida, noncompetes are presumptively enforceable.
- Focus on the law instead of on the story. This is the most important lesson. Lawyers often fall in love with their legal arguments. But noncompete cases are equity cases, not law cases. To be sure, that distinction means less than it did a hundred years ago. But if you have a brilliant, clever, technical legal argument and an unsympathetic story, you are way more likely to lose.
Bottom line: If your client's wearing the white hat, and your agreement is narrowly drafted, and your secrets or customer relationships are in imminent peril, then you've got a fighting chance of winning. Otherwise, wave goodbye to the former employee and get back to work.