Non-Compete After Transfer to New Company

I signed this agreement when I began work with Company "A". After six months as a salaried employee I moved to doing
freelance (i.e., 1099) work for them. I worked for them consistently
under that capacity until the end of 2007.

At the end of 2007 the owner of Company "A" took a position at
a larger firm, Company "B", and moved her clients to that
firm. Since the beginning of 2008 I have been invoicing and paid by Company "B". I have not signed any sort of agreement
(employment, confidentiality, etc.) with Company "B".

In addition, all former Company "A" clients are now being invoiced by Company "B"
and serviced by Company "B" employees. The owners of the various client
companies have all had meetings with the owner of Company "A" explaining that they are now
Company "B" clients.

I'm not 100% certain, but I believe that the owner of Company "A" simply moved her clients
over to Company "B". I don't think that Company "B" actually purchased Company "A" for what bearing that might have on the situation.
Also, I do believe Company "A" exists as a legal entity, even though all clients
have been transitioned to Company "B".

My basic theory is that because all sections of my non-compete apply
very specifically to Company "A" and these clients are now Company "B" clients I
am free to solicit them. Each clause in the agreement mentions Company "A" by name. Thus, I would no longer be competing with services
that Company "A" provides those clients, negatively affecting the livelihood of
Company "A" or accepting an offer of employment from a client serviced by Company "A" (close variations of the agreement wording).

There is no mention in the non-compete about transfer or inheritance in the event Company "A" merges or is purchased (if that is what happened).

1 answer  |  asked Mar 23, 2008 6:55 PM [EST]  |  applies to New York

Unlock Non-Compete Agreements: Keys to Escape

Answers (1)

David M. Lira
Change an Employee to Independent Contractor

Non-competes are hard enough to get enforced when the employer does everything right. If an employer does something wrong, it may become impossible for employer to get a non-compete enforced.

One of those things that may make a non-compete unenforceable is changing an employee's status to an independent contractor, that is, from a W-2 to a 1099. Almost by definition, independent contractors are free to work for multiple companies in the same market. So, in changing an employee to an independent contractor, an employer is in effect giving the now former employee the permission to compete.

But a note of caution, when it come to contracts of any kind, no attorney can comment on the enforcibility of any provision without actually looking at the entire agreement.

posted by David M. Lira  |  Mar 24, 2008 12:58 PM [EST]

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