Non-Compete Question

I have a question about a non-compete agreement (that I believe would be helpful in your DB). We hired a girl about 3 months ago to help us get a clothing line off the ground. She had a non-compete (that she told us about) that does not allow her to solicit "custom clothing" (which we were not). We are now wanting to get into the custom clothing business, which would be a confilct of interest with her current non-compete (from her previous employer). What do we do?

1 answer  |  asked Jul 18, 2003 1:29 PM [EST]  |  applies to New York

Unlock Non-Compete Agreements: Keys to Escape

Answers (1)

David M. Lira
Employer Wants to Avoid COnsequences of a Non-Compete

The way I read this query, it is from an employer, rather than an employee.

The first thing to remember is that the non-compete agreement is between the employee and her ex-employer. The new employer is not part of the agreement, and not bound by it. This provides the basis for the new employer's first option.

Ex-employers, seeking to enforce non-competes against ex-employees, often sue not only the ex-employee but also the new employer. There is "legal" justification for this move -- because the ex-employer will typically want an injunction against the ex-employee, the court may have to have the new employer involved to enforce any injunction it might issue. But, more often than not, the ex-employer brings in the new employer into the lawsuit because the new employer's reaction is typically to fire the employee. Because the new employer is not part of the non-compete agreement, this action automatically eliminates any reason for the ex-employer bringing the new employer into court.

Of course, the new employer might want to pre-empt the ex-employer from ever dragging the new employer into court. In this case, the new employer can fire the employee as early as possible. Of course, this assumes there are no other contractual restrictions between the new employer and employee.

Sometimes, however, the new employer wants to keep the employee. In this case, there is another fact that the new employer might want to keep in mind. That is, courts tend to be very skeptical of non-competes in employment agreements, and tend not to enforce them. (Courts have an entirely different attitude about non-competes in contracts for the sale of a business.) Ex-employers know this, and, very often, never bother to enforce the non-compete. In other words, doing nothing is a viable option.

There is, however, no guarantee that this will work. If it doesn't, than the worse that will happen is that the ex-employer sues the employee, and brings in the new employer for good measure. This result really isn't much different than a third option, which is for the employee, perhaps financed by the new employer, to bring a declaratory judment action against the ex-employer. That is, the third option is to start a pre-emptive lawsuit. The aim of a declaratory judgment action would be the same as the basic defense in an action brought by the ex-employer against the employee and new employer. That is, the aim would be to show that the non-compete is not enforceable under New York State law.

In my experience, employees will more often than not be able to convince a court that their particular non-compete is not enforceable. That is, employees usually win. But whether a particular employee will win will depend on the details of the agreement, the nature of the employee's work with the ex- and new employers, and the nature of the markets served by the ex- and new employers. These are highly fact specific inquiries.

Again, a new employer's options are:
1- Fire the employee to dodge any kind ot trouble
2- Do nothing, and wait to see if the ex-employer does anything
3- Have the employee start a lawsuit against the ex-employer for the purpose of having the non-compete declared invalid.

posted by David M. Lira  |  Jul 21, 2003 10:08 AM [EST]

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