In a case that highlights the difficulties of enforcing even valid noncompetition agreements against former employees, a superior court judge recently refused an enforcement request against former employees working for a competitor, despite apparent violations of their agreements. The terms of the parties’ contract notwithstanding, the court refused to enforce the restrictions against competition because the employer was unable to demonstrate that they either possessed proprietary information or would damage their former employer’s legitimate business interests by selling competitive products to its customers.
The result is a common one in the noncompetition enforcement world, where the existence of a written agreement barring certain post-employment activity is not nearly enough, standing alone, to support a court order blocking a worker from his/her new job. Employers must also demonstrate they have a substantive business reason for such an order. Generally, that standard can be met by showing that a former employee is competing unfairly by, for example, using trade secrets or confidential information that belongs to the company. More commonly, employers try to satisfy the requirement by demonstrating that the worker is damaging what’s termed its “goodwill” — the relationship it has established with its customers — by calling on them to sell a competitor’s products.
Employers’ claims often bog down on this latter issue, since a former employee normally argues that personal relationships with customers belong to him/her, not to the company. The argument is often compelling, particularly when salespeople are involved. In many cases, employers trying to overcome this problem are unprepared. They cannot adequately counter a worker’s contention that no one else at the company ever met relevant customers, and they often appear in court without hard evidence that a former employee even improperly solicited a customer. If customers track down a former employee at a new job, an anti-solicitation provision in a noncompetition agreement may not even come into serious play in an enforcement effort.
Employers with legitimate interests to protect should take note of these issues and prepare in advance to protect them. Broad, generally applicable non-compete forms may be insufficient and, in many cases, efforts to block employment is viewed by courts as excessive. A carefully drawn noncompetition agreement that applies to each employee’s particular job coupled with adequate protection of confidential data are probably the best ways to ensure that former workers cannot damage a company’s interests in the marketplace.