Labor and Employment

Covenants Not to Compete: Employer Strategies

Covenants not to compete (or non-competition, non-compete, or no-compete agreements) can be valuable tools for employers who want to keep you, as a former employee, from working with its competition or using its trade secrets. Sometimes, however, a non-compete agreement won't be enforced by a court.

That doesn't mean, however, that your old employer is powerless. The truth is, from the employer's point of view, it doesn't matter if a covenant not to compete is enforceable so long as you (and sometimes others) can be sued into submission. That is, if the employer can stop you in some other way, it may not need an enforceable non-compete. So, you should probably know about some of the strategies your employer might use against you.

Common Strategies and Tactics

The number of ways an employer may try to keep you from competing with it are limited only by the employer's imagination (or the imagination of the employer's lawyer). An employer may quite simply warn you about leaving the company and violating the non-compete. That may be enough to keep you from leaving, or at least competing. Absent that, however, there are some common ploys that employer's may use, such as:

Outspending you. Let's face it, your employer probably has more money and resources than you have. Many employers will bring a lawsuit with the hope that you'll find yourself buried in litigation costs and expenses that you simply can't afford. It works a lot. In the end, you may have to throw in the towel long before the case ever goes to trial.

Getting an injunction. You can bet that your old employer doesn't want to give you the chance to get your feet on the ground in a competing business. So, it will likely ask a court for a temporary injunction. This is a court order that will stop you from leaving the employer or working for a competitor (or both), until there's a trial on whether you actually violated a covenant not to compete.

Don't be fooled by the "temporary." This injunction could tie your hands for a period of 30 days or more, and this may be enough to put you out of business or out of a new job.

Your employer can take lightening-quick action to get such an injunction issued. So, if you signed a no-compete, you should probably have a your own lawyer on board to defend your interests before you ever do anything to violate it.

Suing third parties. In addition to filing suit against you, your former employer may (and they usually do) sue your "accomplices." One primary target is the competing company that hired or tried to hire you. Another potential target are is the co-owners of any business venture you started that competes with the former employer.

Keep in mind, the ultimate outcome of filing a lawsuit against such parties may not be as important as the chilling effect the suit may have on your relationship with those third parties. It's not uncommon, for example, for the new company to get "cold feet" about hiring you once it gets wind of the fact that it may end up getting sued. Likewise, a co-worker may change his mind about starting or staying in business with you.

Scaring other employees into compliance. It's simply a case of making an example out of employees who decide to jump ship in violation of non-compete covenants. If your employer has any track record of doing any of these things, it may be a hint of things to come in your case. This alone may be enough to keep you in line and on board.

Relying on laws such as the Uniform Trade Secrets Act (UTSA). Regardless of whether your non-compete is valid and enforceable, laws such as the UTSA protect employers from employees misappropriating or "stealing" propriety information. This includes things like customer lists, recipes, the process of how to make something. These laws may give an employer the right to sue you even without a written covenant not to compete.

Be Prepared

You should understand that your employer already knows the value of sound legal advice in these situations. In all likelihood, it had an attorney write the non-competition agreement you signed. And, that lawyer is probably standing by, ready make you honor it.

As an employee, it's critical that you talk to an attorney if you're thinking of leaving your job. There may be a way to get around the non-compete or your employer's tactics. Maybe not. The important thing is that you talk to your attorney before you do anything that may make your employer come after you for violating or "breaching" your covenant not to compete.

Questions for Your Attorney

  • I'm ready to start my own business doing the same thing I'm doing for my current employer. I signed so many papers when I got hired I'm not sure if I signed a non-compete. If I ask my employer, it'll just get suspicious about plans, won't it? How else can I find out if I'm subject to a non-compete?
  • I worked for my employer in several positions and departments over the years. If I only signed a non-compete agreement when I was first hired, does it still apply given all the changes in my employment over the years?
  • My employer said it will let me out of my non-compete if I agree to pay it a percentage of the profits I make in my new business for the first three years of operations. Should I agree to it?
  • How much will it cost to fight my employer's lawsuit to enforce a covenant not to compete?
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