August 19th, 2016

Non-compete agreements raise issues

Massachusetts is taking another look at non-compete agreements.

Historically, non-compete agreements were in place to limit an employee, who leaves the employment of a particular employer, from competing with that employer after his term of employment ends.

The concept of these non-compete agreements was based on a belief that the employer has provided the employee with specific training or inside, proprietary information (such as trade secrets or customer-patient lists), which should be limited in its use competing against the employer.

The countervailing pressure, in support of an employee going to a new position without any constraints, is that an employee should not be forbidden from pursuing a legitimate livelihood by enforcing a non-compete agreement.

The factors which can go into the consideration of determining the need for such agreements can be based on a number of factors:

  • When was the non-compete agreement made? Was it when the original employment commenced or a later time?
  • Was there separate consideration, an additional benefit, to the employee at the time of the signing of a non-compete agreement? Was the employee paid for accepting the non-compete limitations?
  • Who initiated the termination between the employer and the employee? Were there any wrongful acts or duplicity by either party?
  • Are there limitations of the enforceable time span or geographic area or scope of work in the non-compete agreement? Most courts speak to these factors needing to be “reasonable limitations.” “Reasonable” can vary a great deal depending on the particular skills or factors involved in each situation.
  • Special note: Some employers put in lawyer’s fees and costs of enforcement as a cost if the employee is sued and loses the suit. These costs can be very high and this consequence should be avoided.

California does not presently permit non-compete agreements. Most states do permit such agreements. However, each state may interpret enforceability differently.

This difference may lead to an interesting situation particularly when two abutting states may differently interpret the same agreement and enforcement may cross state lines.

This situation can result in “forum-shopping” where the person who files first in the “friendlier” jurisdiction may prevail.

The first thing to consider if asked to sign such an agreement is whether to sign the agreement at all.

Sometimes, it appears as one paragraph in an employment contract or in an Employers’ Manual that is incorporated by reference into an employment contract.

The best rule of thumb is: if you are asked to sign something, get the advice of an attorney. It may be possible to negotiate or modify the issue before it becomes a problem. There may be employment opportunities that should be rejected instead of agreeing to a non-compete.

Not every position should require a non-compete agreement. If there is no specialized knowledge being transferred, there should probably not be a non-compete. What are the actual issues and concerns in this situation? What are the concerns if the business is sold to a new employer with different priorities? There are many differences in each situation. A lawyer could help in avoiding some factor that a participant in a non-compete might miss.

All these factors should be considered before agreeing to a non-compete. If these issues cannot be resolved, the non-compete could be a deal-breaker.

With psychologists, the biggest issue is probably client/patient lists. Is the client a patient of a group or hospital or is the client a patient of the individual therapist? Would a client/patient, who wants to migrate with a particular therapist who leaves a practice but stays in the same area, be treated the same as a new patient who chose the original group or the new practice after the breakup?

Some of the considerations could be: who actually brought the patient into the practice and whether the patient had a choice or a particular perception of the therapist/patient relationship.

The more that any questions can be answered before there is a problem and the more transparency particularly in writing, the better for all parties.

Do not take the position that a non-compete should be signed now because there is pressure to accept the job and hope that the paragraph will not be enforced, will be forgotten, can be renegotiated or the law will change in the future.  n

Edward M. Stern, J.D., has a private law practice in Newtonville, Mass., Stern serves as assistant dean for pre-law advising at Boston University and is a visiting lecturer for the University of Massachusetts/Boston Department of Sociology.

By Edward Stern J.D.

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