After nearly a decade of attempts, the Democratic Party is once again attacking non-compete agreements at the national level. For several years, federal legislation has been proposed to limit the use of non-compete agreements in low-wage fields where Democrats say they have no valid use. For example, in June 2015, former U.S. Senator Al Franken (D-Minn) and U.S. Senator Chris Murphy (D-Conn) proposed legislation that would ban the use of non-competes for low-wage earners (identified as individuals making less than $15 an hour, $31,200 per year or the minimum wage in the employee’s municipality) and require employers to notify all prospective employees that they may be asked to sign a non-compete agreement upon hiring.
In December 2014, the New York Attorney General’s Office initiated an investigation into Jimmy John’s corporate office and its New York franchises. Jimmy John’s is a sandwich shop with franchises throughout New York and the United States. The investigation in New York concerned whether the use of a non-compete clause that barred departing employees from taking a job with any employer within two miles of a Jimmy John’s store that made more than 10 percent of its revenue from sandwiches was legal.
Yesterday, John Smith, the president of ABC Bank, announced to the board of directors that he intended to resign to go work for XYZ Bank, a local competitor. Smith also intends to take some of the bank’s most important customers, and several top officers with him to XYZ Bank. Upset and panicked, the chair of the board contacted the bank’s employment attorney to determine what could be done to stop the president from leaving and taking customers and employees with him. “Send me a copy of John’s employment agreement,” the lawyer said. “Employment agreement? The board did not think John needed one. We never imagined he would quit.”
Arbitration provisions are increasingly a focus in non-competition litigation these days and are being used in a variety of strategic ways to assist with the enforcement of non-competition clauses. The United States Supreme Court recently held that an arbitrator, not a state court, should have decided the enforcement of non-competition clauses. The employer filed for arbitration when two of its employees, who had arbitration provisions in their employment contracts, went to work for a competitor. The employees filed a state court action challenging the enforcement of the arbitration and non-competition clauses. The state court held that the non-compete clause was unenforceable but that the arbitration agreement was enforceable. The United States Supreme Court found that where an enforceable arbitration agreement exists, the arbitrator, not the state court, has the authority to determine whether the non-competition clauses were enforceable. “Our cases hold that the FAA forecloses precisely this type of ‘judicial hostility towards arbitration,’” the court said, citing AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011).
Imagine the following scenario… Twenty years ago, your Company was the employer at issue in a key Supreme Court of Virginia non-compete agreement case. Your Company prevailed, with the Supreme Court holding that the Company’s standard non-compete agreement is enforceable under Virginia law. Relying on that victory, your Company continues using identical non-compete language and believes that it is on firm footing in doing so; after all, the Supreme Court of Virginia – the final arbiter of the meaning of Virginia law – has ruled that your non-compete is enforceable.
When asked on November 2, 2010, “Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements,” Georgia voters overwhelmingly answered “Yes.”
By this vote, the Georgia voters approved the Restrictive Covenants Act, a law that will dramatically alter Georgia’s legal landscape regarding non-compete agreements and other restrictive covenants. The Act increases the enforceability of these agreements and allows courts to modify them to the extent reasonably necessary to enforce and protect legitimate business interests. In order to become effective, Georgia residents had to amend the state Constitution — an event that happened three days ago during Georgia’s general election. Although there is a question regarding when the Act actually will become effective, by its own terms, it became effective on November 3, 2010. Below is a summary of some of the key provisions of the new law.
Hunton & Williams partners Laura Franze and Roland Juarez recently participated in a panel of California employment law experts to discuss various cutting edge issues in labor and employment law, including the impact of social media, new trends in non-compete agreements and trade secret protections, the ripple effect of the Ninth Circuit’s ruling in Dukes v. Wal-Mart, and other related topics.
On July 20, 2010, Hunton & Williams LLP announced the release of the first edition treatise Privacy and Data Security Law Deskbook (Aspen Publishers). The deskbook provides a detailed overview of the workplace issues affected by information privacy and data security law and is a practical one-stop loose-leaf guide for privacy professionals, compliance officers and lawyers responsible for privacy or data security.
In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 2009 WL 1028051 (Tex. April 17, 2009), the Texas Supreme Court held that the covenant not to compete at issue was enforceable because the agreement to furnish consideration (confidential information) for the covenant could be inferred due to the nature of the contract. The Mann Frankfort Court held that a promise can be inferred when the employee was hired to perform work that necessarily required the receipt of confidential information. Specifically, the Court stated:
We hold that if the nature of the employment for which the employee is hired will reasonably require the employer to provide confidential information to the employee for the employee to accomplish the contemplated job duties, then the employer impliedly promises to provide confidential information and the covenant is enforceable so long as the other requirements of the Covenant Not to Compete Act are satisfied.
Franchisors with operations in the State of Georgia are confronting a new challenge in their effort to enforce non-competition rights against franchisees. In Atlanta Bread Co. v. Lupton-Smith (6/29/09), the Supreme Court of Georgia held that an “in-term” non-competition clause within a franchise agreement is held to the same strict scrutiny standard applicable to post-term and employment contract non-competition clauses.