Trade Secrets and Noncompete Blog : Non-Compete Lawyer & Attorney : Epstein Becker Green Law Firm : Trade Secrets & Confidentiality Agreements

In January, Massachusetts State Representative William Brownsberger filed a bill which would seek to void any contract that restricts an employee’s ability to search for and obtain another position with a different employer. While this bill has gained some support, it is unclear whether this will resolve the issues regarding non-compete agreements in Massachusetts. The Small Business Association of New England is working with Representative Brownsberger to draft a compromise bill which would limit who can be covered and the duration for which the agreements can last.

With the pending legislation in Massachusetts to do away with non-compete agreements, both sides are struggling to find the solution to the problem. The question is: How can Massachusetts make itself more attractive to the tech community? Is the answer to do away with non-compete agreements or to simply modify them and restrict their duration and scope?

Supporters of the current Massachusetts laws regarding non-compete agreements argue that such agreements foster competitiveness between companies, prevent confidential information from being shared, and protect business relationships which may be hurt when an employee leaves a company. Many large companies believe that non-competes are essential to attracting employees. Such employers argue that non-competes are voluntary in that they are not required by all companies and employees are not required to sign them although refusing to sign may result in a potential employee not being hired.

Opponents of non-competes believe that such agreements are restricting the growth of the tech industry in Massachusetts because they make it more difficult for employees to move between companies, thereby encouraging employees to take positions with larger companies to the detriment of smaller start-ups. Additionally, opponents argue that employees gain more knowledge and experience as they change positions and move from company to company. Further, opponents believe that the elimination of non-competes will make Massachusetts a competitor with Silicon Valley and will encourage the start-up of tech companies in Massachusetts. 

For now, the question still remains: Will the elimination or modification of non-compete agreements in Massachusetts make the state a better, more attractive location for the tech industry and help to boost the economy or will it diminish competitiveness between companies? Public hearings for Representative Brownsberger’s bill are scheduled for sometime this fall, during which we expect these questions and many others to be addressed. We intend to follow the legislation and report on its progress in this blog.
 

Florida law, specifically section 542.335, Florida statutes, generally authorizes courts to enforce non-compete and other post-employment restrictive covenants, provided the agreements are in writing and signed by the employees against whom enforcement is sought, are reasonable in time, area, and line of business, and are supported by one or more legitimate business interests supporting the restrictive covenants.

Section 542.335 is fairly detailed. The statute defines what a reasonable time period is (it depends on the nature of the restrictive covenant), it lists several legitimate business interests, and it even addresses potential defenses. For example, it states that the court "[s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought."

Still, section 542.335 leaves several issues unaddressed, leaving the courts to sort them out. Several of those issues are addressed in a 48 page opinion issued recently by the Eleventh Circuit Court of Appeals in Proudfoot Consulting Co. v. Gordon (11th Cir., July 30, 2009). The Eleventh Circuit affirmed the district court's injunction, but reversed the $1.66 million damages award to the former employer.

Here are some key points to take away from the court's decision:

• Where a non-compete covenant does not contain a geographic limitation, the court can supply a reasonable geographic scope. And where, as here, the employee had been assigned to a territory that included all of North American and Europe, this geographic area is reasonable.

• The court expressed doubt that a broad non-compete agreement that prohibits the former employee from working for a competitor, irrespective of which clients he is serving, would be reasonably necessary to protect an employer's interest in the relationships that the former employee developed with its clients.

• The court also expressed doubt that such a broad non-compete agreement would be reasonably necessary to protect client-specific confidential information, if restrictions that prevent the employee from contacting, or working for, those clients would be sufficient to protect that information.

• On the other hand, the court stated that where an employee has access to confidential business information crucial to the success of the employer's business, the employer has a strong interest in enforcing a covenant not to compete, irrespective of whether the employee improperly retains and uses that information in his new employment. But the court noted that it is unclear under Florida case law precisely when confidential information will justify a broad non-compete covenant. Is it sufficient that the employee be in a position at his new employer to use the former employer's confidential information? Or must the former employer meet the higher burden of proving that disclosure of the confidential information by the employee would be inevitable in the employee's new position? The court declined to answer this question, finding that under the facts of this case, where the employee had actually retained some of his former employer's confidential business information, the potential disclosure of that information to his new employer justified the enforcement of the non-compete covenant.

• It is not necessary that the former employer prove that the employee intentionally breached the restrictive covenants at issue in order to receive injunctive relief. The employee's good faith, reasonable belief that he is not in breach of a restrictive covenant is no defense.

• With respect to damages, the fact that the new employer profits from a breach of its employee's non-compete agreement with his former employer is irrelevant absent a finding that the employee directly caused his former employer to lose profits. "Damages for breach of a non-compete are intended to make the prior employer whole, not to punish employees." Furthermore, "disgorgement of profits earned is not a remedy for breach of contract," especially where the new employer is not even a party to the litigation.
 

Not many lawsuits under the Employee Retirement Income Security Act (“ERISA”) turn on whether an employer legitimately insisted that an employee sign a no-compete agreement in order to receive benefits, but a federal court lawsuit currently pending in Chicago presents that very scenario.

Specifically, in a case brought by a former Bank of America employee against Bank of America and others, Charles Corbisiero alleges that he was lured into continuing to work for Bank of America by a promise of certain allegedly vested bonuses and other benefits, only to be told upon his termination that he could only receive such bonuses and benefits if he signed what Corbisiero describes as “an unconscionable non-compete agreement.” Corbisiero refused to sign, Bank of America refused to pay, and the end result was this rare mix of ERISA and a no-compete.

Bank of America recently moved, successfully, to dismiss Corbisiero’s state law claims (on the grounds that they are preempted by ERISA), but the Court denied Bank of America’s motion to dismiss Corbisiero’s claim that Bank of America is equitably estopped under ERISA from providing the bonuses and benefits at issue.

Although the Court was unwilling to dismiss the equitable estoppel claims at this juncture, it noted in its decision that at the summary judgment stage, Corbisiero will need actual evidence to prove up his allegations.