Smooth Transitions : Rob Radcliff : Texas Non-Compete Lawyer & Attorney : Langley Weinstein LLP Law Firm : Dallas Employment & Employee Departures : Smooth Transitions Law Blog

We have previously addressed rumblings that the Department of Justice was investigating agreements between companies where they agreed not to contact each other’s employees for hiring purposes. 

The companies involved were Adobe, Apple, Google, Intel, Intuit and Pixar.  In the competitive impact statement, the DOJ outlined the nature of the agreements.  For example, the Google-Intuit agreement provided for the following:

Beginning no later than June 2007, Google and Intuit agreed to prohibit Google from cold calling any Intuit employees.  Senior executives at Google and Intel reached this express agreement through direct and explicit communications.  The executives actively managed and enforced the agreement through direct communications.  The agreement covered all Intuit employees and was not limited by geography, job function, product group, or time period.  In furtherance of this agreement, Google listed Intuit among the companies that had special agreements with Google and as part of its “do not call” list.  Google policed the agreement to ensure it was followed, including by investigating complaints from Intuit that Google had violated the agreement.  On each occasion, Google determined that it had not violated the agreement and informed Intuit.

From the pleadings filed by the Department of Justice, it’s clear these were rather sophisticated agreements.  Effectively included were review and complaint procedures in the event of an alleged violation of the non-solicit agreement.  These deals were essentially the opposite of broker protocol, which allows stockbrokers to move freely between members of the broker protocol without fear of a lawsuit. 

Though employers can certainly enter into non-compete and non-solicitation agreements with their employees as long as they comply with applicable state law, it would appear to be next to impossible for companies to enter into company-company agreements with one another to shut down the movement of their employees.   

The proposed final judgments prohibits the companies from entering into these agreements and requires them to disclose certain information to the DOJ, among other things.  There were no financial penalties disclosed. 

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#3: The Judge Can't Amend the Non-Compete.

Employers and employees always need to keep in the back of their mind that even if a non-compete is overly broad in terms of scope or duration a Texas court can amend the agreement to make it enforceable.  Texas is a "blue-line state" meaning a court can amend the non-compete if necessary.  Put another way it can make the non-compete fair and reasonable. 

So, even if the agreement is over the top, too broad or too long, the court can fix it.  In some states an overly broad non-compete can render the agreement unenforceable and there is no recourse for the employer. Employers should always consider asking the court to amend the non-compete if there is the chance it is unenforceable.   

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A recent non-compete/injunction opinion was delivered by Judge Marcia Cooke who presides in the Southern District of Florida.  The opinion deals with the departure of a California wine executive to another competitor. It addresses many of the issues addressed in this blog under Florida law including choice of law issues, whether customer information is proprietary and protectable, and the elements necessary for an injunction.

The Court ultimately denied the injunction.  One factor the court commented upon was the fluidity of employees from one employer to another in the wine business:

Southern Wine points out that it has lost several employees following Simpkins departure. Deposition testimony shows that fourteen employees have since left after Simpkins. Still, other deposition testimony indicates that in the wholesale alcohol distribution industry that defection of employees from one competitor to another is quite common and that Southern Wine itself – the top competitor in California – has hired employees from Young’s Market as well. These facts are indicative of the fluidity of transfer within this industry and that major competitors remain
successful because they foresee the possibility of defection and thus plan for it.

So the Plaintiff had actually hired employees away from it's former employee's new employer Though it doesn't appear the injunction turned on this issue it certainly highlights the fact that the conduct of employers in the marketplace will be scrutinized when they are trying to enforce a non-compete. 

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In Texas there are other options to prevent departing employers from competing with your business:

A Non-Solicitation: Instead of tying down your employee with a non-compete consider a non-solicitation. The non-solicit will still have to meet non-compete standards, but it can be used for specific customers as opposed to geographic areas. The rub, there will always be a debate about the right of a customer to do business with a departing employee and whether the former employee actually solicited the business or was contacted.

A Non-Disclosure: An employer can always attempt to lock down an employee by preventing them from using proprietary information they were exposed to through a non-disclosure. Basically the argument is the former employee cannot work for the company’s customer because they are using the company’s propriety information. This is very close to the inevitable disclosure doctrine, which is not recognized in Texas, but a non-disclosure should certainly be considered.

Compensation: Can the employer somehow tie future compensation into not competing? Basically, the company will agree to make payments to the departing employee for a period of time after they depart, but payment is dependent on non-competition. The rub, the company probably cannot enforce this agreement in Court, but if the employee decides to compete they don’t get any money.

The Anti-Raid Provision: The anti-raid provision prevents a departing employee from hiring your employees. The rationale is to keep the departing employee from setting up shop down the street.

There are other options as well, but these should be considered as part of any employment agreement. The more hurdles that can be put in the way of a departing employee, the better.

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We've written about non-competes involving firework choreographers, dog groomers, dance instructors, recruiters, executives, and salespeople.  The point is they run the gamut.  Periodically we will cover some of the more interesting cases out there.  Here's what's happening:

 The Florida Tatoo Artist

In a case  from last year, a Florida court enforced a non-compete agreement against a tattoo artists who was alleged to have a violated a non-compete agreement that included a 15 mile radius. The artist was alleged to have taken the customer list of his former employee and set up shop down the road.  Would there have been a different outcome if the artist hadn't taken the list?  It's a lot easier for judges to rule in favor of the ex-employee when they don't take things with them.

 Microsoft Strikes Again

A Washington state court judge issued a temporary injunction barring a former Microsoft employee from working for a competitor in the cloud computing business. The employee argued the scope of his work for Microsoft was international as opposed to his domestic oriented new job. The judge did not agree and the employee is barred from working for his new employer at lease through trial.  Microsoft is aggressive when it comes to enforcing their non-competes and appears to have a lot of success.  It also helps to enforce them in your backyard, King County, Washington.

IBM Non-Compete No Good

In this case a New York judge refused to enforce a non-compete agreement against a former IBM employee who was going to work for Hewlett Packard. The court held that IBM didn’t provide any trade secrets to the employee, other employees were not subject to similar type agreements, and there was testimony that the non-compete was merely a retention tool to keep employees from leaving. 

If you've run across any cases of note please let us know.

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