A recent article in the New York Times highlights the use of non-competes in a wide variety of occupations including a summer camp counselor and a hair stylist. The article seems to casts non-competes as used in too many situations and that there is a rise in non-compete enforcement. I’m not sure I agree with the conclusion that non-compete enforcement is on the rise. It’s a hard conclusion to reach because there really aren’t statistics maintained on these types of things and your left to looking at appellate opinions (which don’t cover every lawsuit that is filed) or anecdotal evidence. I do agree that these types of agreements seems to be popping up in more and more occupations – especially in service industries.
The article sums up non-compete laws across the US:
The United States has a patchwork of rules on noncompetes. Only California and North Dakota ban them, while states like Texas and Florida place few limits on them. When these cases wind up in court, judges often cut back the time restraints if they’re viewed as unreasonable, such as lasting five years or longer.
“’In most states there has to be a legitimate business interest, and it has to be narrowly tailored and reasonable in scope and duration,” said Samuel Estreicher, a professor at New York University School of Law.
The reason behind non-competes appearing in more industries and occupations is because there is no downside for an employer to insist on such a covenant. First off, a Texas employer can include and insist on a non-compete or non-solicit and then choose not to enforce it. So the employer gets the benefit of intimidating or at least making an employee think twice about moving to a competitor but then never sue. The employer could also send the former employee and their new employer some type of demand letter letter and force some type of dialogue or resolution. Basically, the employer can us the threat of enforcing the non-compete without having a court every construe its terms or determine whether it is actually enforceable.
Why don’t more employees challenge non-compete in court? The reason is simple – $$$$$. Most employees don’t want to and can’t fund litigation to find out if there non-compete is enforceable. There are limited circumstances where an employee files a declaratory judgment action and request that the court find the non-compete is enforceable. Of course there are risks to this. The court could find it is enforceable or tailor the non-compete to make it enforceable. Ninety-nine percent of all non-compete cases involve an employer suing a former employee and usually seeking a TRO. In response the employee claims the non-compete is unenforceable. The problem here is the employee is back on his or her heels having to defend the non-compete claims and at the same time assert the agreement is unenforceable.
So the proposal from other states is just to outright ban the agreements. I don’t think that’s a likely solution in Texas but certainly the employer has the upper hand with these types of agreements. Ultimately the best defense to a post-employment covenant is not to sign one, but that is not always an option.