Category Archives: Post-Employment Restrictive Covenants

Quirky Question # 179 – Restrictive Covenants in an Expired Term Contract

Question:

Our company has a sales force composed of individuals located throughout the U.S.  When we hire sales employees, we use a term employment agreement, typically of three years’ duration.  Our employment contracts include post-employment restrictive covenants, the most important of which are non-competes and non-solicits with respect to our customers.  Each restrictive covenant last two years.

We try to negotiate new agreements for the sales employees who are doing a good job.  Our goal is to get the new agreements in place at least one month before the existing agreements expire.  Sometimes, however, things fall through the cracks and we find ourselves negotiating a new agreement following the expiration of the former contract.  In the interim, the employees usually just keep working for us under the terms of the prior agreement. Then, if there are compensation changes, we make them retroactive to the date the prior contract expired.

One of our best salespeople recently advised us she was resigning to join a competitor.  Her contract apparently expired about three months ago but we failed to notice and did not negotiate with her regarding a new agreement.  Nevertheless, she continued working under the terms of her old contract and did not raise any concerns.

When she told us she was leaving, we tried to sweeten the offer to persuade her to stay.  We were not successful. We then told her we expected her to abide by the two-year non-compete and the two-year non-solicit.  Her response was that those provisions expired with the contract’s expiration.  That can’t be right, can it?  The contract specifically provides that the restrictive covenants continue for two years after the contract’s termination. Answer→

Quirky Question # 164; Who Owns Employees’ Ideas?

Question:

One of our employees recently left our company and joined one of our competitors. He did not have a non-compete (we are located in a state that rejects non-competes). But, he did have an inventions assignment agreement.  He took some very clever ideas to one of our competitors, which promptly hired him. The competitor began working on his ideas and has created an immensely successful product line based on his concepts. We have reason to believe that he conceived these ideas while still employed at our company, even if he only worked on them during off hours. We think he also may have used at least some of our company’s equipment to develop or refine his ideas.

Don’t we own these ideas? Doesn’t the product line that our competitor “developed” really belong to us? Answer→

Quirky Question # 160: Non-Competes and Public Policy

Question:

We are a nationwide company with offices and employees in nearly every state. One of our primary growth areas is California. We understand that California courts are generally inhospitable to post-employment restrictive covenants, including non-competes. But, we are trying to have uniform policies throughout our organization. Consequently, we still have confidentiality and non-compete language in our employees’ contracts, even for those who work in California.

Recently, one of our employees left our company and joined a competitor, also located in California. We understood that it would be difficult to enforce the non-compete so we simply called our competitor and pointed out our concerns regarding both our non-disclosure and our non-compete obligations. We advised our competitor that we would appreciate it if they would abide by the spirit of our non-compete and noted that we would reciprocate if provided the opportunity with regard to our competitor’s employees.

Our competitor terminated our ex-employee soon thereafter. Her lawyer has now written us to state that we have violated public policy. What is he talking about? We did not fire the employee. We just had a friendly chat with our competition. Answer→

Quirky Question # 159, Non-Competes and Choice of Law Provisions

Question:

Our company’s headquarters is located in Seattle, Washington.  We want to hire someone to start up our company’s new location in another state.  Because of the competitiveness of our industry, we would like our new employee to sign a non-compete agreement applying Washington law.  Although we are familiar with the non-compete laws in Washington, we are unsure what the law is regarding non-compete agreements in the new location.  We are concerned that we will enter into a non-compete agreement with this employee and it will turn out to be unenforceable in the new location.  Is there anything we can do to make the Washington law focused non-compete agreement enforceable outside of Washington state? Answer→

Non-Competes, Unsigned Agreement; Quirky Question # 126

Quirky Question # 126:

We have a non-compete issue.  Several years ago, we provided our employees with an employment agreement that contained various post-employment restrictive covenants.  When one of our employees left a couple of years later and started competing with us, we took a careful look at the non-compete language in the employment agreement.  Simply put, it was not brilliantly drafted.  Therefore, we had our lawyers draft a new version of the employment agreement that contained a more carefully crafted (and more comprehensive) non-compete.  Because our company also was having some financial difficulties at that time, we also used that opportunity to change everyone’s compensation formula, reducing their compensation.

Most of our employees signed off on the new agreement.  Several, however, did not.  Nevertheless, we started compensating those employees on the basis of the new compensation system and they continued to work.  After another year or so, due to ongoing financial problems at our company, we reduced everyone’s compensation yet again.  We presented the employees with a new employment agreement, containing the new compensation formula.  We also changed some other terms and conditions of their employment, and significantly enhanced the non-solicitation agreements (both with regard to co-employees and customers) contained in the agreement.  Again, some employees did not sign.  But, we started compensating them on the basis of the new agreement and they continued to work for us.

A couple of the employees who never signed the revised agreements recently left our company and joined one of our competitors.  We’d like to enforce the most recent version of the employment agreement, with its better drafted restrictive covenants, even though they did not sign.  Even though they did not sign, they continued working for us.  Short of enforcing that agreement, we’d like to enforce the agreement they did sign.  Do you see any problems with that plan? Answer→

Employment Law in China

Best Practices to Ensure that a Non-Competition Agreement is Enforceable in China

By Richard Chao and Haidong Yang

Introduction

After more than a year since the implementation of the PRC Employment Contract Law (the “Law”) (the PRC Employment Contract Law was promulgated on August 5, 2007 and became effective on January 1, 2008; the Implementing Regulations for the PRC Employment Contract Law became effective on September 18, 2008), the law governing non-competition agreements remains unsettled.  Employers should work closely with counsel to ensure that their non-competition agreements are up to date and enforceable in China.  The general rule is that the employee must receive reasonable compensation for the non-competition agreement to be enforceable.  Underneath this general rule, however, two traps wait silently for the unwary. Answer→

Quirky Question # 104, Restrictive Covenants in Acquisition Context

Quirky Question # 104:
 We are a high tech company.  We use various post-employment restrictive covenants with many, though not all, of our employees.  For our engineers, our senior managers and other select employees, however, we require non-competition, non-solicitation and non-disclosure agreements.

Because of the recent success of one of our software products, we are receiving serious inquiries from two potential suitors.  They want to know whether our restrictive covenants will continue to bind our key employees in the event of an acquisition.  I’ve always assumed that the employees would continue to be bound but there is nothing in the agreements themselves that addresses this context.  Any thoughts on whether we will be able t bind our key employees to the same restrictive covenants they have with us in the event our company is acquired?

Answer→