COVID-19 Heightens Risk
positions with competing firms. Employers may be tempted to overlook the terms of restrictive covenants so their terminated workers can earn a living. Doing so, however, may jeopardize the employer’s future profitability. “Employers who choose not to seek enforcement of restrictive covenants during this time should understand that failure to do so may hinder later enforcement,” cautions Joon Hwang, Shareholder in the Tysons Corner, Va., office of Littler Mendelson, P.C., the nation’s largest law firm defending employers in labor and employment disputes. He points out that future employees who breach restrictive covenants may assert a waiver argument — that the employer’s prior forbearance proves a lack of legitimate business interest to support enforcement of the agreements.
W
ically, and the longer the term of the restriction, the less likely the court will uphold it as reasonable,” cautions St. Antoine. An example of a very reasonable covenant would be one that calls for a one-year moratorium on working for a competitor, within the radius of one mile of the original employer.
State laws
Achieving the right balance is a tricky proposition, not only because each employer-employee relationship poses unique circumstances but also because no federal law provides a common nationwide playing field. Everything depends on state law, and that can differ substantially. “Fifty states have fifty permutations of what employers can lawfully restrict with written agreements,” says Mathis. “Many states allow restrictions for reason- able periods from six months to two years. Some states are more employee friendly than others. In Cal- ifornia, employers generally cannot have any kind of restrictions.”
The challenge is becoming greater because in many states the law is trending toward greater worker protec- tions. “The world is changing very rapidly,” says Dretler. “States are trending toward limiting non-competes. Many federal, state, and local initiatives, legislation, and news commentaries are asking whether there should be limits put on them. Are they anti-competitive? What’s really protectable? There’s a lot of litigation about these issues.”
Employers, then, need to avoid over-reach that can backfire when an unfavorable court decision removes the protections that were thought secure. “Another reason to avoid overreach is because it may reduce the employ- er’s credibility with the court when seeking to enforce
50 // May-June 2021
ith so many employers trimming work forces in response to the COVID-19 pandemic, many terminated individuals will be taking
There is a solution to this conundrum. Hwang suggests
employers take steps to minimize the risk their well- meaning inaction may have by memorializing their justification for not seeking to enforce the restrictive covenants. Legitimate reasons might include: • A lack of resources necessary to enforce the agreements due to the impact the pandemic has had on the employer’s business
• A decline in business from certain clients, or their bankruptcy
• Model records of former employees for whom restrictive covenants have been unenforced, including the fact that the individuals returned all confidential information and agreed not to solicit customers serviced Hwang offers another tip: “It would be helpful for
employers to explicitly state that the decision not to enforce at this time should not be interpreted as a waiver of any future right to enforce the restrictive covenants against other former employees.”
the non-competes that really matter,” adds Dretler. And he adds one more potential pitfall of unreasonable non-competes: Some valuable prospective employees may decide not to join a company out of fear they will be bound by a too-onerous non-compete when the time comes to leave.
Non-Solicits As suggested, non-competes can backfire when they fail to hold up to a court challenge. Very often that means an employee who has jumped ship is free to conduct business without any restrictions. And that can leave the former employer in a bad competitive position. There is a solution to this problem, and it comes in the form of another restrictive covenant. Often referred to as “non-solicits,” these covenants are designed to keep an employee who moves to a new business from soliciting a former employer’s customers for a set period of time. “An agreement not to solicit customers is often easier to defend than a covenant not to compete,” says Joseph Y. Ahmad, a founding partner in the Houston law firm of Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing. “That’s because it is narrower in scope, allowing the employee to work for a competitor.” Courts like the fact that these agreements preserve the ability of the indi- vidual to continue to earn a livelihood while protecting the rights of the former employer.
What if a former customer tracks down the departed employee at his or her new employer? Even then the terms of the non-solicit agreement usually hold. “The employee has to say ‘no, I can’t help you’ and the former customer needs to contact another employee,” says Ahmad. “Occasionally one can go further than that and actually specifically direct them to a person who can help
Automotive Recycling
TALENT POOL
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