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Maybe the Most Important Clause in a Non-Compete Agreement


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2/5/2019
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Taking a mere casual look at the landscape across the country regarding non-compete laws, you will see several states, such as New Jersey and Pennsylvania, with draft bills in the pipeline seeking to substantially curtail non-compete agreements (for additional information on those bills, see, e.g., "New Jersey Bill Proposes Strict Limits on Non-Competes," and "Is PA Going to Join the States Banning Non-Competes?"), or, as in the case of Massachusetts, where they have already signed such legislation into law.

As a practical matter, in a very granular way, this presents challenges for businesses that don't tend to re-visit their employment agreements and restrictive covenants on any type of regular, organized basis. As we all know, this means the vast majority of businesses; it's just not on, or near, the top of the list of priorities for the business.

And the reason this poses such a challenge is because when someone decides to leave the business and join a competing practice (or starting one), ostensibly in violation of the restrictive covenant contained in the employment agreement, the former employer is now faced with a significant problem:

The Problem With Failing to Update the Non-Compete Agreements

On the one hand, technically speaking, this former employee is violating the letter of the agreement; on the other hand, the agreement wasn't updated to accord with changes in the law, which means that the agreement may be unenforceable as a matter of law.

This is precisely the difficulty that the plaintiffs faced in  Stamford Health Medical Group v. Anthony Alleva, M.D. et al., a case that was just filed this past October, wherein Stamford Health, a multi-specialty medical group, sought an order of the court barring four of its former doctors from competing against it. The problem was that these agreements, which had been signed several years before Connecticut's Physician Non-Compete Statute became law in 2016 (CGS §20-14p), were far broader in geographic scope and duration than allowed under the new law. 

How a Severability Clause Can - Sometimes - Save the Day

Fortunately for Stamford Health, the attorney who drafted these agreements for them years before had the foresight to include a catch-all provision stating that to the extent any provision in the agreement was deemed unenforceable by a court, the other contractual provisions must “remain valid operative and enforceable to the maximum extent permitted [by law].

In fact, it was this provision that the Court relied upon in finding, at least partially enforceable, the departing doctors' non-compete agreements in that case.

The Takeaways

In truth, there are two (2) important takeaways here:

  1. At the risk of stating the obvious, it is important to have your employment agreements reviewed by experienced counsel on a regular basis to make sure that they remain consistent with changes in the law. Otherwise, you risk having your agreements deemed invalid, or perhaps even incurring penalties for violations of law;
  2. Insofar as non-competes are concerned, you should make sure to have a severability clause in your agreements. It doesn't cost anything extra, and it offers some extra protection for your legitimate business interests in case your agreement falls short of the mark on the law.

 



Category: Non-Compete & Employment Agreements

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer

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