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Entries in Outten and Golden (3)
Restrictive covenants are contract clauses that can appear in an employment agreement, offer letter or equity agreement that will obligate and restrict that employee from competing with his or her employer during the course of their employment as well as after the employment term ends.
Wendi Lazar, partner at employment law firm Outten and Golden, LLP, who co-heads the Professionals and Executives Group, spent some time with The Legal Broadcast Network discussing the ins and outs of restrictive convenants.
The person coming into the job really needs to know if the company has a protective interest in restricting them from competing. Wendi explains that certain high-level employees will have a lot of confidential information and be exposed to a lot of secrets and intellectual property that the company may be worried about them sharing. On the other hand, a certain employee may not be exposed to confidential information and a restrictive convenant may be too broad for them and restrict them from ever getting a job in the future. Wendi emphasizes how important it is for every employee to read the fine lines when it comes to both confidentiality and restrictive convenants.
A non-compete is a type of restrictive convenant and is an obligation on the part of the employee not to compete with the employer in the workplace during employment but more so after employment ends. Wendi adds that these non-competes generally have a term and may be very specific for that industry, so one needs to know how broad and specific the non-compete is. It can also be limited in scope, time and geography. A reasonable non-compete clause is if the company has a legitimate interest in enforcing it but also if it doesn't stop an employee from getting a job in their field.
Another restriction is a non-solicitation clause, which have two components, the first of which is restricting an employee from soliciting clients, customers or relationships from that particular company. These can generally be from three months to 18 months. The other component is after an employee leaves, for them not to solicit employees of the former company. Wendi says that courts are more likely to enforce non-solicitation provisions than non-competes because courts generally feel that clients, customers and relationships are a protected interest of the company.
A component to enforcability of a non-compete is that the employer provides a form of consideration. Every good contract must have a meeting of the minds and good consideration and consideration in the non-compete arena is during employment and is the employment itself. Salary is consideration, as one is getting paid to stay with the employer and not go somewhere else. However, Wendi adds, post-employment is very different, ie severance, which gives you a salary after termination, and that severance can be consideration for the enforcability of a non-compete.
Wendi says that it is standard practice to negotiate restrictive convenants, especially for high-level employees. She says that it's important to note that in terms of restrictive convenants, they are enforcable depending on the state laws and that most non-compete and non-solication laws revolve around common law and what the law says in that state. More and more states are putting on state statutes that enforce non-competes, Wendi says.
For more information about Wendi Lazar and Outten and Golden, LLP in New York, click here. She is a contributor on the Employment Channel, hosted by The Legal Broadcast Network.
Under the Federal Arbitration Act, courts can enforce employment agreements for an employee to arbitrate all disputes, including arbitrating employment discrimination claims. A case in Boston, where a job applicant, who was 8-months pregnant, highlights the ambiguity of the arbitration clause as to whether or not it only applies to employees.
Paul Mollica, counsel for Outten and Golden, LLP in Chicago says that in this particular case, the employer chose to put that term in a job application, which the applicant had to check off before her interview. The question is whether this term applied to a claim that she was not hired because she was pregnant and was asked about her pregnancy during her interview and she ultimately did not get the job.
The agreement itself applied to all employment and pre-employment disputes and the applicant said that the clause didn't apply to her situation because she never became an employee to begin with. The employer argued that the term had applied to employement and any other claims related to the applicant's efforts to obtain employment. Mollica says the question is - how does the court interpret the claim? They can broadly interpret it by including any claim related to employment or they can can interpret it more narrowly.
This was the issue held in the 1st Circuit of Boston and the court was split 2-1. It held that the agreement would be construed narrowly in this case because both sides agreed that Maine state law applied to the contrary and Maine law gives a narrow interpretation to contracts of adhesion, or form contracts that parties don't argue over. It is a take it or leave it contract. Under Maine state law, the contract should be construed narrowly against the company that drafted it. The court read the terms of this contract and said it applied to employment and pre-employment that couldn't include applicants because they were never employed. The woman did not have to arbitrate her claims against her employer. Mollica says that when there's ambiguity in a contract, it is up to the courts to decide how narrowly they will interpret it. Had the employer drafted the contract differently, there might have been a different outcome, he adds.
Mollica says that employers are increasingly demanding that their employers agree before there's any sort of dispute, that if there are any future disputes, you're not going to bring a case to court and not have the normal rights under the law. Rather, you're agreeing to submit your claim to a private judge and a private process governed by a separate set of rule with no appeals or jury. A very challenging deal, Mollica feels it seems grossly unfair because the employer has all the leverage. If you don't want to accept the terms, they don't have to hire or terminate you. He says that more and more employers are putting this in employment manuals and job applications.
According to Mollica, it is a one-sided affair that employees are bound by these agreements and may not be aware that they have done so. Sometimes it is a check off box on an email or just one more box that is checked off on a job application but this is something that is taking place "in the shadows of employment interviews and employment relationships."
Paul Mollica is counsel for Outten and Golden LLP, a law firm focusing on employment law. For more information on Paul Mollica, click here. Paul's commentary was hosted by The Employment Law Channel, part of The Legal Broadcast Network.
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