Question: Dear Alan: Can a company selectively enforce non-compete agreements?

What I mean is that I know of several instances where my company knows that a former employee is now working for a competitor and my company chooses not to take legal action.

Another interesting note that I also know is that my employer has knowingly hired employees from competitors knowing that they also have non-competes.

Mike
Des Moines, Iowa

Answer: Dear Mike: Non-compete agreements are a very interesting – and very controversial – area of employment law. Your question brings up several thoughts:

1. In general, an employer is free to enforce – or not enforce – any kind of agreement(s) it has with others. In my 30 years or so of negotiating and fighting against non-compete agreements, I have never heard of any law in any state that would prohibit an employer from being selective in enforcing non-compete agreements. Nor have I heard of any employee or any Court raising “selective enforcement” as a defense to a non-compete.

2. In fact, there may be good business and legal reasons for a former employer not to pursue its rights to enforce a non-compete. There are many different factors employers and their legal counsel consider in deciding whether, in each instance, to go to Court. These reasons include: (a) Maybe they know that their efforts to enforce the non-compete rest on “weak” or “shaky” ground because, for example, the former employee never signed the agreement, or the former employer cannot find a signed copy of the non-compete agreement; (b) Perhaps the former employee’s working for a competitor is not truly a substantial risk to the former employer, or perhaps his or her work is viewed to be entirely non-threatening; (c) Perhaps the new employer paid a sum of money to the former employer to “back off;” and (d) It is possible the former employee has a good counter-claim that he or she might raise in Court, such as extreme sexual harassment. These and hundreds of other good business and legal reasons might exist for a decision not to enforce a non-compete.

In one case I handled a number of years ago my client left her employer and joined a competitor because she did not want to participate in any manner in the intentional pollution of a public water supply by her employer. I believe the employer feared greatly this coming out in Court, and so backed off on its thoughts about enforcing her restriction.

Received a “Cease and Desist” letter from your former employer’s attorney? Concerned you might receive one? We offer a Model Letter entitled “Response to Attorney’s ‘Cease and Desist’ Letter Alleging Non-Compete Violation.” It shows you “What to Say, and How to Say It.™” To obtain a copy for your adaptation and use, just [click here.] Delivered by Email – Instantly!

3. There may also be good business and legal reasons for your employer not respecting the non-competes that people have signed with competitors. Such reasons may be at work here: (a) Your employer may have decided to take the legal and financial risk of facing a lawsuit from a competitor whose employee it has hired due to the high value of that employee; (b) Your employer may have paid a sum of money to its competitor to get the competitor to “back off” from enforcement efforts; and (c) Your employer may know of some fact or circumstance that makes enforcement of its competitor’s non-compete not possible, or not likely to be successful.     

4. However, if the decision to enforce a non-compete – or to not enforce it – is motivated by an “illegal” reason, then the employer cannot act in that way. If it can be shown, as an example, that an employer intentionally does not enforce non-competes against women, but does enforce non-competes against men, then that fact would likely be persuasive to a Court that the employer should not be permitted to act on that illegal reason. Or, if it was shown likely that the only reason an employer was enforcing a non-compete agreement was a desire to retaliate against the employee for exposing corruption, then that motivation would probably doom the employer’s enforcement attempts in Court.  

“I have a Non-Compete Agreement, but I’d like to go to work for a Competing Employer. What should I do?” We offer a “Model Letter: Proactive Attempt to Prevent a Potential Non-Compete Dispute” that shows you “What to Say, and How to Say It.” To get your copy, just [click here.] Delivered by Email – Instantly!

5. Motivations for actions of an employer are extremely important in “non-compete law,” because an employer coming into Court to enforce a non-compete must not have “unclean hands.” The issue of “motivation” is not usually very important in matters of business law. However, in employment law – and most of all in “non-compete law” – motivation can make or break a case. This is because of what I referred to above: the “Clean Hands Doctrine.” If an employer is coming to a Court and asking the Court to give it “justice,” then a requirement for the Court to help the employer is that the employer is acting with justice, itself, that is “its hands are clean.” So, if the selective enforcement is based on an illegal or unethical reason, then that alone might persuade a Court to refuse to enforce a non-compete.

With few exceptions, Mike, your employer is probably on “solid ground” in its selectivity of enforcement, and its selectivity of honoring, non-compete agreements.

I hope this has been helpful. If so, please tell some of your friends and colleagues about our blogsite. And consider, too, subscribing to receive all our blog posts automatically – it’s free!  

Best,
Al Sklover

P.S.: Our 185-Point Master Guide and Checklist to Non-Competion Agreements is a perennial favorite. It takes you step-by-step through everything you need to know. To obtain a copy, just [click here.] Delivered by Email – Instantly!

© 2011 Alan L. Sklover, All Rights Reserved.