Investing in employees is important for all businesses, and the appropriate use of a non-compete agreement can help protect an employer from making these investments and then watching their employees leave to work for a competitor. Whether a non-compete agreement will be enforced, however, can be significantly impacted by whether the old employer and new employer are actually competing, according to a recent U.S. District Court ruling.
Like most requests to enforce a non-compete agreement, the ruling was part of a request for a preliminary injunction, which is made at the initial stage of litigation and requires a clear set of facts for the judge to rule on. In this case, the former employer provided recording keeping and administrative services to Section 529 savings plans; in contrast, the new employer provided recording keeping and administrative services to Section 529 prepaid plans. Ultimately, and in part because of the difficult standard that must be reached in a request for preliminary injunction, the court determined the employee had created enough doubt regarding whether the record keeping functions between the two employers were similar enough to constitute competition. Because the court could not determine the employers were actually competing, it declined to enforce the non-compete agreement.
This case is a very good reminder that whether or not a non-compete agreement will be enforced is often determined when the agreement is drafted, LONG before a dispute arises. If you have questions about non-compete agreements, or would like to discuss any employee issues within your company, contact us at firstname.lastname@example.org or 413-570-3170.