Non-Compete Agreements: Are Your Hands Tied???
New York employees can find themselves entangled in a web of non-compete agreements from current and former employers. A recent client found himself ensnared in such a web and we sorted out the non-compete mess for him. I write this post (with made up names and changed circumstances) so others can learn and avoid the trap.
Joe is a great salesman for Lively Medical Products. He has been selling their patented heart valves for 5 years and Lively loves him. But Godzilla Medical Device Company has a new heart product and they want to hire Joe as their salesman. Godzilla offers to double Joe's salary.
Joe signed a non-compete agreement when he first started with Lively and it prohibited from contacting any of his customers for two years after he left Lively. It also prohibited Joe from selling any products that were considered "competitive products."
Joe told Godzilla about the non-compete agreement that he had with Lively and Godzilla's legal team reviewed it for Joe. Godzilla's new heart product was different than the product Joe sold for Lively so Godzilla's lawyers told Joe that Lively's non-compete would not be a problem. Joe never had his own lawyer review the situation and instead he relied on Godzilla.
Joe resigned his position with Lively and signed an employment agreement with Godzilla. Godzilla's employment contract also contained a non-compete agreement and Joe agreed to the new terms with Godzilla.
As soon as Lively found out that Joe was selling heart products for Godzilla, it had its law firm send a letter to Joe that accused him of violating his non compete agreement. Joe showed the letter to Godzilla and they told Joe to ignore the letter which he did. Ten days later Joe was sued by Lively in federal court.
Joe showed the lawsuit to Godzilla and asked them to defend him. Godzilla, however, was not interested in dealing with a lawsuit and determined that it would be better off firing Joe and hiring another salesmen. Godzilla then advised Joe that his employment was terminated.
Joe then found himself without a job and bound by two different non-compete agreements, one with Godzilla and one with Lively. Joe approached the other medical device companies that sold the products he was familiar with and they all liked Joe, but determined his non-compete agreements prevented them from employing him.
Joe was without a job and was basically barred from his industry due to his two non-compete agreements. The other companies in his industry did not want to risk expensive litigation over his non-compete agreements.
Did Joe have any rights? Could he sue Godzilla for messing up his career? No, Joe had no rights and there was nothing he could do now. Joe was an employee at will and Godzilla was free to fire him.
But Joe could have prevented the problem if he had obtained an employment lawyer to help him negotiate a better employment agreement with Godzilla. Joe's employment agreement with Godzilla should have contained a clause in which Godzilla promised to defend him in any suits that concerned his non-compete agreement with Lively. Also, the Godzilla employment agreement should have contained a promise to pay his salary if he was barred from working during the non-compete period. This would have protected Joe. Also, if Godzilla refused to accept these terms, then Joe would have known who he was dealing with and he could have stayed with LIvely.
