COVID-19 AND NONCOMPETITION AGREEMENTS: 4 SITUATIONS WHERE THEY ARE NOT ENFORCEABLE.
If this blog article has caught your attention, you likely already understand what a non-compete is and might even be dealing with a non-compete situation presently.
Just to summarize, a non-compete is a restrictive clause or agreement whereby an employee agrees not to become employed by a “competitor” of their former employer or to otherwise “compete” with their former employer. These restrictive covenants are usually restricted to a reasonable length of time and geography.
Non-compete agreements can sometimes be found to be unenforceable if the restricted party can show that they are not “reasonable”. If the restrictive terms are deemed to be too broad, too long a period of time, or not necessary to promote a legitimate business reason, a court may void a non-compete.
Many states, including CT, have been exhibiting an increased distaste for non-competes, with courts more apt to find these agreements unreasonable and unenforceable. In light of current events, we envision an even stronger trend in this direction. There has already been and will continue to be company downsizing and dissolution, which means employees and executives will need to seek new employment or start their own business. We hope and expect Courts to favor employees, more than ever, during this economic crisis. We envision all of the current non-competes under which displaced employee’s may now find themselves, to be subject to scrutiny in the coming months as things continue to unfold.
While there are many scenarios where non-competes will need to be addressed in a Covid-19 context, below are four scenarios where you might want to promptly seek counsel regarding a non-compete
IF YOU ARE CURRENTLY UNDER A NON-COMPETE:
If you left your employment before (or during) the Covid-19 pandemic and are currently honoring a non-compete, all bets may be off in certain situations. For example, if your former employer or career happened to have been in what has now been termed an “essential business”, we would argue that your non-compete should be void. Courts often look to the totality of the circumstances when analyzing these agreements. As such, given the current outbreak and the need for essential workers in fields such as health care, banking, liquor stores and distribution, pharmacies, construction, marijuana dispensaries, to name just a few, one can make the argument that the public’s interest in having as many people working in these essential fields during this time, outweighs the former employers’ interest in enforcing a non-compete. Each state has their own designation of what constitutes an essential business.
In addition, arguments can be made that an act of God, such as a pandemic, can invalidate a contract or non-compete. We can advise you about this and have strategies for voiding your non-compete if you are an “essential” employee sitting on the sidelines honoring your non-compete, or even if you are not an essential employee based on the reasonableness of enforcing such an agreement when an act of God has wrecked so much havoc on employees and our economy.
IF YOU ARE CURRENTLY FURLOUGHED:
If you have been furloughed during the Covid-19 pandemic, but still employed, you might be worried that your furlough will at some point turn into a permanent separation from your job. If you currently have a non-compete with your employer and your furlough results in a termination, or you decide to leave during your furlough to accept other more gainful employment, it is important that you look to the specific terms of your non-compete in order to understand if it is enforceable under these unique circumstance. For example, some non-competes are not enforceable if you were terminated not for cause. In addition, if your furlough morphs into a termination or even a voluntary resignation, and you are subject to an enforceable non-compete for a period of time following your separation from your former employer, it is our position that your non-compete starts to run from the time you were furloughed not the time of your permanent separation. For example, if you are presently employed and have a 1 year non-compete from the time you ceased being employed, if you become furloughed for 2 months because of Covid-19, and then ultimately separated from your employer under these same circumstances, we will make the case that your 2 month furlough was “time served” and your remaining non-compete should only be for 10 months.
IF YOU ARE AN EMPLOYER LOOKING TO HIRE SOMEONE WITH A CURRENT NON-COMPETE:
Non-compete agreements often require the employee to inform any future employer about the existence of the non-compete. A future employer can be liable for interfering with a contract if they knowingly hire an employee who is under a non-compete. The new employer may be forced to fight an injunction and risk having to forfeit the recently hired employee, as well as subject to potential damages, if a court finds that a valid non-compete was in place and has been breached. But we will argue that all bets are off, and all of this is about to change in a Covid-19 world. We will fight for employers to show that the enforcement of the non-compete is unreasonable because people need jobs now and if an employer is willing to hire, they should not be restricted from doing so. There should be no obstacles to employers hiring at this time. Non-competes have been falling out of favor before Covid-19, and we believe that they will be even more frowned upon in the coming months. Courts will be reluctant to punish employers who are making efforts to getting back to business and providing employment even where there might be an existing non-compete.
IF YOU ARE A DISPLACED EMPLOYEE WHO IS BEING ASKED TO SIGN A NON-COMPETE IN ORDER TO SECURE NEW EMPLOYMENT:
Unfortunately, we are all finding ourselves right now in an “employers’ market” so to speak. While employers and their businesses are suffering immeasurably, they are still in the driver’s seat and the decision makers when it comes to hiring and firing. As such, if you are lucky enough to get new employment in this environment and an employer inserts a non-compete clause into your employment agreement, you might not have a great deal of leverage to fight back on this, as we would normally counsel our clients to do. If you find yourself in this situation, we still have strategies to protect you in lieu of fighting for the removal of the restrictive covenant at the outset and risking your new employment opportunity. We are having our clients sign affidavits contemporaneously with their employment contracts which speak to the extraordinary circumstances of obtaining employment amidst Covid-19. Contractual terms may be unenforceable if you can show that you signed under duress or that you did not intend to enter into a non-compete but had no choice. We believe that Courts will be reluctant to enforce non-competes entered into during this time and we have strategies such as the aforementioned affidavit that can be used at a later date if the employee needs or wishes to attempt to void a non-compete entered into during these unprecedented times.
Covid-19 and Noncompetition Agreements: 4 Situations Where They Are Not Enforceable. If you have questions or concerns about this article, please contact one of our employment attorneys in Connecticut and New York at Carey & Associates, P.C. at 203-255-4150.