non-compete contracts

Toby · April 2002

We have a 49 year old employee with 12 years employment as an outside sales account manager. The employee receives a base salary plus commission. All sales employees have signed "non-competes" (but, not necessarily updated by the company for mutual signatures through the years). There is a strong possibility that the employee's position will be eliminated in the near future, due to business conditions. If a severance package is offered, it is likely the
non-compete will be even more defined than the standard form.

Our product is primariy service oriented rather than technical sensitive. Does the Company really have the legal upperhand for enforcement in this situation?
Also,it seem that severance agreements, as well as "non-competes" appear to be in limbo as far as ERISA, or any other laws are concerned. If the employee contends the terms are excessive, can we win in court? Are there any State regulations that address this situation? Individual States involved would be Pennsylvania, New York and Ohio. Thanks for any thoughts on this subject.

Carol CA · April 2002

I don't know about your states, but in California non-compete agreements are not enforceable. If you already have a standard agreement that is signed, and your sales people are more service oriented than technical sensitive, and you are the moving party eliminating this person's job, I would question why you would want to go further? People often make termination situations more difficult than they have to be. By eliminating this person's job and then making it difficult for them to find another job, you are creating an adversarial situation that may leave this person angry and wondering why they are being selected for lay off and perhaps trying to bring an age discrimination suit. I would try to make the transition as smooth as possible for the employee. Certainly remind them when they leave that they are still bound by the agreement they signed earlier, and maybe incorporate similar language in a release agreement in exchange for enhanced severance. Try to be as compassionate as possible when this long term employee loses their job.

Toby · May 2002

Carol & Jim: Thanks for your responses to this... yes...very sticky situation!
Carol, your statement of "release agreement signature in exchange for enhanced severance" is interesting. Would you please explain in more detail? Additional research revealed a situation where an HR Specialist's legal counsel advised him that each time an employee was requested to sign an updated n-c contract, it would not be enforceable unless there was a monetary incentive tied to it, kind of like a signing bonus, and that was with continued employment. Is this what you are referring to? In this situation, the Company would be, not only terminating employment; but, at the same time, requiring the employee to agree to much more stringent constraints in seeking any other employment, in order to receive the entitled severance package, as defined in the Severance SPD. This is still a "what-if" if it comes to pass; but, as Jim implied, it will be a real mess if it does happen! Headquarters, including legal, continues to give conflicting advice. Beside trying to head off potential litigation, I agree with Carol in that we need to show some compassion for the employee's situation. And, it is difficult to reconcile that when any employee with this history, is eliminated by a large successful corporation, the person is conceived to be such a threat if employed by another company with even a hint of similar business interests. Confidentiality (trade secrets, etc.) enforced..yes. Non-compete enforced...I don't think so.

Carol CA · May 2002

Hi Toby,

When a company terminates an employee there is no legal requirement that the company provide severance. What our company does is offer an enhanced severace agreement in exchange for the employee signing a release and settlement agreement (basically that they won't sue us). Typically we would offer a week of severance for each year of service. If you already have a severance policy in place that you have used with other employees and did not require them to sign a non-compete agreement, you would have to go above and beyond what you would normally offer if you want this person to give up more rights than you normally request of others. You might consider offering outplacement assistance (since you are requesting they not compete in your industry, they could probably use help getting a job elsewhere). I think you hit the nail on the head when you said you can enfore confidentiality agreements, but non-competes are a different story. This person still has to earn a living. In California at least, you can't stop them from going to a competitor, but you can stop them from sharing trade secrets.

Toby · May 2002

Thanks Carol - as I think this scenario will happen, I'll let you know the outcome. Hopefully it will be helpful to others!

System · April 2002

Wow, Toby, your problem combines two of the stickiest areas of employment law -- noncompete agreements and severance agreements under the ADEA. Probably would be good for you to consult a lawyer.
[url]http://www.hrhero.com/findanattorney.shtml[/url]

James Sokolowski
Senior Editor
M. Lee Smith Publishers

non-compete contracts

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