Non-Compete Agreement Litigation Strategies Leveraging Trial Techniques, Identifying Causes of Action, Preparing for Defense Theories and Counter-Claims Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. WEDNESDAY, MARCH 5, 2014 Presenting a live 90-minute webinar with interactive Q&A Andrew (Andy) Boling, Partner, Baker & McKenzie, Chicago Robert E. Byrne, Jr., MartinWren, Charlottesville, Va. R. Scott Oswald, Managing Principal, The Employment Law Group, Washington, D.C.
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Non-Compete Agreement Litigation Strategies Leveraging Trial Techniques, Identifying Causes of Action, Preparing for Defense Theories and Counter-Claims
•Client works for employer with whom he signed post-employment restrictive covenant
• Covenant includes a non-compete agreement
•Has received a job offer from a second employer
• Working with the same government customer
• Expanded duties
• Different location
•Wants to know whether he can accept the offer and begin work for the new employer
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Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an
Address potential state law nuances, i.e. Illinois’
requirement that the customer relationship must be
“near permanent”
Impose appropriate security controls over
marketing plans, customer visit reports, and
business plans
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Hypothetical
•What is the process for advising the client?
• Whether to accept the position
• How/Whether to provide notice to subsequent employer
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Existence of Agreement
•First establish that an agreement exists.
•Basic Contract Considerations:
• Is there a writing?
• Has there been an offer?
• Has there been acceptance?
• Adequate consideration?
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If Agreement Exists, What Defenses Are Available?
•Unenforceable provision?
•First Material Breach?
•Waiver or Estoppel?
•Unclean Hands?
•Economic Loss Doctrine or Source of Duty?
•Intracorporate Immunity Doctrine?
•Merely Planning to Compete in Future? 15
If Agreement Exists, What Defenses Are Available?
•Generally speaking, there are three grounds for invalidating covenants not to compete:
• Unreasonableness
•Overbroad – greater than necessary; prevents indirect competition
• Should be narrowly tailored; position, time, geography
•Ambiguous – if vague, may create in terrorem effect
• Violates Public Policy
•Established state law, i.e., Cal. Bus. & Profs. Code 16000
•Prevent public’s right to choose professional
•Key public player?
• Miscellaneous reasons in some jurisdictions
•Involuntary discharge
•Assignment
•No consideration
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Agreement Language Example: Lack of Position Limitations
•Example language:
• “Employee shall not perform work for, contract with, or accept employment with any Company past or present with whom employee was either directly or indirectly assigned as part of employee’s regular duties”
•Agreement should be tailored to specific positions within companies.
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Agreement Language Example: Improper Time & Geography Restrictions
•Example language:
• “Employee agrees that for a period of five (5) years after the later of the date of termination for any reason, or the date a court of competent jurisdiction enters an order enforcing this provision, employee shall not, within the District of Columbia, the State of Maryland, or the Commonwealth of Virginia . . . .”
•Many considerations here
• Nature of the job
• Nature and size of the industry
• Likelihood of irreparable harm
• Law of jurisdictions will vary
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3 Tiers of Enforcement
•Courts give strongest deference:
• Dissemination of proprietary information
•IntermediateDeference:
• Non-solicitation provisions.
•Least deference:
• Pure non-competition agreements.
•Policy:
• Promoting ability to work and support families
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Non-Compete Agreement Pre-Litigation Concerns, Employee’s Anticipation of Litigation
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common
terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an
If injunction, employer must satisfy substantive and procedural standards ◦ Employer may seek injunctive relief to protect clients or
employees, safeguard proprietary information, or protect imminent business opportunities
Claim for Damages may be added, especially if employer successful with injunction or if business opportunity threatened
Analyze Relief Sought: Injunction, Damages, or Both?
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Motion to Dismiss (either substantive or procedural)
Motion for a More Definite Statement
Motion to Transfer
Answer
Motion for Summary Judgment
Responsive Pleadings
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Declaratory Judgment
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•
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Forum and Choice of Law
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If non-compete facially defective given current precedent, try motion to dismiss
If agreement or other documents not properly identified, motion for more definite statement
If venue or forum provision, motion to transfer
Savvy employers will seek evidentiary hearing to prove reasonableness in light of their business interests ◦ May need to rely on Answer alone if narrowly tailored
Which Responsive Pleading to File?
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Employer more likely to pursue legal action for damages if contract, customer, or key employees are threatened or lost ◦ New parties ◦ New claims – may involve heightened, aggressive claims –
statutory conspiracy, RICO, punitive damages, etc.
Proving claims will require Employer to prove both causation and damages ◦ Difficult to do ◦ Risky for Employer, creates leverage points for employee Employer needs to disclose proprietary information
Will further damage relationships with customers and partners
Causation and Damages
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Employers don’t want to reveal proprietary information ◦ Need to reveal markups, costs, projections, internal
communications
May have lost work because of bad business practices or negative past performance ◦ Dirty laundry will be aired
Threatens relationships ◦ May be party to joint venture or teaming agreement and need
to disclose proprietary information of a partner
May have made an uncompetitive bid for new work
Why Are Causation and Damages Difficult to Prove?
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“When a noncompete clause is breached, the non-breaching party is entitled to the benefit of the bargain: to ‘put the party injured in the same position, as far as money can do it, as he would have been if the contract had been performed.’” Preferred Sys. Sols., Inc. v. GP Consulting, LLC, 284 Va. 382, 398 (2012). ◦ Employer must prove three elements to recover lost profits: First, that it had billed/charged for the work in question;
Second, that it would have continued to bill/charge for the work in question had it not moved to the competitor; and
Third, the amount the Employer would have made from billing or charging for that work.
Employee has the right to examine the strength of the Employer’s relationship with the former customer and hear the customer’s reason for no longer working with the Employer
Proving Causation in Noncompete Breach
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Damage awards cannot be speculative ◦ Can usually calculate lost profits based on profit history if Employer an
established company
◦ Some states may have new business statute
“Subsequent profits from the benefiting competitors” can be used “as evidence in damages calculations for breach of covenants not to compete, provided that the profits can be sufficiently tied to the injured party.” ◦ But, the “measure of damages for the breach of an anti-competition
clause is the amount that the plaintiff lost by reason of the breach, not the amount of profits made by the defendant.” Trilogy Network Systems, Inc. v. Johnson, 172 P.3d 1119, 1121 (Id. 2007).
Calculating Lost Profits
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Tread lightly – many judges do not like forcing employers, who appear to have been wronged, to disclose past performance and proprietary information to a competitor ◦ Will likely need to do a protective order, possibly attorneys’
eyes only
◦ Narrowly tailor discovery requests to the heart of the dispute
Particularly important if injunction was already granted, as judge could view as a fishing expedition
Pursue Causation and Damages Evidence Through Discovery