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Posts from April 2014.
April 28, 2014
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Money Sign Protected.jpgPart 1 of this post discussed a suit brought by Wings LLC to enforce a noncompete against two defector employees. The letter opinion said that the noncompete was unenforceable. In this post, I examine the role of noncompetition agreements and when other agreements may be better options in cases such as this one.

The Role of Noncompetes – Protecting the Investment

A closer look at this case also reveals a common misunderstanding about the purpose of noncompetes. Put simply, a noncompete is designed to protect a business from losing its investment. This can be seen most clearly in the context of a business sale. When one person buys a Pizza Hut franchise from its owner, the person also “purchases” the customer market that comes with it. If the former owner then opens a Little Caesar’s across the street, the purchaser’s investment is severely compromised in the form of lost customers and lost profits. A noncompete prohibiting the former owner from engaging in the same or similar business within the customer market for a sufficient period of time will help protect the purchaser from being undermined by immediate competition. And it prevents the seller from double-crossing the purchaser by profiting twice—once from the sale of the Pizza Hut and again from the profits made from Little Caesar’s.

April 15, 2014
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NonCompetition Agreement Signing (00444031xAC2B5).jpgOn March 6, 2014, a Fairfax Circuit judge denied a preliminary injunction in a suit brought by Wings LLC to enforce a noncompete against two defector employees. In a letter opinion, Judge Bruce D. White said the noncompete was unenforceable because the geographical limits were overbroad. The ruling is not particularly unprecedented but offers another look into why noncompetes continue to get struck down and how to avoid it by examining the real business needs of an employer rather than imagined possibilities.

The Case

Founded in 1996 by John Kia, Wings LLC provides commercial and residential vinyl, fabric and leather repair services. Kia remains its sole owner. Technicians Jeffrey Manalansan and Cameron Fridey signed noncompetes when Kia hired them to work for Wings. The noncompete provided that the technicians could not, for 24 months after employment with Wings, directly solicit any customer that Wings serviced in the past 12 months prior to their departure. The noncompete also prohibited the technicians from accepting employment “in a position that is the same, or substantially the same” as their job with Wings with any business that had, within the past 12 months, provided “material, labor, or services” that competed with Wings. The restriction applied to “any U.S. state or foreign country in which the employer had conducted business during the 12 months prior to the employee’s departure.”

Delayed Posting.jpgThe U.S. Department of Labor (DOL) has once again delayed publication of its final rule on “persuader activities.” The DOL’s final rule was initially scheduled for publication in November 2013. As that date approached, the DOL rescheduled publication for March 2014. Having now hit that mark, the DOL once more has pushed off publication—this time without setting a future date. The new date is expected to be announced in the DOL’s Spring 2014 Regulatory Agenda.

In June 2011, the DOL published revisions to the persuader rule which broaden the scope of an employer’s reportable union-related activities by substantially limiting the application of the “advice” exemption in Section 203(c) of the Labor-Management Reporting and Disclosure Act (LMRDA).