COVID-19 has greatly impacted many of us. Are you aware that it also may have affected the restrictive covenants used by employers?
Many employers protect their customer relationships by requiring salespeople to agree not to solicit or do business with them should they ever leave. If your company furloughed employees with these non-compete clauses, they may no longer be enforceable if employees are recalled to work – even if their absence was short-lived.
A recent decision from the United States Court of Appeals for the First Circuit is instructive. In Russomano v. Novo Nordisk, Inc., 960 F.3d 48 (1st Cir. 2020), the First Circuit confirmed a District Court decision holding that an employer who laid off an employee on August 3 and rehired that person on August 6, without asking the employee to sign a new restrictive covenant, lacked a probability of success on the merits. In other words, the Court found that the non-compete was likely unenforceable. The pharma company was therefore denied injunctive relief against its former employee.
Restrictive covenant cases are won, or lost, often at the very beginning of a lawsuit. If a court informs an employer during an application for a temporary restraining order that its non-compete likely will not be upheld at trial, and that during the pendency of the suit the former employee may compete, employers usually get the message that they should settle or not pursue the claim. Alternatively, if a temporary restraining order is granted, most employees “scream uncle” and approach their former employers concerning acceptable settlement solutions.
What can an employer do to increase the likelihood that its non-compete will pass the test for immediate injunctive relief? Based on the Russomano decision, it would be wise to have all employees who had non-competes before their COVID-19 furlough sign new ones. Non-compete agreements are carefully scrutinized by courts, and judges often look for ways not to enforce them, since they are by definition, anti-competitive and interfere with an employee finding work to support their family. Have your non-compete agreements reviewed by experienced counsel to give your company the best shot at protecting your most important asset, your relationships with customers.