Stites & Harbison, PLLC

A common type of law suits in state court involves a claim by an employer that a former employee is working for a competitor and is violating an agreement not to compete, sometimes called a restrictive covenant.

It is difficult for a business to enforce such agreements because courts in general are reluctant to restrict competition and prohibit the former employee from working somewhere else.

The business must first show that it needed the agreement because it had a "protectable interest."  Businesses can't protect themselves from ordinary competition, only unfair competition.

In deciding whether a former employee will have an unfair advantage, courts look at three factors—whether the employee received specialized training, whether he or she had access to confidential information, and whether he or she had a special relationship with the company's customers.

Training is an important issue.  A company can't protect itself from a former employee using his or her general knowledge or skill to compete, even when the employee acquired the knowledge or skill while working for that company. 
Courts will pay special attention, however, if the employee obtained unique knowledge or skill from specialized training provided by the company.  For example, in a Tennessee case, a restrictive covenant was enforced when an employee spent 215 hours in training and observed 70 surgical procedures before being allowed to operate a machine used in cataract surgery.

Trade secrets also a factor

The employee's access to trade secrets and confidential information can also persuade a court to enforce a restrictive covenant.   The court will look at whether the company has information that is not readily available to the public and whether it has taken steps to keep the information secret.

Finally, the court will look at whether the former employee had such repeated and meaningful contacts with the company's customers such that he or she became the "face" of the business.

I recently worked on a case where a home shopping network tried to enforce a restrictive covenant signed by my client, a show host.  The show host was able to prove that he didn't have any specialized training and that he didn't have access to confidential information.

Moreover, even though he appeared on television selling products for the network, he wasn't really the face of the company.  His hours were limited—he only appeared late at night—and he wasn't featured on the network's web site.

Finally, my client was planning to work for another network that sold different products.  The court held that the home shopping network didn't have a "protectable interest" in preventing a show host from selling products that it didn't sell.

If businesses believe that they need protection from unfair competition by employees, they can have current and prospective workers sign an agreement restricting their right to compete after leaving the company.

This type of agreement should be drafted by a lawyer and must be reasonable in the area and time in which the employee is restricted from competing. 
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Barbara Moss, an attorney with the Nashville office of Stites & Harbison, PLLC, concentrates her practice in workplace issues. Moss writes a column for The Tennessean© on small-business practices and the law.

This article is reprinted in its entirety with permission from The Tennessean©.