Non Compete Unenforceable for Changes in Compensation
One reason a court may not enforce a non compete clause is if the employer made material changes in the employee's compensation. If these changes occurred after the employees signed the agreement, it could void the agreement. Below is one example of a non compete dispute we were able to resolve favorably, in part because of compensation changes.
Pay Changes and Non Compete Case Study: BackgroundClient C and his colleague were sales and service technicians for a printer company. They had each signed agreements with restrictive covenants at the beginning of their employment relationship. After an acquisition and change in management, the company made substantial changes to their compensation and terms of employment.
These changes were substantial enough to make their continued employment financially unreasonable. For that reason, Client C gave his notice of resignation. After he gave his notice, the employer searched his emails and discovered that he and his colleague had been considering starting their own business. Client C's colleague was immediately terminated. As additional background, the largest customers serviced by Client C and his colleague were customers Client C had brought to the company from a prior job. The employer took an aggressive stance. They immediately filed a lawsuit and a motion for preliminary injunction. In their papers, they asked the court order Client C and his colleague to stop doing business. Pay Changes and Non Compete Case Study: Strategy and OutcomeFaced with short notice of the preliminary injunction hearing, we worked with Client C and his colleague to quickly gather all information relevant to their employment and their non competition agreements.
We concluded that they did not have any trade secrets or confidential information belonging to the employer. We further concluded that the employer's claim to goodwill was weak. This was because the major customers at issue had a relationship with Client C before he ever began employment. Finally, we believed that the changes in compensation and employment terms following the sale of the business could void the non compete. We went to the hearing on the preliminary injunction and made all of these arguments. After the hearing, the parties went to mediation and ultimately settled the dispute. Client C and his colleague received compensation and were able to continue their new business. Their business continues to operate today. Pay Changes and Non Compete Case Study: Takeaways |
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There are a number of lessons to be learned from this example that may be helpful to you if you are facing a non compete dispute. Here are a few:
- If you are threatened with a non compete lawsuit, you should look carefully at your own compensation history. You may not have otherwise thought to raise any issue or complaint about it. But it can be a very useful tool if you are facing a dispute over your employment agreements.
- Consider whether you have any confidential information or intellectual property belonging to your employer. If you have none, you may be able to challenge their claimed legitimate business interests in enforcing the non compete provision.
- If you are in a sales or customer service role, consider where your customers came from. If your client base preexisted your employment, you may also be able to challenge your employer's claim to an interest in goodwill.
- Material changes to your compensation or terms of employment can affect enforcement of your non compete agreement.
- Even if you have to go to court at first, it is common for non compete disputes to settle at some point after the lawsuit is brought.
Can We Help You?
We have years of experience representing people in non compete lawsuits in Massachusetts state and federal courts, as well as responding to cease and desist letters, and we would be happy to help. You can use the button below to schedule a call back from a member of our team, give us a call at 781-784-2322, or fill out our web form to let us know a little more about your situation.
