Enforceability of Non Competes Is Not Always Obvious

November 9, 2015
Sally Abrahamson

“Can my employer really enforce this non compete?” — this a question routinely posed to employment lawyers. The answer depends on many factors. First and foremost, it depends on which state’s law will be applied to the non compete. The answer to that question might seem obvious initially, since most employment agreements and separation agreements contain a choice-of-law clause designating a particular state’s law to apply to disputes. One might think that if the agreement designates a state that generally enforces non competes, the non compete will be enforceable and the employee is out of luck. But the issue is not always that simple.

The complications arise from the stark differences in various states’ attitudes toward non competes. Some states are generally tolerant of non competes (e.g., Texas, Florida); others generally prohibit them (e.g., California, Oklahoma); still others come down somewhere in the middle (e.g., New York, New Jersey). So, for example, if the applicable agreement’s choice-of-law clause names a state that generally enforces non competes, but the employee works in a state that is generally intolerant of them, a court must decide which jurisdiction’s law applies. Certain factors may cause the court to override the choice-of-law clause and apply the law of the other state, provided that state has a substantial relationship to the parties.

For example, last week the Fifth Circuit Court of Appeals decided a case, Cardoni v. Prosperity Bank, No. 14-20682 (5th Cir. Oct. 29, 2015), involving three Oklahoma-based bankers who moved to a competitor after their employer was acquired by a Texas-based bank. The bankers argued that their non compete agreements were not enforceable under Oklahoma law, despite a choice-of-law provision calling for Texas law to govern the agreements. The court found that applying Texas law, which generally permits non competes if they are properly limited geographically and temporally, would contravene a fundamental policy of Oklahoma law, which generally does not allow non competes.

It is important to note that even if, like Texas, a state generally tolerates non competes, There may be limits to that tolerance. This point was proved last week when a Florid appellate court refused to enforce a non compete, despite the fact that Florida has a statute that generally allows for non competes. The statute permits the restrictions if appropriately limited and reasonably necessary to protect a legitimate business interest of the employer. In this case, Evans v. Generic Solution Engineering LLC, et al., No. 5D15-578 (Fla 5th DCA, Oct. 30, 2015), the employer claimed that a former employee had violated his non compete by doing business with the employer’s former clients. The court found that the employer failed to demonstrate that enforcing the non compete would interfere with any legitimate business interest.

Clearly, non compete enforceability is not always as clear-cut as it may at first seem. There may be a question as to which state’s law applies and, even when this easily determined or is not an issue, that policies of the state in question may be more nuanced than expected. Accordingly, employees with questions about the enforceability of a non compete should seek the counsel of an experienced employment law attorney.

(*Prior results do not guarantee a similar outcome.)