Seeing that Recruitingblogs.com does not infringe on trade secrets, customers or impose unfair competition to Jobster I think that Jason Davis can rest easily…More to come but some useful tid-bits below
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The purpose of enforcing a non-compete agreement “is to protect an employer from unfair competition by a former employee without imposing unreasonable restraint on the later.”2 “Protection of the employer, not punishment of the employee, is the essence of the law.”3 “An employer cannot extract a restrictive covenant from an employee merely to protect himself from competition.”4 The Supreme Court of has stated that “[a]greements of this kind restrain commerce and limit the employee’s freedom to pursue his or her trade.” Therefore, “enforcement of such . . . agreements is carefully restricted.”5 “[T]hey are enforceable only if a legitimate protectable interest of the employer is served.”6
“An employer has a protectable interests . . . in trade secrets and customer contacts.”7 Thus, these two interests generally represent the heart of the litigation over a non-compete agreement. The former employee will argue that the former employer’s information is not a trade secret or confidential, but rather that it is generally known in the industry. With respect to customers, his arguments may include that the customer was not his customer or is not a current customer or that his customer contacts are not sufficient to justify enforcement of the non-compete. The former employer obviously argues to the contrary. As a result, the court, in deciding whether to issue injunctive relief, must sort out these two interests.
Trade secrets have been defined as follows:
[A]ny formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materials, a pattern for a machine or other device, or a list of customers.8
“Trade secrets may include a list of customers and a code for determining discounts, rebates or other concessions in a price list or catalogue.”9 “Matters of public knowledge or of general knowledge in an industry are not trade secrets.”10 Whether the former employer’s purported confidential information or trade secrets (i.e. prices, profit margins, and customer names and contacts) are, in fact, secret or whether they are generally known within the industry must be analyzed on a case by case basis.
B. Who is a Customer?
“A customer . . . is one who repeatedly has business dealings with a particular [salesperson] or business.”13 The proponent of a restrictive covenant must have “a group of customers who regularly patronize the business of the particular employer [otherwise], there can be no stock of customers and no protectable interest.”14 If the customers only use the employer’s services on a single occasion or there is little repeat business, the employer does not have a stock of customers and there is no protectable interest.15
In West Group Broadcasting, Ltd. v. Bell,17 the court held that a radio station failed to prove that it had a legitimate protectable interest in preventing its former “broadcast personality” from working for a competing radio station. The Bell court based its decision on the facts that the announcer changed her radio name, the format of her show and the time of her show (from evenings to mornings). The court stated that the radio station’s argument that her voice was very recognizable and her fans could go from one station to another was not evidence of customer lists or influence.18
In summary, when deciding whether to enforce a non-compete agreement, the court attempts to balance the equities of protecting the former employer while not putting the former employee out of work. Because the stakes can be high, it is common for the parties to become very emotional during the litigation over the enforcement of the non-compete agreement. In fact, these lawsuits are sometimes similar to a divorce, particularly when the employee was a key salesperson or officer. Thus, alternative dispute resolution, particularly mediation, is often a very effective means to resolve these disputes.
Defenses to Non-Competes
The best defense in attacking the enforceability of a non-compete agreement is often the argument that the former employer does not have a legitimate protectable interest, namely, trade secrets or customer contacts. However, depending on the case, the four defenses set forth below may also have merit.
A court will enforce a non-compete to protect a former employer from unfair competition. However, a court will also try not to impose unreasonable restraints on the former employee. Thus, the court attempts to balance the equities between the two parties. In balancing the respective equities, the court will determine whether there are trade secrets or customer contacts that should be protected.