4. If you decide to have an incumbent employee sign a covenant not to compete, it is not necessary to give that employee additional consideration for his or her execution of the agreement.
TRUE IN SOME STATES, NOT IN OTHERS. Again, the answer to this seemingly basic and fundamental question will vary by state. Illinois, for example has seen its appellate courts decide a number of recent cases that hold that some substantial period of continued employment after the execution of a covenant is necessary to provide consideration for its enforcement, while courts in other states, including Wisconsin, Ohio and Indiana have pointed to the opposite result which is that any period of employment after execution is sufficient consideration for enforcement.
5. California and New York both have laws that largely forbids the use of covenants not to compete in the private sector workplace.
TRUE as to California, and FALSE as to New York where such covenants are enforceable if they are reasonably drawn as to time and place, supported by consideration and serve a protectible interest.
6. Wisconsin and Arizona both have laws that largely restrict the use of covenants not to compete
FALSE, if they are reasonably drawn as to time and place, supported by consideration and serve a protectible interest.
7. It is permissible top have all of your employees sign a covenant not to compete.
TRUE. It is permissible, but it is a very bad idea to do so. This is so because for such a covenant to be enforceable as to a particular employee that employee must be considered as having a "protectable interest"( see answer to # 10 below). To ask each and every employee to sign a covenant------even those with no access to any sort of competitive data----undercuts the company's position that it should be able to maintain in court that it is sincerely, and in good faith, simply trying to protect it valuable competitive information.
8. Massachusetts and Illinois have passed legislation in recent years limiting the application of covenants to employees above certain wage levels.
TRUE. These recently enacted statutes were analyzed in our 8/27/18 MMM.
9. Sometimes it is advisable to "race to the courthouse" in one state as opposed to another to secure an injunction enforcing a covenant against an employee who has left your company.
TRUE. In many instances, it may be advisable to do this. For example, an employee who desires to work in California, but is covered by a covenant that tries to prevent her from working in competitive industry on a nationwide basis and was originally executed in Wisconsin and expressly has chosen Wisconsin law to apply, would probably be well-advised to seek a declaratory judgment from a California court allowing such employment.
10. In order for a covenant to compete to be enforceable the employee against whom it is to be enforced must be deemed to have possessed a "protectable interest".
TRUE. This is the most important point of all in connection with the enforcement of covenants. Defined somewhat differently in each state, the concept is essentially that the employee must have been trusted with sufficient employer -generated competitive and confidential information and data in connection with her employment such that it is worthy of protection by the courts.
If you need or want to discuss the answers to one or more of these questions or assistance on this topic generally, please drop us a line or give us a call.
