Restrictive Covenants in a Slumping Economy<br />Michael King<br />
Restrictive covenants<br />Main Types<br />Non Compete Agreements<br />Non Solicitation Agreements<br />Non Disparagement ...
Purpose<br />Employer Protection<br />Trade Secrets<br />Customer relationships<br />Special Training<br />
Motive<br />Massive Lay Offs <br />Desperation to Protect Information<br />Fierce Competition among rival corporations<br ...
Economic Conditions<br />Down Sizing<br />Mass Lay Offs<br />Dissolved Companies<br />Unprecedented unavailability of empl...
Non Competes – Enforceable?<br />Geographic Reach<br />Duration – 3 years is usually extreme<br />Define what is confident...
Non Solicitation<br />Often paired with a NCA<br />Client relationship is long<br />The connection with the employee rests...
Court Considerations<br />Value of the information to the company<br />The amount of effort creating the trade info<br />G...
AN exception<br />A Houston Court upheld the non compete for a Vice President – Restricted all of North America.<br />The ...
THE states<br />Not enforceable in California<br />California is a pro-employee state. <br />The statute declaring noncomp...
The states<br />Texas – still a question<br />Alabama – upholds the strict statues according to reasonableness.<br />
Legal Hurdles<br />Courts value the right to earn a living<br />Need a good business reason<br />Calling it a trade secret...
Dissolved Companies	<br />California disfavors all Non Competes<br />National companies will have to recognize this preced...
Final Advice<br />Used only when Business interests are at stake<br />Not broader than necessary to protect those interest...
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Restrictive Covenants

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The effects of restricitve covenants in a down economy

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  • Restrictive Covenants

    1. 1. Restrictive Covenants in a Slumping Economy<br />Michael King<br />
    2. 2. Restrictive covenants<br />Main Types<br />Non Compete Agreements<br />Non Solicitation Agreements<br />Non Disparagement Clauses – severance pay<br />Highly used in Hi-tech and Financial Industries<br />
    3. 3. Purpose<br />Employer Protection<br />Trade Secrets<br />Customer relationships<br />Special Training<br />
    4. 4. Motive<br />Massive Lay Offs <br />Desperation to Protect Information<br />Fierce Competition among rival corporations<br />Fear of losing some competitive advantage<br />
    5. 5. Economic Conditions<br />Down Sizing<br />Mass Lay Offs<br />Dissolved Companies<br />Unprecedented unavailability of employment opportunities<br />Severance vs. Unemployment Benefits<br />Some clauses still enforceable under both<br />NDA’s and Non Disparaging comment clauses usually attached to severance packages<br />
    6. 6. Non Competes – Enforceable?<br />Geographic Reach<br />Duration – 3 years is usually extreme<br />Define what is confidential information<br />Must not be generally known<br />Starting your own business?<br />Where was the lawsuit filed?<br />Already known information?<br />Victoria’s Secret v Mays Dept Stores<br />
    7. 7. Non Solicitation<br />Often paired with a NCA<br />Client relationship is long<br />The connection with the employee rests solely with the employment of the company<br />Can not be broad (i.e., must not provide services to any client, current, past, and future potential clients?<br />Frieburger v J U B Engineers, Idaho Supreme Court<br />
    8. 8. Court Considerations<br />Value of the information to the company<br />The amount of effort creating the trade info<br />Goodin and Goodin v. Jolliff, et al., ___ S.W.3d ___ (Tex.- App. Fort Worth, 2008)<br />
    9. 9. AN exception<br />A Houston Court upheld the non compete for a Vice President – Restricted all of North America.<br />The employer actually named the prohibited competitors .<br />
    10. 10. THE states<br />Not enforceable in California<br />California is a pro-employee state. <br />The statute declaring noncompetition agreements invalid has been on the books since the 19th century.<br />Can use non solicitation/NDA to protect trade secrets and client lists and employees<br />Employers can work around by effecting pensions and distributions as allowed by ERISA – will it supersede California law?<br />
    11. 11. The states<br />Texas – still a question<br />Alabama – upholds the strict statues according to reasonableness.<br />
    12. 12. Legal Hurdles<br />Courts value the right to earn a living<br />Need a good business reason<br />Calling it a trade secret is not cause<br />Not to punish the employee for leaving<br />Must not<br />last too long <br />cover too wide a geographic area, or <br />prohibit a former employee from engaging in too many types of businesses. <br />
    13. 13. Dissolved Companies <br />California disfavors all Non Competes<br />National companies will have to recognize this precedent, i.e. Edwards vs. Arthur Andersen<br />
    14. 14. Final Advice<br />Used only when Business interests are at stake<br />Not broader than necessary to protect those interests<br />Signed before employment begins or with additional consideration provided –promotion, etc. <br />

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