Harmful effects possible from non-compete pacts
Published 02/16/99

When an employee has the choice of either getting fired or signing a covenant not to compete, it is a tough choice. A employee may argue that if she was fired for refusing to sign a non-compete agreement she should be able to sue her employer for wrongful discharge even though she was an employee-at-will because the employer=s actions violated public policy. Approximately one year ago in the case of Tatge vs. Chambers & Owen, Inc., the Supreme Court of Wisconsin in dealing with that very situation found that these kinds of restrictive covenants were not presumptively unreasonable or against public policy. Further, in the 1996 Vermont case of Madden vs. Omega Optical, Inc., the Supreme Court of Vermont found similarly for an employer, specifically holding: A[i]f the Agreement is unenforceable, [employees] took no risk by signing it because they could later challenge the Agreement when the employer sought to enforce it. And if [employees] refused to sign the Agreement because of its potential impact on their careers if enforceable, then [the employer] terminated them for protecting a >private or proprietary= interest that falls outside the public policy exception to the at-will doctrine.@ In other words, the Vermont Court took the view that there is no harm in signing a covenant not to compete if it is unenforceable, evidently not considering the costs to employees of having to vindicate their rights through litigation. In New Hampshire however, whether the public policy exception to the employment-at-will doctrine applies is generally for the jury and not for the Court to decide. While the Court is generally in charge of interpreting contracts and determining to what extent, if any, a covenant not to compete should be modified, if there is a wrongful discharge claim arising from a refusal to sign a non-compete covenant, the question of whether or not the employer=s position is so egregious so as to fall within the public policy exception of the employment-at-will doctrine may be left by the Court to a jury to decide.

Employers, of course, must also consider other possible negative consequences of an overly aggressive policy of seeking broad covenants not to compete from their employees. Not only may such policies negatively affect existing employee morale and decrease the potential to obtain qualified new employees who have the option to seek employment with competitors who may not impose restrictions upon them, but the Court may render the covenant completely void rather than merely modifying it to meet what the Court finds is appropriate to protect the legitimate business needs of the employer from competition from its ex-employees.

J. Daniel Marr is a director and shareholder at Hamblett & Kerrigan, PA whose legal practice includes counseling businesses and business persons on a variety of legal issues and advocating on their behalf. Attorney Marr is also an adjunct professor at Daniel Webster College where he teaches business law. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

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