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Employment Non-Compete / Non-Solicitation Restrictions Need To Be Disclosed To New Employer

On Behalf of | Aug 17, 2015 | Employment Law

Some employees, including many executives have, in addition to confidentiality requirements with the current employer, non-compete or non-solicitation obligations. A non-compete obligation is generally one that restricts the ability to work for a competitor for a period of time after leaving the current employer. A non-solicitation obligation usually addresses the inability of the employee to solicit customers or employees of the current employer when working for a new employer. Employees should disclose to potential new employers all ongoing obligations to the current employer. A July 23, 2015 decision from the Federal Trial Court in Massachusetts in the case of Mark Manning v. Healthx, Inc. and Frontier Capital, LLC illustrates the importance of disclosing to a potential new employer all obligations you have to your current or previous employer that might impact your ability to do your job with your new employer.

In the case of Mark Manning, he had been employed by Pegasystems, Inc. as the Vice President of Healthcare Services making over $500,000 in compensation. In August 2013, Healthx, Inc. recruited Manning to become President and CEO of it with an employment agreement that provided for substantial compensation and a severance package if he is terminated without cause, but no severance package if he was not terminated for cause. On February 3, 2014, Manning reported to work at Healthx, Inc. and one week later he was informed he was being fired because of his contractual obligations with his former employer which Healthx stated was not disclosed to it prior to the hire.

The Federal Trial Court’s decision of July 23, 2015 merely addressed whether or not a claim, in addition to breach of contract, could be made for the breach of an implied duty of good faith and fair dealing of that contract. Manning had argued that Healthx had the obligation to investigate whether or not there were current contractual obligations to his former employer rather than just terminating him. The Court ruled that the case, at that early stage, would go forward with pretrial discovery. Therefore the case will likely cost both sides a fair amount in money before it is later resolved by the court or by settlement.

Making a jump from one employer to another has risks and an employee is substantially increasing those risks if he fails to disclose to the new employer the contractual obligations he has to the former employer. By way of example, if an employee has a non-compete and/or a non-solicitation obligation to the former employer for a period of time after the employment ends and goes to work for a competitor, the employee should expect that the former employer’s attorney will send a letter to the new employer identifying those non-competition or non-solicitation obligations; whether it is to assert a breach of those obligations or to make sure the employee complies with the obligations. After the new employer learns of those obligations, if it permits the employee to violate those contractual non-compete or non-solicitation obligations to the benefit of the new employer, then the new employer may be sued along with the employee. The employee would be sued under a breach of contract claim for breaching the non-competition or non-solicitation obligations under his employment agreement and the new employer would be sued for what is called wrongful or tortious interference with the contractual obligation.

For employers looking to hire new employees, putting into an employment agreement a promise by the new employee that he does not have any former-employment obligations that could restrict him from doing his job at the new employer would be prudent. If the employee does have such obligations, the agreement can be tailored to address what those obligations are and attach a copy of the language of that post-employment restriction so both the new employer and the employee know exactly what there are getting into if a dispute arises with the former employer.

In being on both side of this situation, I have on behalf of the former employer have made such claims against the new employer for tortious or wrongful interference with a contractual relationship and have found that when such a claim is made it is more likely that the new employer will fire the employee if the new employer is just learning of the obligation from me representing the former employer rather than if it was fully disclosed upfront by the employee and the new employer still decided to hire the employee notwithstanding those obligations. I have also been in a situation where the new employer knows ahead of hiring the new employee that the non-compete is weak and will actually pay for the defense of the employee and the non-compete. Simply put, the relationship with your new employer should be one of trust and loyalty. Beginning that relationship with dishonesty is not prudent. For any employee thinking about making a move to the dream job, disclosure of your post-employment obligations with your current employer to the new employer will lessen the likelihood that your dream job will turn into a nightmare of litigation.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].