The Dangers of the Unenforceable Non-Compete

Let’s be honest here . . . non-competes are great for attorneys. We get paid to draft them, but we can’t really be held responsible if the agreement we draft is unenforceable. The law as to whether a non-compete is enforceable is ever evolving, fact specific and never clear cut. Regardless of enforceability, when a non-compete is violated, we get paid to pursue the violation, defend the former employee or represent the new employer. And, whether we are drafting, prosecuting or defending a non-compete, the work is almost always time intensive. They are expensive for all sides and, typically, none of the parties are really happy with the outcome or the cost of achieving that outcome.

Which is why the majority of non-compete cases settle.

But non-compete cases are also highly emotional. Employers feel taken advantage of when a highly valued, long term employee leaves to join a competitor. And, employees feel taken advantage of when, after working hard and helping an employer grow its business, the employee is restricted from continuing to pursue his/her career in an industry.

The emotional aspect can be even worse when the employee has signed a badly drafted and clearly unenforceable agreement. Of course, if you are the executive, you want to move on and forget about that unenforceable document. The problem is that your former employer does not need to have an enforceable agreement to have a viable lawsuit. Rarely is an agreement so clearly and obviously unenforceable that no question exists.

Does that mean you should turn down your dream job offer and wait out the term of an unenforceable non-compete?

No. But, taking the competing job and waiting for your former employer to sue may not be the best route either. It is harder to position a case as a defendant than it is to do so as a plaintiff. And, even more importantly, it doesn’t look that great to be a defendant who signed an agreement and then flagrantly ignored the promises made.

Another option is to file a lawsuit asking the court to conclusively rule that the agreement is unenforceable. This is known as an action for declaratory judgment. Filing a declaratory judgment action at the same time you accept the competing new job supports the argument that you really believe the agreement is void and has no merit. Filing can also give you some sense of being able to control the trajectory of the litigation.

Pursuing a declaratory judgment is not always the best course of action. It can be expensive (though typically not as expensive as defending against a former employer’s attempts to get a temporary restraining order and/or a permanent injunction). It can be drawn out by your former employer. And, there can be other risks specific to the terms of the agreement in dispute.

More often than not, the best option is to seek a quick resolution of your non-compete dispute from the start, but to decide whether to or how to do so, you need to understand all associated risks and benefits. The attorneys in our office help clients do just that, in the most economical way possible.