Non-Competition, Non-Disclosure and Non-Solicitation Agreements

Litigation related to non-compete, non-solicitation, and non-disclosure agreements can be very costly. Moreover, since such lawsuits very frequently proceed on the fast track because an injunction is requested, legal fees can mount rapidly in such cases. Non-competition agreements, non-solicitation agreements, and non-disclosure agreements almost always contain provisions which can require one party to pay some, or all, of the attorneys’ fees and expenses incurred by the opposing side. Thus, it is crucial that employers and employees obtain legal advice at the outset of such disputes. The lawyers at Pepper Law, PLC, a Nashville based law firm which handles non-competition agreement cases, non-disclosure agreement cases and non-solicitation agreement cases, have over thirty years of combined experience handling those types of cases.

There are many published Tennessee cases which recite the general rule that non-competition agreements are disfavored. The reality, however, is that many non-compete agreements are upheld, though the courts, with some frequency, reduce the geographical or time restrictions of non-compete agreements. Here are some frequently asked questions about non-compete agreements and the answers to those questions:

Q: Under what circumstances might a Tennessee court choose to refuse to enforce a non-competition agreement in any way?

A: If the court determines that the employer seeking to enforce the non-compete agreement has no “legitimate business interest” to protect, then it must refuse to enforce the non-compete contract. The fact that a former employee may be engaging in ordinary competition against its former employer does not give rise to a “legitimate business interest” that an employer can protect with a non-compete agreement. To prove a “legitimate business interest,” the employer must show “special facts” that demonstrate that the former employee would have an unfair advantage if the non-compete contract was not enforced. Here are some facts that might prove that the employer has a “legitimate business interest:”

• The employer provided the employee with specialized training
• The employee was given access to trade secrets, business secrets or other confidential information
• The employer’s customers tend to associate the employer’s business with the employee

Q: If the court finds that the employer has a “legitimate business interest” to protect, what factors will it look at to determine whether the time and territorial limitations of the non-compete agreement should be modified or reduced?

A: Typically, the main focus of the court’s inquiry will be the hardship to the employee of the enforcement of the non-compete and the damage to the employer if the non-compete was not enforced. In many cases, the outcome might depend on:

• How easy would it be for someone who had never been employed by the employer to identify the customers of the employer
• The customer contacts and areas/territories in which the former employee worked
• The customers and areas the employee is handling with the new employer
• How easy would it be for someone who had ever been employed by the employer to determine the pricing structure of the employer
• The duration of the relationship between the employer and employee