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Covenant not to Compete

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russellgs1

Junior Member
What is the name of your state (only U.S. law)? Pennsylvania

The company I worked for completed a chapter 11 bankruptcy in March, 2015. The company was purchased through the court proceedings and dissolved. The new company took over all the assets and satisfied some of the liabilities. A majority of the creditors did not get paid, including me.

On the first day the new company took over they let a bunch of us go. The message was - The new company is not hiring you.

I had the following clauses in my employment contact with the previous company. My question is are these still in-force or did they die with the bankruptcy proceedings and the delusion of the previous company?

In consideration of the compensation, including but not limited to equity participation, and other covenants by the Company under this Agreement, the Employee shall not, without the prior express written consent of the Company in its sole discretion, anywhere in the world, during the Term and for a period of one (1) year(s) thereafter (the "Restricted Period"), do any of the following, either alone or in association with others, without the prior written consent of the Company in its sole discretion:

(i) engage or participate, directly or indirectly, in any business activity competitive with the Business or the business of any of the Company's subsidiaries or affiliates as conducted during the Term;

(ii) become interested (as owner, proprietor, promoter, stockholder, lender, partner, co-venturer, director, officer, employee, agent, consultant or otherwise) in any person, firm, corporation, association or other entity engaged in any business that is competitive with the Business or of the business of any subsidiary or affiliate of the Company as conducted during the Term, or become interested in (as owner, stockholder, lender, partner, co-venturer, director, officer, employee, agent, consultant or otherwise) any portion of the business of any person, firm, corporation, association or other entity where such portion of such business is competitive with the Business of the Company or the business of any subsidiary or affiliate of the Company as conducted during the Term (notwithstanding the foregoing, the Employee may hold not more than one percent (1%) of the outstanding securities of any class of any publicly-traded securities of a company that is engaged in activities referenced in Section 8(a) hereof);

(iii) solicit or call on for a purpose competitive with the Business, either directly or indirectly, any (A) customer with whom the Company shall have dealt at any time during the one (1) year period immediately preceding the termination of the Employee's employment hereunder, or (B) supplier or distributor with whom the Company shall have dealt at any time during the one (1) year period immediately preceding the termination of the Employee's employment hereunder;
 


LdiJ

Senior Member
What is the name of your state (only U.S. law)? Pennsylvania

The company I worked for completed a chapter 11 bankruptcy in March, 2015. The company was purchased through the court proceedings and dissolved. The new company took over all the assets and satisfied some of the liabilities. A majority of the creditors did not get paid, including me.

On the first day the new company took over they let a bunch of us go. The message was - The new company is not hiring you.

I had the following clauses in my employment contact with the previous company. My question is are these still in-force or did they die with the bankruptcy proceedings and the delusion of the previous company?

In consideration of the compensation, including but not limited to equity participation, and other covenants by the Company under this Agreement, the Employee shall not, without the prior express written consent of the Company in its sole discretion, anywhere in the world, during the Term and for a period of one (1) year(s) thereafter (the "Restricted Period"), do any of the following, either alone or in association with others, without the prior written consent of the Company in its sole discretion:

(i) engage or participate, directly or indirectly, in any business activity competitive with the Business or the business of any of the Company's subsidiaries or affiliates as conducted during the Term;

(ii) become interested (as owner, proprietor, promoter, stockholder, lender, partner, co-venturer, director, officer, employee, agent, consultant or otherwise) in any person, firm, corporation, association or other entity engaged in any business that is competitive with the Business or of the business of any subsidiary or affiliate of the Company as conducted during the Term, or become interested in (as owner, stockholder, lender, partner, co-venturer, director, officer, employee, agent, consultant or otherwise) any portion of the business of any person, firm, corporation, association or other entity where such portion of such business is competitive with the Business of the Company or the business of any subsidiary or affiliate of the Company as conducted during the Term (notwithstanding the foregoing, the Employee may hold not more than one percent (1%) of the outstanding securities of any class of any publicly-traded securities of a company that is engaged in activities referenced in Section 8(a) hereof);

(iii) solicit or call on for a purpose competitive with the Business, either directly or indirectly, any (A) customer with whom the Company shall have dealt at any time during the one (1) year period immediately preceding the termination of the Employee's employment hereunder, or (B) supplier or distributor with whom the Company shall have dealt at any time during the one (1) year period immediately preceding the termination of the Employee's employment hereunder;
Those 4 words that I bolded, make this totally unenforceable, even if it did not become unenforceable based on the company liquidating.
 

latigo

Senior Member
Thank you for the prompt feedback.
Hold your horses, Russell!

That wording would not necessarily render such a covenant not to compete voidable. Without knowing the nature of the promisor's services nor the nature of the promisee's business and its marketing area, it is not possible to judge whether or not it reasonably serves to protect a legitimate business purpose.

However, the fact the promisee is now defunct makes the question of whether it is a reasonable restriction entirely moot. The covenant doesn't inure to the benefit of the successor nor are you associated with the successor.

[SUB]What is certain is that the individual to whom you express thanks for the "prompt feedback" has never stepped foot inside of a law school.[/SUB]
 

LdiJ

Senior Member
Hold your horses, Russell!

That wording would not necessarily render such a covenant not to compete voidable. Without knowing the nature of the promisor's services nor the nature of the promisee's business and its marketing area, it is not possible to judge whether or not it reasonably serves to protect a legitimate business purpose.

However, the fact the promisee is now defunct makes the question of whether it is a reasonable restriction entirely moot. The covenant doesn't inure to the benefit of the successor nor are you associated with the successor.

[SUB]What is certain is that the individual to whom you express thanks for the "prompt feedback" has never stepped foot inside of a law school.[/SUB]
I would sure like to see any case law, from any state, that would validate a non-compete that was so broad as to state "anywhere in the world". Its hard to make even a narrow non-compete stick these days and one so boldly broad as to state "anywhere in the world" would be worth reading.

However, you are right, its a moot point anyway.

However, the "never stepped foot in a law school" is absolutely incorrect. I have a decent amount of law school credits. If you want to be accurate in your insults it would be better to state that I never graduated from law school and never passed the bar. I did not need either for my career path...nor do I need either to accurately read and interpret case law.

You did however both graduated from law school AND passed the bar, and that does not mean that you haven't been frequently proven to be incorrect on law issues outside of your expertise.
 

quincy

Senior Member
I would sure like to see any case law, from any state, that would validate a non-compete that was so broad as to state "anywhere in the world". Its hard to make even a narrow non-compete stick these days and one so boldly broad as to state "anywhere in the world" would be worth reading.

However, you are right, its a moot point anyway.

However, the "never stepped foot in a law school" is absolutely incorrect. I have a decent amount of law school credits. If you want to be accurate in your insults it would be better to state that I never graduated from law school and never passed the bar. I did not need either for my career path...nor do I need either to accurately read and interpret case law.

You did however both graduated from law school AND passed the bar, and that does not mean that you haven't been frequently proven to be incorrect on law issues outside of your expertise.
I don't have a case for you right now, LdiJ (although I can probably locate one for you if necessary), but I can tell you where an "anywhere in the world" condition in a non-compete might appear, and why it could be enforceable.

This type of condition would not be uncommon, for example, in a business working with trade secrets or other confidential information.

With a non-compete agreement, any condition can be enforceable as long as the restrictions the condition imposes are no greater than is required to protect an employer's legitimate business interest.

As to the rest of your post: I have found that the lawyers who choose to post in some areas of this forum often know less than, or certainly no more than, the non-lawyers who have lived and worked with the law and know it from personal experience or through skilled research.
 

quincy

Senior Member
Following is a link to an American Bar Association presentation by the Covenants Not to Compete and Trade Secrets Subcommitee, titled "Stretching Beyond the Sea Shore: Non-Compete Geographic Restrictions in a Virtual World."

If you scroll to page 20 or so, you will start to find several US cases with "anywhere in the world" covenants (starting on page 40, geographic limitations on contracts in Canada are discussed, which differ in significant ways from the US).

http://www.americanbar.org/content/dam/aba/events/labor_law/2013/03/employment_rightsresponsibilitiescommitteemidwintermeeting/20_compete.authcheckdam.pdf
 

LdiJ

Senior Member
I don't have a case for you right now, LdiJ (although I can probably locate one for you if necessary), but I can tell you where an "anywhere in the world" condition in a non-compete might appear, and why it could be enforceable.

This type of condition would not be uncommon, for example, in a business working with trade secrets or other confidential information.

With a non-compete agreement, any condition can be enforceable as long as the restrictions the condition imposes are no greater than is required to protect an employer's legitimate business interest.

As to the rest of your post: I have found that the lawyers who choose to post in some areas of this forum often know less than, or certainly no more than, the non-lawyers who have lived and worked with the law and know it from personal experience or through skilled research.
I would have called the bolded a non-disclosure agreement and would view that completely differently than a non-compete.
 

LdiJ

Senior Member
Following is a link to an American Bar Association presentation by the Covenants Not to Compete and Trade Secrets Subcommitee, titled "Stretching Beyond the Sea Shore: Non-Compete Geographic Restrictions in a Virtual World."

If you scroll to page 20 or so, you will start to find several US cases with "anywhere in the world" covenants (starting on page 40, geographic limitations on contracts in Canada are discussed, which differ in significant ways from the US).

http://www.americanbar.org/content/dam/aba/events/labor_law/2013/03/employment_rightsresponsibilitiescommitteemidwintermeeting/20_compete.authcheckdam.pdf
That was an interesting read, although in nearly all of the cases involved the restrictive covenant did not survive intact. In nearly every case where it did not fail entirely, the courts narrowed the restrictive covenant to something that they felt was more reasonable.
 

quincy

Senior Member
That was an interesting read, although in nearly all of the cases involved the restrictive covenant did not survive intact. In nearly every case where it did not fail entirely, the courts narrowed the restrictive covenant to something that they felt was more reasonable.
Right. In "nearly every case." I think latigo was referring to those few cases where the courts have upheld the "anywhere in the world" restrictions and where they exist without a court challenge.

There are a few differences between non-disclosure agreements and non-compete agreements. For one, non-disclosure agreements do not need to have geographic or time restrictions to be enforceable but non-compete agreements include a specific business restriction, a time restriction and a geographic area restriction.

Non-disclosure agreements are often included as part of a non-compete agreement. The non-compete agreement is sort of a way to enforce the non-disclosure agreement. If a person is restrained by the agreement from working for someone who, or some entity that would benefit from the trade secret, proprietary information, whatever, he is less likely to disclose or use what he knows, intentionally or unintentionally.

Non-disclosure agreements are also often used when no business relationship exists yet between the parties. They can be used to protect discussions of ideas.

One final difference I can think of offhand is that non-compete agreements are not recognized by all states whereas non-disclosure agreements will be.
 

LdiJ

Senior Member
Right. In "nearly every case." I think latigo was referring to those few cases where the courts have upheld the "anywhere in the world" restrictions and where they exist without a court challenge.

There are a few differences between non-disclosure agreements and non-compete agreements. For one, non-disclosure agreements do not need to have geographic or time restrictions to be enforceable but non-compete agreements include a specific business restriction, a time restriction and a geographic area restriction.

Non-disclosure agreements are often included as part of a non-compete agreement. The non-compete agreement is sort of a way to enforce the non-disclosure agreement. If a person is restrained by the agreement from working for someone who, or some entity that would benefit from the trade secret, proprietary information, whatever, he is less likely to disclose or use what he knows, intentionally or unintentionally.

Non-disclosure agreements are also often used when no business relationship exists yet between the parties. They can be used to protect discussions of ideas.

One final difference I can think of offhand is that non-compete agreements are not recognized by all states whereas non-disclosure agreements will be.
One non-disclosure agreement that I bet is cast in concrete, world wide, is those who are restrained from disclosing the recipes for Coca Cola...or other similar things.
 

quincy

Senior Member
One non-disclosure agreement that I bet is cast in concrete, world wide, is those who are restrained from disclosing the recipes for Coca Cola...or other similar things.
The following wikinvest link is to a 2007 Coca-Cola confidentiality/non-compete/non-solicitation agreement:
http://www.wikinvest.com/stock/Coca-Cola_Company_(KO)/Agreement_Confidentiality_Non-competition_Non-solicitation

Coca-Cola has sued former employees before for breaching their agreements with the Company. In one case, a few nefarious Coke employees attempted to sell Coke trade secrets to Pepsi. Pepsi told Coke and the Coke employees were indicted on charges of violating state and federal trade secret laws.
 

russellgs1

Junior Member
Well, Thank you for your feedback back as well

Hold your horses, Russell!

That wording would not necessarily render such a covenant not to compete voidable. Without knowing the nature of the promisor's services nor the nature of the promisee's business and its marketing area, it is not possible to judge whether or not it reasonably serves to protect a legitimate business purpose.

However, the fact the promisee is now defunct makes the question of whether it is a reasonable restriction entirely moot. The covenant doesn't inure to the benefit of the successor nor are you associated with the successor.

[SUB]What is certain is that the individual to whom you express thanks for the "prompt feedback" has never stepped foot inside of a law school.[/SUB]
Since I am NOT a lawyer, I am taking each respondent's feedback and face-value. Since you pointed out the lack of law school training, I assume you have and would know this personally. THANK YOU !
 

quincy

Senior Member
Since I am NOT a lawyer, I am taking each respondent's feedback and face-value. Since you pointed out the lack of law school training, I assume you have and would know this personally. THANK YOU !
Oh, don't mind latigo, russellgs1. He gets his nose out of joint on a regular basis. ;)

You are smart to take all that you read on this forum at face-value. The only advice and direction you should rely on is the advice and direction offered you personally by an attorney licensed to practice in your own jurisdiction.
 

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