Two executives of Continental Car Club, Inc., a Dayton, Tennessee-based company, were signing employment contracts when the company they worked for was acquired by Fortegra Financial Corporation in 2010. Under these contracts, the executives agreed that they would not compete with the company anywhere in the United States, where it worked for two years after their respective terminations. The agreements also provided that treaties “shall be construed and applied in accordance with the domestic laws of the State of Florida.” In summary, and to quote the Tennessee Supreme Court, “If there is a legitimate business interest that needs to be protected and the temporal and territorial restrictions are appropriate, then the non-compete obligations are enforceable. When drafting anti-competitive agreements, employers should objectively consider the interests they seek to protect and strive to do so for themselves and their employees. Those employers should also take into account the factual examination by which a court analyses a non-compete agreement and endeavours to adapt the restrictive agreement as closely as possible in terms of scope, scope and time in order to ensure enforceability while adequately protecting a legitimate commercial interest. This factor is not relevant for most employers. It largely includes non-compete obligations in professions that have a public interest, such as. B the practice of the physician or the law. These professions include, among other things, a personal relationship between the professional and the patient or client.
These relationships are highly fiduciary and depend in particular on the patient`s or client`s trust in the doctor or lawyer consulted whom he wishes to retain. In both contexts, restrictive alliances have a destructive effect on these relationships and are therefore considered harmful to the public interest and invalid. There are no fixed rules that determine when a non-compete obligation is appropriate or inappropriate, and a court will examine the specific facts of each case involving a non-compete obligation to determine the appropriateness of the non-compete obligation. In Tennessee, a court has the power to rewrite a non-compete clause to shorten the duration of its effectiveness. In Tennessee, a court has the power to limit or reduce the geographic area specified in the agreement. Tennessee courts have reduced the temporal or geographic restriction of non-compete obligations, either or both. Keep in mind, however, that if an employer allows some former employees to breach their non-compete obligation after dismissal, other employees will try to rely on it as evidence that the employer in fact has no business interest worthy of protection, as evidenced by its failure. Tennessee courts will enforce a non-compete obligation if it is “reasonable” in the particular circumstances. In determining whether to apply a non-compete agreement, a court must take into account (1) the consideration exchanged, (2) the imminent danger to the performing party, (3) the economic hardship imposed on the related party, and (4) whether the agreement is prejudicial to the public interest.
Allright Auto Parks, Inc.c. Berry, 409 S.W.2d 361, 363 (Tenn. 1966). It will also be interesting to see if the courts find that certain restrictions are contrary to the public interest because so many workers are unemployed, placing a greater burden on the government to provide unemployment benefits and other forms of assistance. Given that the government has provided unprecedented support in the form of the various stimulus packages, a court could rule that public policy prevents a court from enforcing a non-compete obligation in the particular circumstances of this case, or perhaps restricts restrictions under the adequacy rule that allows courts to apply the restrictions only to the extent they deem appropriate. However, outside of the pandemic context, Tennessee courts have generally only ruled that public policy considerations invalidate a non-compete obligation associated with certain professionals, such as health care providers and attorneys. It would therefore be a significant change for Tennessee courts to invalidate non-compete obligations in this situation due to public policy concerns. What are non-compete obligations in Tennessee? Non-compete obligations are difficult for a former employer to enforce, as these clauses in contracts are often seen as anti-competitive and contrary to competition and the freedom of individuals to work wherever they wish.
However, some employers may have a vested interest in ensuring that a former employee is not put on leave with valuable information and is then in direct competition with them. In the face of this tension, non-compete obligations pose sensitive questions to the courts that require them to weigh the employer`s rights against the former employee. Therefore, it is important to be careful when using non-compete obligations, especially if they are ultimately unenforceable. On the one hand, an excessively restrictive non-competition obligation will not be enforceable, on the other hand, an excessively lenient non-competition obligation will allow a former employee to obtain an unfair advantage. That depends. In general, non-compete obligations, also known as “non-compete commitments,” are not preferred in Tennessee. See Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471 (Tenn. 1984). The courts interpret these agreements strictly in favour of the employee, in part because the agreement constitutes a restriction on trade. However, courts will maintain non-compete obligations if a legitimate commercial interest is to be protected and the agreement sets appropriate temporal and territorial restrictions. The court also found that the leaders had failed to prove that they had resigned for “good reasons,” in part because the agreements gave Fortegra a healing period that the leaders had not enjoyed.
Given that the executives had hired a third party to copy all data from their Fortegra-owned computers at work onto recently acquired personal laptops, and did not return that information when they left Fortegra, the court denied the executives any compensation under their agreements, noting that their actions were excluded from the original provision of their agreements. Consideration can be defined in its most fundamental sense as a series of promises between the parties, one for the other, which obliges those parties to act in accordance with those promises. Non-compete obligations, like any contract, must be supported by consideration appropriate to the circumstances. Appropriate consideration is given if non-compete agreements are signed at will before or at the same time as the commencement of an employment relationship. Simply put, the employer`s promise of employment is made taking into account the employee`s promise not to compete. A non-compete clause usually includes language that says you agree that if you leave that job, you will not use the knowledge you`ve gained in your job to go and try to compete with another company for the same company. Tennessee courts must consider the following factors when assessing the suitability of a non-compete agreement: (1) the consideration that supports the agreements, (2) the imminent danger to the employer in the absence of such an agreement, (3) the economic hardship imposed on the employee by such an agreement, and (4) whether or not such an agreement is prejudicial to the public interest. Note that the second and third factors are particularly important and are most often negotiated. During a pandemic, the focus is on the economic hardship imposed on the employee.
The courts have recognized that this factor “must be taken into account and may be an important factor in determining whether the covenant is considered appropriate and enforced.” [5] Although Tennessee courts take into account the hardship for the employee, in my experience, he is generally given less weight than other factors. But there is a good reason for this. If there is no consideration, there is no enforceable non-competition clause, so the employer does not deviate from the starting line. And if the employer cannot prove that it has a protectable business interest that would require a non-compete obligation, a court does not even have to consider the other factors, because there is no unfair competition to restrict. Thus, a court can often settle a non-compete dispute without making a thorough analysis of the difficulties for the employee. .
