From: wdstarr@athena.mit.edu (William December Starr)
Subject: Covenants not to compete  (was executive orders)
Organization: Northeastern Law, Class of '93
Distribution: usa
Date: Wed, 27 Jan 1993 15:50:25 GMT


In article <128@bbx.basis.com>, 
scott@bbx.basis.com (Scott Amspoker) said:

> > "Covenants not to compete" are quite commonly given by key employees
> > of companies which would be seriously damaged if said employee went
> > to work for a competitor.  Courts generally limit the scope of such
> > covenants geographically and temporaly, so that they are reasonably
> > related to the legitimate goal of preventing such employees from
> > taking advantage of their former employer.  [Larry Kolodney]
>
> I should add the such covenants normally (and should) provide
> something in return to the employee such as a recruitment bonus or
> golden handcuffs.  Mere employment is not necessarily regarded as due
> consideration for a promise to limit one's livelihood at a later point
> in time.

(All of the following is based on what I think I learned in my
first-year Contracts course.  Gospel it ain't.)

Generally, in dealing with a challenge to the enforceability of such a
covenant, a court will try to perform a "balancing test" by taking into
consideration all the more-or-less unique facts of the case at hand --
what sort of business the parties are involved in, the ease with which
the person could relocate to a place outside the geographically
proscribed area and find work in his chosen profession, the likelihood
and ease with which the employer could obtain work which would be within
his field of expertise but would not violate the covenant, what
compensation the person had received in exchange for agreeing to the
covenant, and, of course, "public policy" and the likely effect of the
outcome of the case on the public.<*>

<*>Example: Three dentists form a PC (a professional corporation, "a
   corporation formed for the purpose of engaging in one of the learned
   professions, such as law, medicine or architecture") and practice
   together, sharing office space, support staff, etc.  Part of the
   contract between them which formed the PC was that if any one of them
   left the PC, he would not practice dentistry within ten miles of the
   PC's offices for the next three years.  If one of the dentists
   subsequently quit and tried to set up shop within the proscribed
   area, one of the factors the court would take into account would be
   the "public policy" questions of how many practicing dentists were
   available to the public within that area, what transportation burdens
   people would face if they had to travel outside the ten-mile area to
   see that dentist, etc.

As for Scott's point that "...such covenants normally (and should)
provide something in return to the employee such as a recruitment bonus
or golden handcuffs.  Mere employment is not necessarily regarded as due
consideration for a promise to limit one's livelihood at a later point
in time," he's right, but courts will take into account how lucrative
the salary-plus-other-compensation was during the course of employment,
as well as the more intangible factor of how much the fact of having
that employment on his resume increases the person's likely future
earning power.

-- William December Starr <wdstarr@athena.mit.edu>

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