Do Non-Compete Agreements Apply in a Layoff?
Hello, everybody, and welcome to this edition of Ask Alan: The Legal Bulletin. I’ve got a very interesting question today and that is, do non-compete agreements apply in a layoff? And the short answer is yes. And I’m going to qualify that by saying a non-compete compete is as effective in a layoff as it is in another situation.
Non competes are not automatically effective, they are not automatically invalid, really depends on your particular situation. Now, I think that every judge is going to take into consideration the fact that you’ve been laid off or that you’re laying someone off as one of the equities to balance when deciding whether or not to enforce the non-compete agreement. That is very much a different situation.
Let’s just say you have a salesperson who:
- Leaves company A going to Company B
- Maybe they’re going to start their own business and they’re going to try to take customers from the previous employer
- They are just going to compete for new customers against the old employer.
In this new situation, well there can be lots of things the court is going to look at to determine whether or not that conduct should be prevented. One of the things they are going to look at is, well, why did the person leave the enforcing company to begin with?
And so, if the employee stands up and says, “well, your honor, look, I didn’t choose to leave. I was laid off and I got to make a living.”
That’s an argument that the judge is going to listen to. Conversely, if the enforcing company says, “look, Mr. Smith left my company in the dead and night and he’s trying to take a bunch of his customers with him. I put a whole bunch of time and money into his training, and I gave him resources.”
The court is going to look at that as well. Now, that doesn’t mean that if you’ve been laid off, you’ve got an iron cloud defense. And it doesn’t mean if you’re laying someone off, that you can’t enforce your non-compete agreement, it means you have to be smart about it. You have to look at all of the circumstances.
And again, you got to figure out, is there a compelling business interest to be protected here? And if there is, then a court is going to enforce that non-compete agreement to some extent or the other. It’s an equitable remedy, which is a fancy lawyer way of saying, that the court is going to look at all of the factors. The court balances those and hopefully do equity, do what is right, give the enforcing company the benefit of their bargain, but also at the same time, allow the worker the opportunity to make a living in some form or fashion.
So, do non-compete agreements apply in a layoff? They are just as effective in a layoff as any other time.
But the fact that someone has been laid off is going to be a factor that the court will consider when it decides whether or not to enforce a non-compete compete and how far the court will enforce the non-compete. So, I hope this has been helpful. If you’ve enjoyed this, please share us on social media or recommend it to a friend. I’m Alan Crone. I’m going to go get some justice.
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