Non-Compete Agreements

As the economy in Nashville and Middle Tennessee continues to grow, employers in the area are now more incentivized than ever before to protect their business interests by requiring certain employees to sign non-compete agreements. On the other hand, due to historically low unemployment rates and a tightening labor market, skilled employees may now have more leverage to refuse to sign or to negotiate the terms prior to agreeing to sign a non-compete agreement.

What might be included in a Non-Compete Agreement?

Generally, employers will include terms such as the length of the non-compete, geographic scope, trade secrets and/or intellectual property governed by the non-compete, and importantly, the scope of the actual job covered by the non-compete.

What is a Protectable Business Interest?

The first determination a court will likely make before enforcing a non-competent agreement is whether or not an employer has a protectable business interest. In order to meet this requirement, an employer must show special facts beyond ordinary competition. Courts will examine the following factors:

• Did the employer provide the employee with specialized training?
• Was the employee given access to trade or business secrets or other confidential information?
• Did the employee have repeated contact with the employer’s customers such that the customers would tend to see the employee as the face of the company.?

For example, fast food companies have recently been criticized for making employees sign a non-compete agreement. In all likelihood, a court would determine that an average fast food worker does not receive enough specialized training to warrant a non-compete agreement, and therefore the agreement would be considered invalid.

On the other hand, if Company A hires a new sales associate, provides confidential training and resources to the new associate, and then that sales associate goes to work for Company A’s biggest competitor performing the same job duties, then Company A likely has a protectable business interest.

Can an employer really use a Non-Compete Agreement to restrain an employee from working?

Yes and No. Generally, the law disfavors non-compete agreements, especially if they prevent an employee from making a living. However, there are certain circumstances where an employer may be able to show that an employee violated various provisions of their employment and/or non-compete agreement and have to be restrained.

While examining the validity of a non-compete agreement, Courts usually examine first whether the employer has a protectable interest that necessitated the existence of a non-compete agreement. Additionally, Courts consider the reasonableness of every restriction as well as the public interest in each non-compete agreement.

Will Tennessee courts enforce Non-Compete/Restrictive Covenants signed by health care providers?

T.C.A. 63-1-148 governs Non-Compete Agreements signed by health care providers. T.C.A. 63-1-48 states in part that:

“(a)(1) A restriction on the right of an employed or contracted healthcare provider to practice the healthcare provider’s profession upon termination or conclusion of the employment or contractual relationship shall be deemed reasonable if:

• (A) The restriction is set forth in an employment agreement or other written document signed by the healthcare provider and the employing or contracting entity; and
• (B) The duration of the restriction is two (2) years or less and either:
  • (i) The maximum allowable geographic restriction is the greater of:
    • (a) A ten-mile radius from the primary practice site of the healthcare provider while employed or contracted; or
    • (b) The county in which the primary practice of the healthcare provider while employed or contracted is located; or (ii) There is no geographic restriction, but the healthcare provider is restricted from practicing the healthcare provider’s profession at any facility at which the employing or contracting entity provided services while the healthcare provider was employed or contracted with the employing or contracting entity.”

    Does this statute apply to your medical profession? T.C.A. 63-1-148(c) statute further states that this section shall apply to Podiatrists, Chiropractors, Dentists, Medicine and Surgery, Optometrists, and Psychologists. T.C.A. 63-1-148(d) states that it “shall not apply to physicians who specialize in the practice of emergency medicine.”

    This relatively new statute(enacted in 2011) is still evolving and being interpreted by various courts that generally acknowledge that public interest disfavors restricting physicians from practicing medicine in the state of Tennessee. Despite these public policy concerns, Courts will enforce restrictive covenants against covered health care providers if the necessary conditions under T.C.A. 63-1-148 are met. Will

    How are Non-Compete Agreements and Trade Secrets related?

    The enforcement of non-compete agreements and allegations of violations of the Tennessee Uniform Trade Secrets Act (“TUTSA”) often go hand in hand. TUTSA provides employers with a potential mechanism to obtain injunctive relief and/or damages for misappropriation of a trade secret.

    The law defines a trade secret as “information, without regard to form, including but not limited to technical, nontechnical or financial data, a formula, pattern, compilation, program, device, method, technique, process, or plan that (1) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” Tenn. Code Ann. § 47-25-1702(4)

    Generally, Courts have ruled that an employee’s recollections of general information regarding policies and procedures of a company and relationships with clients are not considered a trade secret.

    What happens if you are an employee accused of violating a Non-Compete Agreement or are an employer who would like to enforce one?

    • First, the employer may notify the employee via private correspondence that he or she believes the employee is violating the terms of the non-compete agreement and demand that the employee refrain from certain acts.
    • If the parties are unable to reach an out of court resolution, a party may seek to enforce the non-compete provision in a court of competent jurisdiction. An employer may choose to file an action that restrains the employee from conducting certain activities. Alternatively, an employee may file an action to determine that certain provisions of the non-compete agreement are unenforceable.
    • The specific venue and choice of law that governs the dispute will likely be mentioned in the non-compete agreement.
    • In Tennessee, non-compete agreements are generally enforced in a Chancery Court but this may vary depending on the nature of the dispute.

    Should I consult with an employment law attorney before signing a Non-Compete Agreement?

    It would be prudent to have a lawyer review a non-compete before signing. Both employers and employees have important interests regarding non-compete agreements, and particularly if non-compete enforceability is an issue, should consult with an experienced Nashville employment law attorney prior to making any decision that may impact their legal rights. If you feel that an employment lawyer at Cole Law Group can help you, please call us at (615) 490-6020 or send a contact message via our website.