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Get There First With the Most: The Importance of Venue In Non-Compete Disputes
By Michael P. Elkon
In one of his most famous routines, George Carlin described the way that football terminology borrows heavily from the military, especially in comparison to the more pastoral game of baseball. If Carlin were alive today and inclined to spend time with litigators, he would almost certainly note their similar tendency to turn what they do into a description of a life-or-death war of civilizations. This is true in a host of different legal specialties, but one of the most prominent is restrictive covenant (i.e., non-compete, non-solicitation of customers or employees, or non-disclosure of confidential information provisions) litigation. It could be that as a history major who still enjoys reading about wars in my free time, I see military analogies in the same way that a hammer sees everything as a nail, but the frequency with which martial examples come up in restrictive covenant disputes would be noticeable even to someone who does not read James McPherson or Antony Beevor after the kids have gone to bed.
The most notable way in which military analogies come up in non-compete litigation is the importance of terrain and speed. For centuries, military theorists have noted the importance of terrain in determining a winner and a loser in a battle. As General George Pickett learned to his chagrin on July 3, 1863, it is far better to choose the place of a battle and then position one’s troops on the high ground than it is to be forced to attack uphill over open terrain and then watch one’s troops get cut down in such a comprehensive manner that the term “Pickett’s Charge” is forever known to American high schoolers.
When litigating over the enforceability of a restrictive covenant, the same principles apply. Speed and terrain often determine the outcome of a case. In many commercial disputes, the location of a lawsuit does not make a great deal of difference. For instance, most states have adopted the Uniform Commercial Code with only minor variations; so commercial disputes over goods should be resolved under a consistent body of law. Likewise, disputes between employers and employees are often resolved under federal law, so the venue is frequently unimportant.
In contrast, disputes regarding restrictive covenants are frequently won or lost based on the location of the court in which the dispute is decided. The exact same non-compete restriction can be enforceable in certain states and not in others. For instance, California, North Dakota, Wisconsin and Georgia (at least for agreements signed before May 11, 2011) are all hostile to the enforcement of restrictive covenants. Massachusetts, New Jersey, Michigan and Florida are all receptive to enforcing such covenants. There is little regional rhyme or reason to the disparities and the legal regimes do not correspond to a red state/blue state dynamic.
Because of the importance of venue, employers need to address several issues prior to a battle over the enforceability of a restrictive covenant in order to ensure that they are positioned on the high ground when the forces clash:
1. Pay attention to choice of law and forum selection clauses. When a client asks me to review an agreement, I usually start from the end because that is where the choice of law and forum selection clauses will be found. These provisions are afterthoughts in many different types of agreements where the drafter is simply thinking of preventing the hassle of litigating in a faraway venue. In non-compete agreements, they are often the difference between success and failure in the event that the drafter has to enforce the agreement against a former employee. Moreover, these two types of clauses have to be used in conjunction. A choice of law provision that is not accompanied by a forum selection clause is often useless because most states with well-defined public policy against the enforcement of restrictive covenants will also refuse to enforce choice of law provisions that name a state that has a more pro-enforcement legal regime. A forum selection clause that is not accompanied by a choice of law provision will cause a judge to have to apply a test for choosing the governing law, which can come down to a host of different factors better suited for a law school exam question.
2. Think about the possibility of an employee moving. Employers often assume that a restrictive covenant agreement will be governed by the law of the state in which an employee works. “I am a Florida employer and the employee in question works in Fort Lauderdale, so Florida law will apply.” However, this line of thinking assumes a static situation where the employee does not move. If an employee’s skills are such that he or she can work for a competitor anywhere in the country (or even in a bordering state), then the situation is dynamic. An employer has to prepare itself for the possibility that a valued employee can de-camp from his/her current state of residence, move to a competitor with operations in a state hostile to restrictive covenants, and then immediately file a lawsuit seeking to have the covenants declared unenforceable. Conversely, an employer should also consider the possibility of moving a potential new hire to an anti-enforcement state as a way around an otherwise enforceable restrictive covenant. The differences in state law can be used for offense as well as defense.
3. In the event of a potential dispute, move quickly. Since venue is so important and because of the first-filed rule, which gives preference in federal venue disputes to the first-filed action, restrictive covenant strategy is best summarized in the words of Confederate General Nathan Bedford Forrest, whose famous military maxim is “get there first with the most men” (often amusingly misquoted as "git thar fustest with the mostest"). For both an employer trying to enforce a restrictive covenant and a former employee/new employer trying to invalidate it, it is critical to identify the most favorable legal regime out of the available options (i.e., where the employee worked for the old employer, where the employee will work for the new employer, where the employee resided, where the employee will reside, etc.) and then to move for legal relief there as soon as is practicable. This approach can be especially effective for cost-conscious litigants because it can avoid an expensive war of attrition by getting a quick declaration from a court that it is going to keep a lawsuit (as opposed to dismissing or transferring it) and that it will or will not enforce the relevant provisions. If an employer pays attention to these three factors, then the chances to watch the other side surrender to it will be mazimized as opposed to the reverse.
Michael P. Elkon is Of Counsel in the Atlanta office of Fisher & Phillips LLP. He represents management in all areas of employment law in state and federal courts, as well as before state and federal agencies. Michael specializes in matters concerning employee defection and recruitment, including litigating injunction and damages actions relating to covenants not to compete, non-solicitation and non-disclosure provisions, unfair competition, employee raiding, trade secrets, the duty of loyalty, the Computer Fraud & Abuse Act, and state computer protection statutes. He has litigated dozens of employee defection and recruitment matters in numerous state and federal courts. In addition to litigating, Michael drafts restrictive covenants for numerous different types of agreements and counsels clients on protecting their confidential information and customer relationships, as well as recruiting talent. He was selected for inclusion in 2010 and 2011 Georgia Super Lawyers – Rising Stars. He also worked with the Georgia Legislature and appeared before its Judiciary Committee regarding the new Georgia non-compete statute (HB 173) in the 2009 Legislative Session.