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Employee Non-Competes: Why Must Prospective Employers Be Wary?

We have written previously about employee “non-competes” (a/k/a covenants not to compete or non-competition agreements). You may have come across them in your own business, either by requiring them of your own employees or seeking to hire someone subject to a non-compete.   However, the area of law surrounding non-competition agreements can be tricky, and a new decision has added to the intrigue.

In DePuy Synthes Sales, Inc. v. Jones, the Eastern District of Virginia denied two motions to dismiss filed by the new employers of employees governed by non-compete agreements. DePuy employed two salespersons pursuant to employment agreements that contained non-compete provisions. They eventually left DePuy and began working for a competitor, Sky Surgical. DePuy sued the employees and Sky Surgical. This blog post examines the tortious interference of employment contract claim made by DePuy against the new employer, Sky Surgical.

employee noncompete agreement

A claim against the new employer for tortious interference of employment contract survived a motion to dismiss

In DePuy, the court refused to dismiss the claim for tortious interference of employment contract. In Virginia, a plaintiff must allege and prove four elements to establish a claim for tortious interference with contract: (1) the existence of a valid contractual relationship or business expectancy; (2) knowledge of the relationship or expectancy on the part of the interferor; (3) intentional interference inducing or causing a breach or termination of the relationship or expectancy; and (4) resultant damage to the party whose relationship or expectancy has been disrupted. Further, when a contract can be terminated “at will,” a plaintiff must allege and prove a fifth element, that the defendant employed “improper methods.”

Sky Surgical argued that DePuy failed to allege “improper methods,” and therefore asked the Court to dismiss the case. However, the court determined that the applicable contracts were the employment contracts of the two individuals, which included non-competition agreements that were to run for eighteen months after the end of employment. Because these agreements did have a set term, they were not terminable “at will.” Consequently, the court determined that “the law does not require Plaintiff to allege the use of ‘improper methods or means’ in order to state a claim of tortious interference with its employment contracts.”

In the end, an employer must be extra careful when seeking to hire a prospective employee who is subject to a non-compete. In DePuy, Sky Surgical may have tortiously interfered with the employment contracts that DePuy had with the individuals by simply hiring the former DePuy employees in violation of their non-competes, and in full awareness of the non-competes. Alternatively, for an employer whose employee has broken his non-compete, the analysis in DePuy provides leverage in any negotiations. This case shows the importance for the original employer, the employee, and the new employer to check with their respective employment attorney before taking any steps.

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia

Our Summer Associate for 2014 is Christian Schreiber, a rising third-year law student at the William & Mary Law School. Christian contributed to this blog post.

  

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John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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Filed under: Business Law, Business Planning, General Interest, State & Federal Litigation by John Tarley

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