This year’s Halloween festivities, my recent binge watching of “Stranger Things 2,” and Harry Potter’s invisibility cloak, inspired the topic of this ninth article in “The Restricting Covenant” Series, which discusses tolling provisions in non-compete agreements and restrictive covenant cases. Specifically, can a tolling provision provide judicial relief to an employer if its former employee hid under the cover of darkness and concealed violations during the restricted period? What relief do employers have in this situation?
This eighth article in “The Restricting Covenant” Series discusses some recent trends in the evolving area of restrictive covenant law, non-solicitation agreements, and Internet social media networking, including sales representatives’ use of LinkedIn to contact and communicate with customers and other business relationships.
A decade or so ago, social media networking platforms on the Internet were new to me. I had just heard of this thing called “LinkedIn” as a new way to connect with my former classmates and other acquaintances. It was touted as an easy, cost-free way to communicate with them about my professional accomplishments and career developments. In many ways, your LinkedIn profile is your virtual resume to the world. Therefore, like millions of others, I created a LinkedIn profile, sent and received connection requests, and made posts.
By Lawrence J. Del Rossi – with special thanks to Summer Associate Joshua Lattimore for his assistance.
The start of the new school year, and kids around the country sharpening their pencils to learn in earnest (or at least I hope they are) sparked the topic for this seventh article in this Series. It discusses restrictive covenants and the “blue-pencil” doctrine – a tool many courts use to modify overly broad restraints on post-employment business activities.
Why “Blue” Pencils?
Being the legal geek that I am, I was curious about the origins of the blue-pencil doctrine, including how it got its name, how it applies in restrictive covenant cases, and which states have adopted it given that restrictive covenant law varies state by state.
This sixth article in “The Restricting Covenant” Series discusses “mobile” veterinary medical practices, and some unique challenges to securing reasonable geographic restrictions for veterinarians employed in such practices.
Mobile vs. Brick and Mortar Locations
Like most domesticated animals, Maine Coon cats require periodic care and treatment from a veterinarian. For my first Maine Coon cat, I drove to the veterinarian’s office, which was a stand-alone fixed “brick and mortar” location. However, for my second cat, my veterinarian brought her “office” to me in a “vet-mobile,” which is a van-like, full-service veterinary hospital on wheels. This type of moving mobile practice can present some challenges when trying to construct and enforce reasonable and enforceable geographic restrictions for a non-compete or a non-solicit.
This is the fifth article in a continuing series, “The Restricting Covenant.” I originally thought this article would contain, at most, one or two sentences on the issue of lawyers and restrictive covenants. Those two sentences would read something like, “A non-compete does not apply to lawyers. The end.” However, as with almost everything associated with restrictive covenants, things are not that straightforward. There are some nuances on this topic worth exploring, particularly with respect to in-house lawyers employed at private companies in the United States.
Continue reading “Part V of “The Restricting Covenant” Series: Lawyers and Law”
This is the fourth article in a continuing series, “The Restricting Covenant.” It discusses the concept of protectable “playbooks” in restrictive covenant cases and the individuals that use them to compete.
Let’s Play Ball, but with Restrictions
This year’s NFL Super Bowl LI ended in spectacular fashion when the New England Patriots made an historic comeback to win in overtime against the Atlanta Falcons. After the game, there was much discussion about the Patriots’ unique “playbook,” their coach, and his game strategy for winning the Super Bowl for the fifth time in nine appearances. This discussion led me to the question of whether a sports organization can restrict a coach from leaving one team and coaching another competing team. Can it restrict a departing coach from recruiting athletes for a new team? Can it demand the return of all “playbooks” or restrict the coach from using other records that he or she developed while coaching?
Despite the fact that thousands of sports teams, colleges, and universities employ coaches for their athletic programs, there are no federal or state laws that regulate the applicability of non-competes for coaches. In addition, there are very few reported court decisions in the United States that involve coaches and the enforcement of non-competes against them.
It is not that non-competes and other forms of restrictive covenants (e.g., non-disclosures and non-solicitations) in employment contracts with coaches do not exist—they do. One such contract that received some media attention a few years ago was the University of Arkansas’s employment contract with Bret Bielema, the school’s head football coach. Bielema’s employment contract contained several restrictive covenants commonly found in C-suite level employment agreements. It contained a “covenant not to compete,” which prohibited the coach from accepting “employment in any coaching capacity with any other member of the SEC” during the term of his employment. Bielema’s agreement stated that the competitiveness and success of the University’s football program affects the overall financial health and welfare of the Athletic Department, and that the University maintains a vested interest in sustaining and protecting the well-being of its football program. Bielema’s agreement did not contain a post-employment non-compete to prevent him from working for another team after he left. However, it contained a broad “covenant not to disclose trade secrets,” which outlined a long list of non-public information that the University believed gave the Razorback Football Program a competitive advantage over other football teams. This non-disclosure restriction was not limited to the coach’s tenure with the Razorbacks, and it survived his termination.
Where Does Your Team Loyalty Lie?
There is precedent for a University suing and successfully enjoining a head coach from “contract jumping” to a competing team, even without a written non-compete agreement. In a particularly scathing decision, Northeastern University v. Donald Brown, Jr. (2004), a Superior Court of Massachusetts judge preliminarily enjoined Northeastern’s former head football coach Donald Brown, Jr. from working as an employee, consultant, or in any other capacity, for the University of Massachusetts at Amherst (“U.Mass.”). Brown was under a multi-year contract with Northeastern as its head football coach. The dispute began after Brown, who had given “his word to Northeastern and the student athletes that he was not leaving Northeastern . . . in fact, within a day . . . was cleaning out his room to move to U.Mass.”
At the hearing on Northeastern’s application for a preliminary injunction, Brown’s attorneys attempted to justify Brown’s actions by arguing that, “Everyone in collegiate football does this,” and “What is the big deal?” Citing to another decision that involved coach jumping, New England Patriots v. University of Colorado (1st Cir. 1979), the court’s response to Brown was simply stated: “Well, a contract is a contract for major universities, just as it is for the rest of the world.” The judge found that Brown’s breach was “obvious, brazen, and defiant,” and that “U.Mass., as the Commonwealth’s premier higher educational institution was and is so callous in its duty to provide ethical and moral values for its students.”
Brown and U.Mass. cited to a $25,000 liquidated damages clause in Brown’s contract with Northeastern, and argued that this would adequately compensate Northeastern for its loss of Brown as the football coach. However, the court found that this liquidated damages provision did not prohibit injunctive relief if the test for the issuance of an injunction was established. There was “strong evidence of irreparable harm to be sustained by Northeastern and its football program.” With respect to U.Mass.’s competitive advantage in hiring Brown, the judge observed:
U.Mass. is a member of the same football conference as Northeastern, and the teams play each other every year. Northeastern’s entire football program and its playbook will be available to U.Mass. These two universities compete with each other in the same league, compete for fans to attend their games, compete for media coverage, compete for many of the same football recruits, and compete with each other for television to cover their games on a regional basis. There should be no doubt that college sports and the revenue that they draw are a major business for a university. (Emphasis added)
Coach Brown knew the program, the plays, and procedures used at Northeastern. In the court’s view, he would be able to use that knowledge unfairly against Northeastern. Not holding back any punches, the judge further commented that, “at times, at some universities, football and basketball programs appear to be more important than the universities’ duty to educate and their duty to instill in college students basic concepts of ethical conduct and adherence to legal and moral obligations.”
Finally, the court found that Northeastern had showed that it was likely to prevail on the merits of its breach of contract claim against Brown, and noted that, “the breach of contract is as clear as it was by Mr. Fairbanks in New England Patriots.” The irreparable harm suffered by Northeastern and its chance of success on the merits far outweighed “the irreparable harm, if any, to Brown or U.Mass. and their negligible chance, if any, to prevail in this case.”
Game, Set, Match Point
Another interesting case involving dueling coaches and the concept of restraints on trade is Graham v. Fish (2011). This case involved a dispute between two varsity tennis coaches at Harvard University. The University’s head coach for the women’s varsity tennis team, Graham, and the head coach for the men’s varsity tennis team, Fish, had formed a corporation, The Tennis Camps at Harvard, Inc., to conduct private summer tennis camps at Harvard. Importantly, they did not enter into a written non-compete agreement. Graham’s tenure as head coach ended. Harvard hired a new head coach for the women’s varsity tennis team, Green. Thereafter, Green and Fish formed The Tennis Academy, LLC, to run summer tennis camps at Harvard. In forming The Tennis Academy, Fish and Green created a new website, new promotional materials, and purchased new office and tennis equipment. However, Fish used the mailing list that he had developed with Graham to contact prospective campers for his new venture with Green.
Graham sued Fish and alleged that Fish had breached his fiduciary duty to act scrupulously, in good faith, and in complete candor toward Graham. The court rejected this claim and found that that “[i]n the absence of an agreement fixing the duration of the parties’ joint venture or a covenant not to compete, Fish was free to seek dissolution and engage in a new tennis camp business.” There was no evidence that Fish had operated “in some clandestine manner” in setting up the Academy. In addition, Graham had testified at his deposition that he and Fish, as co-owners, had equal rights to use the mailing list of The Tennis Camps.
Similarities Between Coaches and C-Suite Executives
What similarities can be gleaned between coaches at public or private universities and C-suite executives at private or public companies? Coaches of sports teams, like executives, can be highly valuable to the institutions for which they are hired. They usually are paid significant sums of money to represent and lead their organizations. They play a critical role in the leadership and direction of the team. They might have access to sensitive information, such as current and prospective student-athlete contact lists (customer lists), coaching contact lists (business contacts), playbooks (marketing and sales strategies), player development programs (promotion and performance metrics), coaching and leadership philosophies (business development strategies), game plan techniques (research and development processes and procedures), practice drills, training sequences and methodologies (product development), and pre-game, in-game, and post-game coaching practices and strategies.
As a general matter, a court would consider the type of information that these individuals have in determining whether the team, or the company, as the case may be, has a legitimate business interest to impose reasonable restrictions on business activities, either during employment or after the employment relationship has ended.
As explained in other articles in this Series, restrictive covenants are state-by-state specific, and therefore the laws of the applicable state must be reviewed. However, it is worth noting that some courts have adopted the sports “playbook” analogy in private-sector business dispute cases. A Michigan judge in a medical device case, for example, referred to the information that the company’s former manager had (including physician contacts, schedules, prescribing habits, sales data, order history, and wholesale prices), as the company’s “playbook.” In another case, a television broadcasting company in Maine that sought to enjoin one of its former employees from working for a competitor, referred to the elements of branding its show as its “playbook.” And, in one of the leading cases discussing the doctrine of “inevitable disclosure” (a doctrine discussed in more detail in other articles in this Series), the Court of Appeals for the Seventh Circuit adopted the “playbook” analogy directly:
PepsiCo finds itself in the position of a coach, one of whose players left, playbook in hand, to join the opposing team before the big game.
The goal of this Series is to provide a brief overview and some interesting insights and practical pointers when dealing with unique issues that might arise in the context of restrictive covenants and a particular occupation or industry. It is not intended to provide and should not be construed as providing legal advice. Each situation is different, and if legal advice is needed, you should seek the services of a qualified attorney who is knowledgeable and experienced in this area of the law to address your specific issues or needs. Stay tuned for future articles in this Series, which will discuss the restrictive covenant landscape for many other occupations and industries, including dentists, directors, designers, and others.