In recent years, non-compete agreements have earned a bad reputation, primarily because they are being overused and are often too broadly written. Major companies are including non-compete agreements as standard clauses in the contracts of even low-level workers. And the restrictions placed on workers are often unreasonable – a major litmus test of whether a non-compete is enforceable.
Although use of non-competes has gotten out of hand, these legal agreements still have an important role to play in the right context. A recent court ruling is a good example of why non-compete agreements are so important, particularly with high-level executives.
At the center of the dispute is a man named John Lavin, who formerly worked as a senior executive for pharmacy chain CVS. He resigned from that job and was given $150,000 in exchange for his agreement to refrain from working for any major competitors for a period of 18 months after leaving CVS.
But during that 18-month period, Mr. Lavin was hired by and began working for PillPack, a company owned by Amazon that seeks to be a fierce competitor with traditional pharmacies like CVS. His former employer took Lavin to court, and earlier this month, a federal judge ruled that Lavin had violated the agreement.
It took the somewhat rare step of granting a preliminary injunction to enforce the non-compete. The judge said evidence clearly pointed to two important conclusions. First, that Mr. Lavin would be providing similar services to PillPack while still under the 18-month non-compete. Second, that “it is highly likely that Mr. Lavin's new employment will result in the disclosure of Confidential Information to CVS's Competitor.”
Courts are generally very careful about validating and enforcing non-compete agreements, likely because they can easily be abused by large companies. But this particular non-compete met the criteria for enforceability. First of all, it was “reasonable in scope,” asking Lavin to refrain from working for a competitor for just 18 months (many non-competes include bans of three to five years). Second, it demonstrated that CVS would suffer substantial business harm if the agreement were to be violated.
This case has some important lessons for both employers and employees. If you are an employee, you should know that there are limits to what a company can ask of you in a non-compete agreement. If it is too broad or unreasonable, it may not be enforceable. For employers, this case demonstrates that a well-written agreement remains one of the best protections against unfair competition from a former employee.