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TexLaw
TexLaw, Lawyer
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Experience:  Contracts, Wrongful termination and discrimination
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My question is based on Nebraska Employment Law specifically

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My question is based on Nebraska Employment Law specifically relating to a Non-Compete that I had to sign when I got hired in August of 2010. My position was eliminated on May 2nd, 2013 and I want to get a job in the same industry but am having difficulty because of the Non-Compete. Here is the Clause that is causing a potential employer to question hiring me:

3.1 Covenant Not to Compete; Nonsolicitation of Employees. If Employee’s employment with Avatech is terminated for any reason, Employee agrees that he or she shall not for a period of one (1) year after the date of termination of employment, (a) whether as an employee, independent contractor, stockholder, partner, advisor, or owner, within a radius of one hundred fifty (150) air miles of any office maintained by Avatech or within any Avatech authorized territory, engage in any business that competes with the business of Avatech and (b) directly or indirectly, for Employee’s own account or for the account of others, communicate or solicit any customers of Avatech or urge, induce, entice or in any manner solicit any employees to leave Avatech’s employ.

The issue I have it that the day after I started Avatech merged with our largest competitor, IMAGINiT Technologies, which has a National Authorized Territory, thus eliminating my ability to work in the same industry based on the "any Avatech authorized territory" clause.

Since my position was eliminated, how much of a restriction, based on Nebraska Law, can the Non-Compete place on me any my ability to find employment?
Submitted: 1 year ago.
Category: Employment Law
Expert:  TexLaw replied 1 year ago.
Hi,

Thank you for your question.

I wanted to let you know that I'm researching your question and will provide you with an answer shortly.

In regard to the actual Covenant, is there any language in that agreement which states that the agreement will be controlled or interpreted under Nebraska law?

Also, when you were hired, did they provide you with any additional consideration or payment (or provide you with any trade-secret information) in exchange for you signing the covenant not to compete?
Customer: replied 1 year ago.

Thank you for your quick response.


 


Section 5 - Miscellaneous - has a sentence that states "The validity and construction of this Agreement and all of its provisions shall be determined and interpreted under the laws of the State of Deleware."


 


There was no specific consideration provided at the time of employment as well as when my position was eliminated other than 2 weeks of severance.


 


Please let me know if you have any additional questions.


 


Thank you again for your help,


 


Ron

Customer: replied 1 year ago.

I have tried to send you a copy of the Non-Compete via this interface and it is not working. Is there another way that I can forward you a copy for review?


 

Expert:  TexLaw replied 1 year ago.

Under Nebraska Law, covenant not to compete is an asset of a corporation which passes by operation of law to a successor corporation as the result of a merger, regardless of whether the agreement would otherwise be assignable. AON Consulting, Inc. v. Midlands Fin. Benefits, Inc. 748 N.W.2d 626, 639 (Neb. 2008). Thus, the fact that your first employer merged with its competitor does not alter the fact that the covenant is likely to some extent enforceable.

Nebraska courts look at the following issues to determine whether a covenant not to compete is valid: whether the restriction is "(1) reasonable in the sense that it is not injurious to the public, (2) not greater than is reasonably necessary to protect the employer in some legitimate interest, and (3) not unduly harsh and oppressive on the employee." Id. at 638. Here, application of the non-competition agreement to include the entire US would be unduly harsh and oppressive and against public policy. In the employment context, the validity of a covenant not to compete aimed at preventing a former employee from unfairly appropriating customer goodwill is no greater than reasonably necessary only if it restricts the former employee from working for or soliciting the former employer's clients or accounts with whom the former employee actually did business and had personal contact. The Supreme Court of Nebraska applies this test strictly.

Thus, a court would likely strike down the agreement as overly broad, or reduce the area of competition as to an area which is more reasonably limited in geographic coverage. It is more likely that they will strike it down as Nebraska law does not favor rewriting an agreement to make it enforceable. H & R Block Tax Servs. v. Circle A Enters., 693 N.W.2d 548 (Neb. 2005).

If this clause is to be interpreted under Nebraska law, you have a good chance to actually "bust" the clause.

However, you've stated that Delaware law is applicable, so it is actually a question of what the law of Delaware is on non-competition agreements.

Under Delaware law, the merger does not affect the validity or applicability of the non-competition agreement. In Delaware the court look to whether the covenant is supported by an exchange of adequate consideration. All Pro Maids, Inc. v. Layton, 2004 WL(NNN) NNN-NNNNat *2 (Del Ch. 2004)(citing Research & Trading Corp v. Pfuhl, 1992 WL 345465 at *9 (Del Ch. 1992)). Contracts in restraint of competition are, however, subject to some special requirements. To wit, a covenant not to compete must be reasonable in geographic scope and temporal duration, must advance a legitimate economic interest of the party seeking its enforcement, and must survive a balancing of the equities in order to be enforceable. Tristate Courier, 2004 Del. Ch. LEXIS 43, 2004 WL 835886, at *10 & n.126.

You stated that you received a two week severance, this could be seen as independent consideration for the non-competition agreement (and has been interpreted as such by both Nebraska and Delaware courts). Significantly, under Delaware law:

"The reasonableness of a geographical limitation in a non-competition agreement should not be judged merely in terms of absolute physical distances. The purpose of such a covenant is to protect an employer's goodwill in a given market. If this market, or more accurately, the employer's customer base, extends throughout the nation, or indeed even internationally, and the employee would gain from the employment some advantage in any part of that market, then it is appropriate that an employee subject to a non-competition agreement be prohibited from soliciting those customers on behalf of a competitor regardless of their geographic location."

Del. Express Shuttle, v. Older, 2002 Del Ch. LEXIS 124 (Del Ch. 2002).

In Delaware Express Shuttle, the employee worked for the service until he was asked to resign. He signed a negotiated non-competition agreement and went to work in his previously-owned travel agency. However, he purchased a competing shuttle service and expanded that aspect of the business, which he built up with the service's former customers. The service brought an action and the court concluded that defendants did in fact violate the terms of the unambiguous non-competition agreement and that none of the equitable defenses raised had merit. An injunction against further competition with the service for a reasonable period of time and area was issued, and a small damage award was made. Although the customer list was misappropriated by defendants, the court held that the list did not constitute a trade secret under the Act because it consisted of public information. However, further use thereof was enjoined. The court awarded nominal damages based on defamatory remarks made by defendants that the service was heading into bankruptcy. All other defamation claims as well as claims regarding tortious interference with existing or prospective business relationships were rejected.

So, the question of whether the entire nation would be too large of a geographic area which bars you from competing would be a question of fact which the court must answer. It would depend on whether your ex-employer has a legitimate interest in keeping you from acting in the entire nation and whether your new job is actually in competition with them or causes them any loss.

This being the case, do you believe that you could obtain a release from your ex-employer on this non-competition agreement if you continue with the non-solicitation agreement, in order for you to be able to get employment in your field elsewhere?
Customer: replied 1 year ago.

I would gladly reach out to my previous employer requesting a release, but I am not sure they would grant it. Do you have any suggestions on how to request this, or what to say? Is it possible to request it be further defined by including only current clients that I worked with within a specified territory vs. all clients and prospects across the US?


 


Any suggestions would be greatly appreciated.

Expert:  TexLaw replied 1 year ago.
Tell me a little more about your job. What were your job duties and where was your territory?

Were you given access to customer lists and trade secrets that would enable you to provide a competitor with any competitive advantage over your ex-employer?

Customer: replied 1 year ago.

I was basically a National Account Sales Rep with approximately 35 to 40 accounts. Those accounts were geographically dispersed across North America. We were basically a Manufactures Rep that resold software on behalf of Autodesk and then bundled our own services with that software. There are several hundred other ReSellerers out there in the market place. I do not have any customer lists as that was all kept in our corporate CRM System, Salesforce.com. There is no other trade secrets other than Ex-Employer Custom software, but as a sales person I had no personal interaction with the source code or the application that I could share with any competitor.


 


I hope this helps and please let me know if you need any further clarification.

Expert:  TexLaw replied 1 year ago.
Yes, it does help.

I actually represent a company that does software bundling and rebranding, and have designed a similar non-competition agreement.

Let me start by saying that when my client is faced with a potential violation of the non-competition agreement by an ex-employee, whether or not they are going to enforce the agreement depends on whether or not there is any actual or potential loss that will justify the expense involved in enforcing the agreement. For example, an employee who is going to another state where my client does not have an office and is going to work for a competitor in violation of his agreement may not be prosecuted because it would be too expensive to hire an attorney in that state and to file the lawsuit, etc. In other words, the costs to enforce are significant.

However, I would think that any company like this would be open to reasonable negotiation over the applicability of a non-competition agreement. I have worked for several employees who wanted me to do this for them, and when I do this I start by pointing out that we are coming to the employer as friends to request that they provide us with a release or a lesser restrictive area so that the employee can work.

We then provide them with a specific area where the client wants to work and state that since we are disclosing this, we would rather have an agreement that either this does not violate the agreement, or that the company is giving a release for the agreement.

If there is any resistance to this idea, I tell them that it is much easier to come to an agreement rather than to seek the intervention of the courts through a declaratory judgment action that the clause is simply unenforceable.

In your case, since you are in Nebraska, I'd let the employer know that Nebraska regularly strikes these clauses down, and even though it is based on Delaware law, the complete lack of geographic limitation endangers the clause of being struck by the court.

I think coming to an ex-employer and attempting to negotiate a release is much more likely to get you what you want rather than hoping that they do not find out you are working for a competitor.
Customer: replied 1 year ago.

Thank you for the information. I will reach out to my ex-employer and see what their response is before I rate and finish this exchange. Thank you again for your advice and I will be in contact with their response.

Expert:  TexLaw replied 1 year ago.
Please let me know if you have any further questions. Please also kindly consider rating my answer positively so that I am compensated by the website for my work on your question. Rating positively does not cause an additional charge and does not prevent us from further discussing your questions.

Best Regards,
ZDN
TexLaw, Lawyer
Category: Employment Law
Satisfied Customers: 4164
Experience: Contracts, Wrongful termination and discrimination
TexLaw and 7 other Employment Law Specialists are ready to help you
Customer: replied 1 year ago.

I reached out to my former employer and they refuse to change any of the language in the agreement so I asked for clarification as to what they consider competition. Do they mean all possible prospects in the US or only those within the 150 mile that are current customers. If they say the total US that seems overly restrictive and almost like forced unemployment in the industry. What are your thoughts on that?

Customer: replied 1 year ago.

The additional feedback I received from my ex-employer is as follows:


 


If you don’t call IMAGINiT customers, you will not be in violation of any non-solicitation clauses. Our IMAGINiT customers are most important for us.


You can share your signed agreement with your future employers, and they can read for themselves what it consists of. You don’t need any further clarification from me. It should be pretty clear to them.


The 150 mile radius is for the non-compete.


The customers are everywhere. Those don’t have mile limitations. IMAGINiT customers. And IMAGINiT IP as well.


 


Based on the language of my non-compete I am requesting that she provide me a list of the Avatech offices that were in place on August 12, 2010 when I signed my agreement prior to any merger that took place. In my mind, that should be the defined territory of no competition, which is 12 to 15 offices vs. 50. And then from there, I requested she let me know if it is all firms within that radius, or only those where there has been contact made, those that are current customers, or those that have named Imaginit their Reseller of Record. I am trying to get her to admit in writing they are attempting to limit my geographical territory by more than 1/2 the country, which would seem to violate Nebraska law. I will provide you with more feedback once I get a response.


 


Please let me now if you have had any additional thoughts or suggestions.


 


Have a great day!


 


Regards,


 


Ron

Expert:  TexLaw replied 1 year ago.
When you signed the agreement, did you know that Avitech was merging with IMAGINiT?
Customer: replied 1 year ago.

I did not... I signed the agreement on August 12, 2010 and the Merger was announced on August 16, 2010.

Customer: replied 1 year ago.

Also, she is no longer responding to any of my emails...

Expert:  TexLaw replied 1 year ago.
If they will not agree to release you, then you have two options:

1. You can file a declaratory judgment seeking a determination that the contract is invalid.

2. You can test your ex-employer by taking a job and waiting to see if they discover that you took the job and if they are willing to spend the money to sue you.

She raises an interesting point in that if you take a job with a new employer but fail to let that new employer know about the potential non-competition problem, the employer could simply terminate you upon receipt of a Cease and Desist letter from your current employer. If you let them know before hand that you have a non-competition problem but that you believe it is overly broad and does not apply to you as long as you are not soliciting your ex-employer's clients, then you are going to be safe if they receive a C&D letter. On the other hand, some employer's might see this as a reason to not hire you.

The safest bet is to go the route of a declaratory judgment. Of course, this would require an investment in attorney's fees up front.
Customer: replied 1 year ago.

How does one go about getting a Declaratory Judgement and about how much would it cost from a Fee perspective?

Expert:  TexLaw replied 1 year ago.
The declaratory judgment action is a relatively quick procedure. You file a request for the declaratory judgment with the court as a lawsuit, serving the employer. Then generally, there is a brief written and then the case is decided by the court after an oral argument. Sometimes there will be limited factual discovery and testimony presented to the court if there are facts in dispute which have an impact on the issue being decided. However, in this case, it is likely going to be able to resolved by stipulation.

I would expect that you are looking at fees anywhere between $5,000 to $20,000. I'm not sure what lawyers generally charge in Nebraska though.
Customer: replied 1 year ago.

Here is the response that she gave me...


 


The non-compete agreement you signed is still in effect today, so the Avatech offices request in 2010 is not meaningful and we will not provide a listing of offices. You can see our current offices on our website.


 


I think your attorney can read and interpret the meaning of the agreement you signed. More clarification from me on these points is not necessary.


 


 


The question I have is that since the agreement specifically states "Avatech" offices and that I did not know the merger was going to take place, does the agreement morph to cover all of the Imaginit offices as well or does it cover just the Avatech offices that were in place the day I signed the agreement. Also, since it is a non-compete for every office, does that mean that I cannot call on any accounts in that radius, or just the current Imaginit customers? I think once I have a clearer understanding of that, I can communicate that it my potential employer and see if they are still willing to hire me. Let me know if you would like me to email you a copy of the agreement. Thanks again!

Expert:  TexLaw replied 1 year ago.
Well, they are clearly showing some agitation on the issue.

Under the terms of the agreement, it would include the Avatech offices only. If after the merger, the IMAGINiT offices are now considered Avatech offices, then it would apply to those offices as well.

In regard to calling on any accounts, this goes to the non-soliciation clause. You cannot call on any current customers, as this would be solicitation. To be safe, you should avoid all past customers as well, unless you know for certain that they are no longer with Avatech.

Email the agreement to experts@justanswer.com attn: zdnlaw re: http://www.justanswer.com/employment-law/7sres-question-based-nebraska-employment-law-specifically.html
Customer: replied 1 year ago.

I wanted to follow up with you to see if you received a copy of my non-compete? If so, in your opinion, do you believe that it carries over from Avatech to Imaginit as far as the offices are concerned from a competition perspective?

Expert:  TexLaw replied 1 year ago.
Hi,

Thank you. I have reviewed the agreements and the termination letter.

First I want to make sure that you understand that I am not acting as your attorney (JustAnswer does not allow an attorney-client relationship to form) and cannot provide you with any binding legal opinion regarding this matter.

I also want to let you know that one of the documents you sent states that it is confidential and should not be disclosed except to your attorney. I want to acknowledge herein that I identified the document as mistakenly/inadvertently disclosed and have destroyed it so that no liability should be cast on you for the inadvertent disclosure.


After reviewing the material, it appears that the non-soliciation agreement is binding upon you as to the extended offices pursuant to the signed termination agreement. However, interestingly enough, it does not mention the non-competition agreement, and then goes on to say that the termination agreement supersedes all other agreements. So arguably, this cancelled the non-competition agreement but left in place the non-solicitation agreement.

I believe that the terms of the original non-competition agreement would have carried over to Imaginit, as the agreement allows Avatech to assign the agreement to "any firm, business, or corporation with which Avatech may merge...."

As that is the case, it is arguable that the non-competition agreement is in effect still and extends to 150 mile radius to any office. It is possible that this could extend nationwide, depending on the factors stated by the Delware courts as to whether the entire US would be reasonable in extent and actually serves to protect a legitimate interest of the company.

On the other hand, you have an argument that it is too broad of an agreement and that the non-competition agreement is actually canceled by the termination agreement, as by its very terms it superseded all agreements except the covenants, which did not specifically include non-competition.

So, there is a definite risk, but you have a legal argument against enforcement if they attempt to enforce it against you.

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