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I am an enrolled agent with the IRS. I was working with a

I am an enrolled agent...
I am an enrolled agent with the IRS. I was working with a Tax Preparation service as a manager for the past two years. the contract I signed had a non compete covenant. It stated that for two years after leaving the company that I could not prepare any tax returns or perform any services that are offered by the company. As I am sitting for my CPA and perform tax as well as bookkeeping services, this covenant basically prohibits me from performing any work in my given area of expertise. Is this contact enforceable. I do not plan to attempt to take their customers, only continue to work with the people I was doing returns for before working for them.
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Answered in 5 minutes by:
12/5/2012
TexLaw
TexLaw, Attorney
Category: Legal
Satisfied Customers: 4,430
Experience: Lead trial/International commercial attorney licensed 11 yrs
Verified
Hi,

Thank you for your question.

If the non-compete clause reads as you have stated, then it is not enforceable. Non-compete's must be restricted in time and geographic application. Also, a non-compete is generally not favored by the law in Tennessee and one's which completely restrict you from your livelihood will not be enforced.

That being said, if the non-compete did have the right restricts to make it legal, then a court would likely find you violated it if you were to work with any clients that you serviced while working with the tax preparation service.

Please let me know if you have further questions on this issue.

-ZDN
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Customer reply replied 4 years ago

Ok this is the exact phrasing:



  1. 1. Non-competition Covenant. Associate covenants that during the term of this Agreement and for two (2) years following termination of Associate’s employment for any reason, whether voluntary or involuntary, Associate will not directly or indirectly prepare income tax returns, file income tax returns electronically, or provide any additional or alternative services that the Company offers. Associate acknowledges that the geographic boundaries of the Company’s district are all counties in which the Company owns or manages Jackson Hewitt offices.


I



While working for the service, I did do their returns there.

Thank you for your response.

This sort of limitation is more what the Tennessee courts favor. The law in Tennessee is:

"Covenants not to compete, because they are in restraint of trade, are disfavored in Tennessee. As such, they are construed strictly in favor of the employee. However, when the restrictions are reasonable under the circumstances, such covenants are enforceable. The factors that are relevant in determining whether a covenant not to compete is reasonable include the consideration supporting the agreements; the threatened danger to the employer in the absence of such an agreement; the economic hardship imposed on the employee by such a covenant; and whether or not such a covenant should be inimical to public interest. In determining whether a covenant not to compete is reasonable, a threshold question is whether the employer has a legitimate business interest, i.e., one that is properly protectable by a non-competition covenant. Several principles guide the determination of whether an employer has a business interest properly protectable by a non-competition covenant. Because an employer may not restrain ordinary competition, it must show the existence of special facts over and above ordinary competition. These facts must be such that without the covenant, the employee would gain an unfair advantage in future competition with the employer. Considerations in determining whether an employee would have such an unfair advantage include (1) whether the employer provided the employee with specialized training; (2) whether the employee is given access to trade or business secrets or other confidential information; and (3) whether the employer's customers tend to associate the employer's business with the employee due to the employee's repeated contacts with the customers on behalf of the employer. These considerations may operate individually or in tandem to give rise to a properly protectable business interest. In determining whether a covenant not to compete is reasonable, an employer does not have a protectable interest in the general knowledge and skill of an employee. This is not only true of knowledge and skill brought into the employment relationship, but also true as to that acquired during the employment relationship, even if the employee obtained such general knowledge and skill through expensive training. "

Jones v. United Propane Gas, Inc., 2009 Tenn. App. LEXIS 878 (Tenn. Ct. App. Dec. 28, 2009).

In your situation, it is questionable whether or not this is an enforceable non-compete. I believe if they seek to enforce this clause, you would likely be able to "bust" it, as it seems unreasonably broad on its face. It will turn on the particular facts of how they seek to enforce the clause. If you take clients with you, that will be found to be in direct competition, and you could face liability for that. However, simply becoming a practicing CPA and not attempting to compete with them may allow you to argue that the clause is overly broad.

So, the answer to your question is not black or white. It would be left up to a court to determine if this was enforceable against you. You would decrease the likelihood that it is enforceable if you did not take any clients with you that also customers of JH while you were there.

-ZDN
TexLaw
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Category: Legal
Satisfied Customers: 4,430
Experience: Lead trial/International commercial attorney licensed 11 yrs
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