Why You Need to Read Non-Compete Clauses in Employment Contracts

Today’s article concerns non-compete agreements in employment contracts. When you sign an employment agreement, there usually will be a clause specifying that you agree to not work for a competitor in the same industry or practice for a certain number of years. Our mantra has always been: “Read your contracts.” Yes, we know the fine print hurts your eyes and sometimes you come across words that you insist are not in the English dictionary, but trust us, you’ll save a lot of time, money, and effort in the future with that fifteen minutes or so of reading. As it turns out, not complying with his non-compete agreement will cost Panera’s former VP big time.

Panera sued its former Vice President Michael Nettles in a Missouri federal District Court, claiming violation of his non-compete agreement and misappropriation of trade secrets. Panera filed its suit after Nettles left his position at Panera to go and work for the pizza restaurant chain Papa John’s as its Chief Information Officer. In the chain-restaurant business, having the most high-tech operations systems and modes of delivery are the name of the game in surpassing the competition. Having known this Panera quickly filed suit against Nettles, arguing that Papa John’s was aware of Nettles’ status in the company as vice president of architecture in Panera’s information technology department, and hired him in the hopes of replicating Panera’s system.

The complaint reads: “Upon information and belief, Papa John’s specifically hired Nettles to drive their technology vision and overall strategy, and share with Papa John’s how Panera is competing (and intends to compete in the future) with regard to its use of technology to enhance guest experience, its successes in the delivery business, and its use of powerful and integrated systems and processes…” In addition, Panera specifically lists in its non-compete clause certain competitors that employees are not allowed to work for after leaving the company. While the actual contract is confidential information, we can assume Panera is making this whole fuss because Papa John’s was most certainly on that list. Panera also provided evidence of suspicious behavior on Nettles’ behalf before departing, like backing up all of his files from work, wiping his hard drives, and compiling all information he had worked on in his four years with the company in information technology.

The District Court Judge issued a temporary injunction against Nettles joining Papa John’s, and went as far to remark that Panera had a strong case and would most likely win. Panera and Papa John’s stipulated to settle the dispute out of court, the terms of which are confidential. You know what that means? Michael Nettles isn’t working at Papa John’s (or anywhere, most likely) any time soon.

All this talk about non-compete agreements may seem a bit scary. At first glance, it seems overbearing to let your employer control what you do and where you work AFTER you leave, right? Well, not exactly. When you are working for a company, you learn about that company, and may gain access to trade secrets and confidential information and processes that the company uses. These agreements of non-disclosure and non-competition are safeguard from poaching practices from competing companies that would find it easier to simply hire you for more money than to use their own resources developing systems of their own. While employers are not allowed to police the experience you gain on the job (that’s what helps you build a resume!), they can however police information you gained about the company that would be unfairly revealed in the regular course of business activity for you and put your previous employer at a disadvantage.
Depending on what state you’re working in, courts can either be relatively neutral to them, or quite hostile. California has traditionally always been opposed to non-compete agreements, while in other states, not so much. Non-compete agreements from employers are always viewed from a standpoint of reasonableness. For example, let’s say you work in video game development, and your employment contract with Company X reads “You agree that you shall not work in video game development, software development, or any other company associated with software, in the United States, for 10 years. This includes, but is not limited to Company T, U, V, Y, and Z.” Does this seem reasonable to you? It most certainly should not. Nor would a court be likely to hold this clause enforceable against you. Depending on your industry, what is reasonable will ebb and flow based on your title, access to information, location, and many other factors to consider.

Signing an employment contract is exciting and (hopefully) rewarding. However, you should always plan for what happens when you want to leave that employer or when you are terminated. You should know exactly what those situations include, even if you doubt either of those situations will ever happen. Call an attorney and have them walk you through parts of your contract you don’t understand, and have them talk to your employer about clauses that seem unfair.
Oh…. and READ YOUR CONTRACTS. Need I say it at this point?