Four ways to lose a noncompete case

In this global economy, the battle for talent and customers is always fierce. Many employers aggressively protect both assets by enforcing noncompete agreements and their sister contracts, such as agreements not to solicit clients or hire or recruit employees.

However, a noncompete agreement will not always protect an employer trying to enforce it. There are a number of circumstances that may cause an employer to lose a noncompete case if it goes to court.

Here are four:

1. The noncompete agreement is too broadly drafted. Too many noncompete agreements attempt to cover every possible scenario known to humankind, and then add a provision allowing the court to scale back its scope, also known as a 'reformation” clause.

There is at least one Iowa case in which the original noncompete provided for a seven-year term within a 350-mile radius of Des Moines. But the court revised the contract to reduce its reach to four years and a smaller geographic radius.

However, some courts just toss the whole agreement or limit damages if the contract is overbroad.

2. Failing to focus on geography, duration and scope. Enough said. This is the whole reason of the contract - to protect secrets and/or relationships.

Draft it to narrowly protect your interests only. Make sure it is a truly protectable interest, also.

Existing customer lists or unique sources may well be protected, but chamber of commerce directories or the Internet and other public sources probably are not.

Moreover, an employer generally has no legitimate interest in enforcing a noncompete against lower-level employees such as receptionists and clerical employees.

Jimmy John's, for example, has received a lot of publicity recently. The Champaign, Ill.-based chain apparently requires its sandwich makers and delivery drivers to sign noncompete agreements that state they would not work at a restaurant that sells sandwiches or has a location within three miles of a Jimmy John's for two years.

The contract has spawned litigation, and at least 35 House Democrats have requested Department of Labor and Federal Trade Commission investigations into it. Many employment lawyers argue such agreements are better restricted to employees privy to a company's proprietary information.

Similarly, if an employer is phasing out of an area, it likely has no legitimate interest in preventing an employee from working in that area.

3. But our lawyer wrote it! And it was brilliantly drafted and the employee signed it!

Due to the balancing test employed by the courts - that is, balancing the rights of the employer, employee and the public interest - your brilliant, technical legal argument will always lose to a departing employee's sympathetic story.

4. Waiting to enforce it. It is hard to argue a breach of contract or that an injunction is needed to prevent irreparable harm if you wait a year, for example, to sue the departing employee for stealing an important customer.

The key to winning is to convince the judge you have suffered immediate harm. Waiting around makes that argument less persuasive.

What generally happens is the employer's attorney sends a letter to the employee and the new employer, threatening to sue both, and the employee gets fired from his new job. This scenario often occurs even where the employee told his new employer about the noncompete.

Frankly, if you are hesitant to start expensive litigation, contact the former employee immediately and try to resolve the dispute yourself.

So what is the bottom line for Iowa employers? Is a noncompete enforceable in Iowa?

Answer is, mostly.

Do employees have rights? Absolutely. Can the employer outlast an employee financially if the employer sues the employee? Almost certainly.

Does an employer generally want to throw good money after bad money? Absolutely not.

If the employer acts reasonably and promptly, and attempts to enforce a narrowly drafted noncompete of legitimate trade secrets or customer relationships, an Iowa court will enforce it.

' Wilford H. Stone is with Lynch Dallas Attorneys at Law, wstone@lynchdallas.com