Over the last couple of years, there has been an increase in employees striking back against employers trying to enforce non-compete agreements. In those cases, the employee argues that his former employer has interfered with his new job or business relationships.
For example, an employee in Rutherford County, Tennessee sued his former employer for getting him fired from his new job. In Harper v. Chemtrade Logistics, Inc.[1], Harper sued Chemtrade Logistics, Inc. after USALCO, Harper’s current employer and a Chemtrade competitor, terminated him.
According to Harper’s complaint, Chemtrade claimed it had a valid non-compete agreement with Harper and threatened to sue USALCO unless it terminated him. As a result, Harper alleged, he is no longer able to work in industrial chemicals, the industry in which he has been employed for the last two decades.
Harper’s lawsuit raises a difficult issue for employers who attempt to enforce their non-compete agreements: Can the former employer who alerts the new employer of its non-compete agreement be liable when the new employer terminates the employee? As a general rule, and without commenting on the claims made in Harper, the answer is it depends on the facts. In 1994, the Tennessee Supreme Court said in Forrester v. Stockstill[2] that a person who intentionally interferes with another’s employment, without privilege or justification, may be liable. It does not matter whether the employee is at-will or under contract.
Though Forrester does not address the exact issue raised in Harper’s suit, employees in other states have sued former employers for “intentional interference with employment,” the legal principle stated in Forrester, when employers attempted to enforce their non-compete agreements. For example, an employee in New York sued her former employer after her new employer fired her. In Gentile v. Olan[3] the employee alleged her former employer interfered with her employment when it threatened to sue her new employer over the employee’s non-solicitation agreement. The court in Gentile allowed the case to proceed to trial so the jury could determine if the former employer was liable for its actions.
Apart from the factual issue of whether Chemtrade did what Harper alleges, the key legal issues in the Harper case include whether Chemtrade’s alleged conduct was intentional or malicious, and whether it was privileged or justified. Based on Harper’s allegations, a key factor will be whether Chemtrade had a valid non-compete agreement with Harper.
Even if the court decides Chemtrade’s non-compete agreement is unenforceable, the court could find Chemtrade is not liable because it was justified in attempting to enforce the contract. The Tennessee Supreme Court has said “the question of [a non-compete agreement’s] reasonableness must be decided on an ad hoc basis.”[4] This means that in some cases, “an employer is justified in litigating the question of whether or not [the employee] had breached the non-competition agreements . . . .” In those cases, “it cannot be said that the agreements . . . are illegal and unenforceable, per se,”[5] and employers may be justified in trying to enforce them.
Though non-compete agreements are generally enforceable in Tennessee, the Harper suit shows that employers can be put on the defensive by employees who believe their livelihood is at risk. Employers can be better prepared for such attacks by drafting defensible non-compete agreements on the front end.
[1] Rutherford County Chancery Court Docket No. 14CV1409 (Sept. 29, 2014).
[2] 869 S.W.2d 328, 330 (Tenn. 1994).
[3] 2013 WL 1880771 (S.D.N.Y. May 6, 2013).
[4] Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361 (1966).
[5] Riggs v. Royal Beauty Supply, Inc., 879 S.W.2d 848, 852 (Tenn.Ct.App. 1994).
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