Thursday, May 22, 2014

Apparently, an employee doesn’t need to sign a noncompete for an employer to enforce it

I’ve always thought that for an employer to enforce a non-competition agreement against an employee, the employee actually had to sign the agreement. Two recent cases, however, suggest otherwise.

In Newell Rubbermaid Inc.v. Storm (3/27/14), a Delaware Chancery Court enforced a “clickwrap agreement”—that is, the employee only received an electronic copy of an equity compensation agreement, which included a non-competition agreement buried within. Instead of signing the agreement, she clicked an “Accept” button on a pop-up on her computer monitor. According to the court:

Newell’s method of seeking Storm’s agreement to the post-employment restrictive covenants, although certainly not the model of transparency and openness with its employees,  was not an improper form of contract formation…. Storm admits that she clicked the checkbox next to which were the words “I have read and agree to the terms of the Grant Agreement.” This functions as an admission that she had the opportunity to review the agreement (even if she now states she did not read it despite her representation that she did) upon which Newell was entitled to rely. Her actions of clicking the checkbox and “Accept” button were manifestations of assent…. It is not determinative that the 2013 Agreements were part of a lengthy scrolling pop-up. Storm’s failure to review fully the terms (on a 10-page readily accessible agreement) to which she assented also does not invalidate her assent.

In PharMerica Corp. v. McElyea (5/19/14), an Ohio federal court went one step further, and enforced a non-competition agreement that the employee had never signed at all. Shortly before resigning to work for a direct competitor, McElyae, a salesperson, copied all of her PharMerica files—including client lists, pricing information, and contracts—from her PharMerica-owned computer to a thumb drive. Under those circumstances, the court had no problem enjoining the employee from working for the competitor, even though she had never signed the non-competition agreement PharMerica presented to her.

Defendants also argued that unless Plaintiff can prove a non-compete agreement exists, the Court may not enter an injunction unless McElyea has already disclosed trade secrets. But some Ohio courts do permit injunctions in the absence of a non-compete agreement and without a prior instance of disclosure when “the former employee possessed timely, sensitive, strategic, and/or technical information that, if it was proved, posed a serious threat to his former employer’s business or a specific segment thereof.” The Court finds that PharMerica has shown its confidential information, if disclosed, would pose a serious threat to its business.

Often, non-compete cases are more about the equities than the law—did the employee act in a way that makes it unfair for he or she to compete against a former employer. As these cases illustrate, when an employee acts egregiously (takes a whole bunch of stock as consideration for a non-compete, or steals a whole bunch of documents on her way out the door), courts are willing to overlook things like as whether a non-compete was conventionally, or even actually, signed.