What is a Non-Compete?
When it comes to employment contracts, non-competition agreements (or non-competes) often raise the most eyebrows. Non-competes are agreements between employers and employees that prevent employees from going to work with a competing firm after they leave.
These agreements are put in place for several reasons. First, however obvious, they protect an employer’s trade secrets. Through the duration of an employee’s time with a company, they will likely gain access to information that gives their employer a competitive advantage. Whether it is insight into a specific product process or knowledge of key business relationships, this information is of great value to the employee’s new employer. This is why non-competes typically include language prohibiting an executive from sharing competitively sensitive information with others. Second, these agreements will often prevent an employee for taking "key" relationships with them. For example, if they manage a division with hundreds of employees, one could imagine that the employer would be upset if those hundreds of employees left the company to follow their former employer to a new job. Finally, these types of agreements can also prevent an employee from recruiting other employees to join their new place of employment. As one can imagine, for those further in their career, the employer would likely be upset if thought key employees were recruited away by either a former or new employee.
In terms of use, non-competes have become a fixture for many companies in the United States, including many of the darlings of Silicon Valley. Indeed, in 2009 the Obama administration undertook a review of the prevalence of non-competes both nationally and statewide. In reviewing their use , the Obama White House cited a 2014 study of roughly 10,000 privately held firms in Silicon Valley. The results of that study revealed that almost 40 percent of firms used non-competes.
Given that we will spend a great deal of time with Stryker’s non-compete language, it is worth it to know generally the state of non-competes in the country. While we will very shortly take a deep dive into how Stryker discusses non-competes, it is helpful to know the landscape when it comes to non-competes. While some states still allow non-competes, many states that have previously been relative bastions for non-competes have moved to restrict their use. For example, a study in Massachusetts revealed that as of 2015, non-competes have become relatively uncommon among start-up companies. Further, a 2015 study of Minnesota’s non-competes similarly found that they have become less common since 2012. A 2012 report of the White House’s Middle-Class Economics Committee similarly found that many states had moved to restrict the use of non-competes.
That being said, states have taken different approaches to limiting non-competes. For example, under California law, non-competes are virtually unheard of, while other states have a system that focuses instead on the language used in such agreements. Given that Stryker’s non-compete agreement has been signed by multiple thousands of its employees, it will fit squarely within the patchwork system of the United States’ approach to non-competes. In the coming weeks, we will examine what requirements Stryker’s non-compete agreement imposes on its departing employees. Because this could have implications for tens of thousands of employees, we hope to provide some clarity regarding what it means to sign Stryker’s non-compete agreement.
A Summary of Stryker Non-Competes
Stryker non-compete agreements generally include clauses that are fairly standard across industries but which nevertheless may be concerning for those bound by them and their new employers; for example, they may contain clauses defining how long you cannot work for a competitor after leaving Stryker (generally divided into the number of years you’ve worked past your 30-day probationary period); what constitutes a competitor (a list can sometimes be examined through Stryker’s supplier lists, corporate contacts, and even its proxies), while borderline competitors (e.g. distributors, wholesalers, and non-Stryker brands under the same parent company) must sometimes be examined on a case-by-case basis with Stryker sales managers or legal counsel; and if or how any post-departure training or on-site visits from Stryker are to be dealt with while you are working for a competitor.
The most stringent of the clauses generally involve non-solicitation towards any of Stryker’s employees; while many of Stryker’s employees are medical professionals, there are nevertheless some researchers and others who could, theoretically, be lured into a company that competes with Stryker. While "going after" would be breaking the non-solicitation clause, "taking" someone could theoretically be impossible to prove.
Can Non-Competes be Enforced?
Courts in certain jurisdictions may choose not to enforce a Stryker non-compete agreement unless Stryker can show that a legitimate business interest exists. It is important to note that there is always a slight chance that even an extremely aggressive, unfair and overly broad non-compete like Stryker’s would be enforceable if litigated in the right court.
Courts consider the following factors when deciding if Stryker’s broad, unfair, one-sided non-compete agreement is valid:
Again, non-competes are typically difficult to enforce in California. Non-competes must have a reasonable geographic limitation, a reasonable duration of time, and a legitimate business interest.
Legal precedents in Florida, Illinois, Massachusetts and Michigan, are that non-compete agreements that prohibit a former (or future) employee from competing with the company in any territory or at any time are unenforceable. Ohio courts seem to be following suit. A non-compete agreement that goes further than necessary to protect a company’s legitimate business interest is unenforceable. In determining whether the scope is too broad, courts will consider the nature of the company’s business, the factual circumstances surrounding the employment of the employee, the active competition that existed, and whether damages or changes in circumstances could reform the agreement. In addition, an employee’s management position bears on whether the noncompete agreement is overbroad.
In any event, even when non-compete agreements are seen as enforceable, things can always change and courts may become more willing to hear arguments that something like Stryker is fundamentally unfair.
Impact on Stryker Employees
Because of the broad reach of Stryker’s non-competition agreements, employees face an uncertain future if they leave Stryker. Employees who try to leave to join a competitor or do any consulting work for a competitor could end up in violation of their agreements, which would then make them subject to the penalties for breach and also could result in future loss of employment with Stryker . That is, a court could order an employee to pay back all wages earned during the pendency of the litigation and/or prevent the employee from ever going to work for the competitor, regardless of whether that work would not otherwise be a breach of the agreement.
If you are a current or former Stryker employee faced with the unenviable task of understanding and deciphering the impact of Stryker’s non-competition agreement(s) on your current or future employment, there are choices that you and your attorney can make to best protect you from the possible repercussions of the agreement.
Fighting a Non-Compete
When faced with an imposing non-compete agreement, Stryker employees may want to know their options for challenging its validity. Certain provisions of the law provide defenses to non-compete agreements, making it possible that an individual can get out of an otherwise valid non-compete. Even if your non-compete agreement contains a provision that allows you to challenge its scope or reasonableness before a particular court, that court might not be the right one for you to choose.
Options under Louisiana Law
A challenge to the non-compete beyond specific performance is available under Louisiana law, with limited exceptions. Although either side may initiate a "declaratory judgment" action before or after a breach of the non-compete has occurred, there are restrictions on both users. See La. C.C.P. arts. 1871, et seq. In most cases, a declaratory judgment action should be initiated in the parish where the non-compete was executed. See La. C.C.P. art. 42. If the non-compete’s provisions include jurisdiction and venue provisions [these usually designate "any court of competent jurisdiction in St. Louis County, Missouri," "the Circuit Court of St. Louis County" or "any state or federal court in St. Louis County"], you will need to discuss these provisions with counsel before proceeding further.
An individual may move for partial summary judgment to declare unenforceable any breadth, scope or duration in a non-compete agreement that is more than is reasonably necessary to protect the employer’s rights. La. R.S. 23:921(D).
Determining the Reasonableness of Missouri Non-Competes
Missouri law favors the enforcement of reasonable restraints of trade through non-compete, confidentiality, non-solicitation, and non-disclosure agreements. In determining whether a restraint of trade is reasonable, the court will consider the nature of the employer’s business. Non-competes designed to protect confidential information, customer relationships, and goodwill are generally considered reasonable. However, non-compete agreements are void if they "purport to restrain anyone from engaging in a lawful profession, trade, or business of any kind." Missouri courts have found that an agreement to not compete with only the employer’s customer base in the past twelve months, is reasonable as well.
Navigating a Stryker Non-Compete
Employees faced with a Stryker noncompete should not assume that they have no options. As a practical matter, depending upon their business unit and functional role, employees sometimes have the ability to negotiate the terms of their Stryker noncompete. Specifically, Stryker is often willing to negotiate the time period and the geographic scope of the non-compete for its employees.
Stryker employees who are anticipating a non-compete or who have received a Stryker non-compete should seek legal counsel immediately. Stryker’s non-compete language is often more complicated, ambiguous and onerous than employees may initially realize . A hired attorney can help sift through the legalese and assess the impact of the non-compete on the employee’s future employment or business opportunities.
Sometimes the best course of action is simply to reject the non-compete in writing (preserved in an email) and then move on. This rejection preserves the possibility of a tortious interference lawsuit against a subsequent employer, which can at least neutralize a subsequent employer’s incentive to do business with Stryker, or help a wronged employee to negotiate a financial settlement.