Do You Have a Non-Competition Clause in Your Contract?

| September 3, 2013

By Steven J.J. Weisman
TALKERS 
Legal Editor

 

weismanwriterBOSTON — It is nothing new for some business people to have a dim view of competition.  The legendary John D. Rockefeller, founder of the oil company monopoly, Standard Oil said “Competition is a sin.”  The federal government disagreed and Standard Oil was broken up under the Sherman Anti-Trust Act in 1911 following a landmark Supreme Court decision.

When it comes to radio talk show hosts, being able to compete by leaving one employer and going to another employer is often viewed by radio station owners in a fashion similar to Rockefeller’s.  To them, competition by former employees, if not sinful, should at least be considered a breach of contract.  It is not unusual for a talk radio host’s contract to include a provision that limits the right of the host to work for someone else.  This contract provision is commonly called a non-competition clause.  Often such clauses are used to limit the right of a talk radio host from going to work for a competitor in the same city or geographical area.

Critics of non-competition clauses say that station owners use them to maintain lower salaries.  A talk radio host with a non-competition clause in his or her contract knows that his or her choices may be limited to moving his or her family to a distant city or litigating the enforcement of the non-competition clause in court, which is an expensive and time consuming process.  Without the option of another job in the same market, the ability to negotiate a larger salary is certainly diminished.

The laws governing non-competition clauses vary from state to state with the trend definitely against strict enforcement of such clauses as a restraint of trade.  Those states that do permit non-competition clauses generally require that, in order to be enforceable, the provisions for non-competition must be “reasonably” (a word, the interpretation of which, has kept lawyers busy and well-paid for hundreds of years) limited both as to the duration of the obligation not to compete and the geographic area covered.  Even in those states that permit non-competition clauses in media contracts, these contract provisions are subject to strong scrutiny and generally must meet specific conditions.   Due to the strong public policy against limiting a person’s ability to earn a living, the employer must have a legitimate interest it is protecting through the contract provision. The competition limitation maybe only as extensive as is required to protect the legitimate interest of the employer.  Preventing the disclosure of trade secrets is such a court-approved legitimate interest, but it is one that does not seem to apply to talk radio hosts.  However, it has been considered a legitimate interest of the employer to restrict the movement of an employee when the employee’s services are “special, unique or extraordinary.”  It is no coincidence that you may find your services being described in these  specific words in your own contract.  However, merely characterizing services in this manner does not make it so and merely including these words in your contract does not mean that the employer has met the requirements of this enforceability condition.  This is not to denigrate your work, but merely to say that anyone can be replaced.  As Charles De Gaulle said, “The graveyards are full of indispensable people.”

Restrictions of no more than a year have generally been upheld in those states permitting non-competition clauses.  In litigation, it is up to the radio station seeking enforcement of the contract provision to prove that it has been harmed financially by the leaving of the employee who goes to work for a competitor.  Often this is shown by evidence of the value of a performer who has been extensively promoted and advertised by the radio station seeking enforcement of the non-competition clause.

The American Federation of Television and Radio Artists has been active in its opposition to non-competition clauses and has been successful in advocating for laws that make non-competition clauses in media contracts invalid in Arizona, Illinois, Maine, Massachusetts and New York.  New York’s law, enacted in 2008 specifically applies to television, radio, cable, Internet and satellite broadcasting.

However, just as where there is a will there is a way (as well as often greedy relatives).  Employers have tried to circumvent the laws in states unwilling to enforce non-competition clauses by inserting in their contracts choice of law and choice of venue provisions.  These provisions may appear at first look to be rather innocuous.  Often, they merely say that the contract will be interpreted in accordance with the laws of the state where the employer is based and that any litigation regarding the contract must be conducted in that state.  These provisions are, however, quite significant because the employer may thereby be choosing laws from a state that enforces non-competition clauses rather than the laws of the state where the employee will actually be working.  The choice of venue for litigation is equally important as the local court is more likely to enforce its own state laws.  Home court advantage is not limited to the NBA.  However, to use another basketball metaphor, this is no slam dunk.  California courts have ruled that a choice of law provision in a California employment contract that would provide for a non-competition clause is not enforceable in California.

So what is in your contract?  Do you know?  The time to arm yourself with knowledge about whether or not you may be subject to an enforceable non-competition clause is when you talk with your lawyer before signing any contract.

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Steven J.J. Weisman, a practicing attorney, is a senior partner in the talent management firm Harrison Strategies, LLC. He is also legal editor for TALKERS magazine and publisher of the websitewww.scamicide.com. He can be e-mailed at: stevenjjweisman@aol.com. Steven J.J. Weisman is available as a guest to discuss the subjects of identity theft and scams.

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Category: Legal