Does Bird’s Eye View Render Executive Non-Compete Unenforceable?


So here’s a good one for healthcare employers to ponder. Let’s say you have an executive subject to a valid and seemingly enforceable non-compete agreement. Because the agreement concerns an executive, we would normally presume that a court is likely to strictly read the terms of a non-compete agreement and enforce it accordingly. Well, the Second Circuit Court of Appeals recently affirmed a decision that an executive whose level of seniority limited his knowledge of business details rendered him not subject to the terms of his otherwise-valid non-compete agreement.

Even before the Second Circuit’s recent decision, employers in Alabama faced a number of hurdles when seeking enforcement of non-compete agreements. As a general matter, contracts restraining business are barred under ALA. CODE § 8-1-1 (1975). An exception to this general rule allows for restraints on trade where an employer-employee relationship is concerned, but this exception does not apply to professionals. The upshot of this legal framework is that physicians, physical therapists, and, perhaps, similar medical professionals are considered professionals and are exempt from non-compete agreements. However, executives and others serving corporate functions at healthcare companies usually are not and can be subject to non-compete agreements because they possess specific knowledge that could, at least in theory, give a competitor an advantage over the former employer. Taking this analysis one step further, however, led at least one court to determine that a senior executive was so far removed from the mundane specifics of the actual work product that he was no longer subject to the non-compete agreement he voluntarily executed.

Originally Published in Birmingham Medical News - August 15, 2014.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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