New Frivolous Lawsuit Statute May Chill Claims for Breach of Non-Compete Agreements

by Burr & Forman
Contact

[author: ]

On May 21, 2012, Governor Haslam signed into law HB 3124, a bill amending Tennessee Code Annotated § 20-12-119.  The new law, effective July 1, 2012, requires the court in a civil case to penalize a plaintiff whose claim is dismissed as meritless.

Prior to the new law, a court had discretion in civil cases to adjudge costs between litigants.  Except when allowed by statute or a contract, the award of costs would not include the prevailing party’s attorney fees.  Now, the court must award costs and attorney fees to a defendant if the plaintiff’s case is dismissed as frivolous.  The award includes court costs, attorney fees, and court reporter fees.  The plaintiff’s liability is capped at $10,000.

Though viewed as part of Tennessee’s efforts at tort reform, the amendment to Section 20-12-119 could have an adverse effect on employers who attempt to enforce a contractual non-compete agreement.  An employer could be liable to a former employee for costs, including attorney fees, if its suit to enforce a non-compete agreement is dismissed as meritless.

Such was the case under South Carolina’s Frivolous Civil Proceedings Act (the “FCPA”) in Wachovia Securities, LLC v. Brand, 671 F.3d 472 (4th Cir. 2012).  In that case, the employer instituted arbitration proceedings against former employees before the Financial Industry Regulatory Authority.  The employer claimed that the former employees conspired with a rival broker to open a competing office using the former employer’s trade secrets and solicited the employer’s customers in violation of a non-compete agreement.

After more than a month of proceedings, the arbitration panel dismissed all of the employer’s claims and awarded the former employees $1.1 million in attorney fees under the FCPA.  The Fourth Circuit Court of Appeals upheld the federal district court’s refusal to overturn the arbitration panel’s award of attorney fees under the FCPA.

BURR POINT:  Though the amendment to section 20-12-119 is not as severe as South Carolina’s FCPA, with liability capped at $10,000 and other limitations, employers will need to ensure they have good grounds before bringing an action against former employees to enforce a non-compete agreement.  If the claim is dismissed as meritless, the employer could be liable to the former employee for up to $10,000.

For more information, if you have any questions about non-compete agreements, or if you have an unfair competition issue, please contact any of the Burr & Forman’s Non-Compete & Trade Secrets team members and we will be happy to assist you.

http://www.noncompetetradesecretslaw.com/2012/05/30/frivolous-lawsuit-bill-may-chill-claims-for-breach-of-non-compete-agreements/

Written by:

Burr & Forman
Contact
more
less

Burr & Forman on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.