Invalid Non-Compete Agreement Drives Former Employee to Bankruptcy after Lawsuit

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In an unusual ruling, a Missouri judge issued a permanent injunction against the standard “non-compete” clause signed by Individual Taxes Etc. Inc. employees who were hired as temporary workers to prepare seasonal tax returns. Individual Taxes is a franchised subsidiary of New Jersey-based Jackson Hewitt.

As a course of the hiring process, Individual Taxes has all employees read an employee training guide and sign a contract that includes a non-compete clause stating the employee will not work as a tax preparer for two years within a certain geographic area.

The judge found that the temporary employees “possess no specialized knowledge… to prepare returns” and says the job is “akin to data entry.” The judge also ruled that the seasonal workers do not have enough time with clients to form “significant relationships” with them, and therefore are not in a position to credibly steal clients from Individual Taxes Etc.

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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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