Enforcing Non-Compete Agreements Can Create Employer Obligations

Sherman & Howard L.L.C.
Contact

Sherman & Howard L.L.C.

In Mancuso v. L’Oreal, the court reminded employers who use non-compete agreements that those agreements, and the employer’s communications with the departing employee, may create enforceable employer obligations, particularly if they are not crafted with the assistance of experienced legal counsel.

In Mancuso, plaintiff was an at-will employee who signed a Non-Competition and Confidentiality Agreement (NCA) with her employer, IT Cosmetics. IT Cosmetics was later acquired by L’Oreal. The NCA prohibited plaintiff from competing with L’Oreal for two years after the end of her employment. Plaintiff later resigned, initially amicably, to start her own consulting business. Indeed, when she told L’Oreal why she was leaving, L’Oreal offered her new business a consulting contract. Plaintiff also obtained a consulting contract with Glamsquad, which may (or may not) be a competitor of L’Oreal.

After learning plaintiff would also work for Glamsquad, L’Oreal revoked its consulting offer and informed plaintiff it had decided to enforce her noncompete, though “only for a period of twelve (12) months.” Plaintiff was told she would “continue to receive [her] base pay” and health insurance benefits “during the period of enforcement.” Plaintiff rescinded her agreement to work with Glamsquad and waited for L’Oreal to make good on its promise to pay her for 12 months of not working. When L’Oreal did not pay plaintiff, she complained. L’Oreal then sent her a second letter stating it decided to “no longer enforce the NCA as to Glamsquad.” However, in that same letter, L’Oreal demanded that plaintiff still inform L’Oreal of any changes to her “employers or positions” for the next 12 months, so L’Oreal could, in each instance, “determine whether or not [her NCA] has been triggered. . . [O]nly if L’Oreal made the decision to trigger the NCA would [plaintiff] be [sic] reinstated on payroll.” Plaintiff sued.

L’Oreal moved to dismiss, arguing it was not obligated to pay plaintiff because it had changed its mind and permitted plaintiff to work for Glamsquad. The court disagreed, explaining that under L’Oreal’s counterintuitive reading of its own correspondence, plaintiff could only receive her salary if she solicited competitive employment, received an offer, turned it down, and defendant then chose to pay. L’Oreal’s reading allowed it to (as it did in this instance) demand enforcement of the NCA, later change its mind, “permit” plaintiff to take a position she already turned down, then refuse to pay. The court found that there was, at a minimum, a question of fact as to the meaning of the phrase “period of enforcement” in L’Oreal’s correspondence. Plaintiff could therefore proceed on her claim. The court expressed its opinion that L’Oreal’s interpretation “was not logical” and emphasized the importance of the employee’s perception of what she was agreeing to when entering into the agreement.

L’Oreal will now be litigating the enforceability of its own revised, non-compete agreement as the defendant, rather than the plaintiff (the ordinary course of action when litigating noncompetes). This likely could have been avoided with simple additional language in the noncompete. Employers faced with the decision of when, and how, to enforce their own noncompetes are well-advised to do so with the assistance of counsel but simply must do so when drafting them in the first place.

 

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.

© Sherman & Howard L.L.C. | Attorney Advertising

Written by:

Sherman & Howard L.L.C.
Contact
more
less

Sherman & Howard L.L.C. on:

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:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.