News Article

Tom Sawyer, a member of Womble Carlyle's Labor and Employment Practice Group who works in the Northern Virginia office, has developed a specialty in representing companies that are facing the loss of key employees. Tom's practice involves advising companies about the possible enforcement of noncompetition and trade secret clauses against their former employees, as well as litigating those claims when that proves necessary. Very frequently, his clients are fast-growing companies in the technology sector.

Tom also has a broad-based employment practice, including the representation of employers in discrimination cases, employment at will, and other types of cases. A graduate of the University of Virginia and College of William and Mary School of Law, Tom also has an LL.M. in labor and employment law from Georgetown University Law Center.

Tom was recently interviewed by Jonathan Groner, senior communications counsel for Womble Carlyle, on his technology-oriented employment law practice. What follows is a transcript of that interview.

Question: You have an employment law practice that specializes in the technology sector. What are some of the employment issues that particularly affect technology companies, and why?

Sawyer: I think an employment issue that particularly affects technology companies is the prolific use of non-competes and other restrictive covenants to prevent the loss of key personnel to competitors. I think this is especially true with respect to software development, systems integration, and biotech companies where the loss of a senior engineer or sales representative could result in the loss of an important technological edge or client that could mean the difference between success and failure of a growing company.

While non-competes are perhaps the best known form of restrictive covenant, they are also the most difficult to enforce because of their significant preclusive effect on what work the employee can do after leaving. Given the inherent world-wide scope of the Internet and other broadly applied technologies, courts are tending to closely scrutinize the breadth of the prohibited activity to ensure that the non-compete is fairly limited to the employer's business, if not to what the employee actually did for the employer. Having a properly focused non-compete is particularly important for technology companies in states such as Virginia, in which the courts generally refuse to reform or "blue-pencil" overbroad non-competes. It is similarly important for multi-jurisdictional technology companies with employees in states that strictly construe non-competes, such as Georgia, or reject them entirely as restraints of trade, such as California, to recognize not only the need for narrowly tailored restrictive covenants, but also for effective choice of law and forum selection provisions.

Other types of restrictive covenants used by technology companies include non-solicitation and confidentiality provisions. Non-solicitation provisions are often used as a targeted back-up, in case a court should refuse to enforce the non-compete, to keep the employee from taking important clients for a competitive purpose or employees with whom he or she had significant access. Confidentiality provisions, obviously, are used to keep employees from disclosing or using trade secrets or other similar confidential information once they leave the company.

When an enforcement situation arises, the most difficult decision the employer has to make is whether the potential loss warrants the significant litigation cost involved in pursuing the matter beyond an initial cease and desist letter. When the decision is made to litigate, it is typically because the employee had a lead or other substantial exposure to an important client or technology and has gone to work for a direct competitor. This is particularly problematic for technology companies in competitive niches with limited development lead time and where everyone is trying to sell to the same clients. For this reason, when technology companies sue, they tend not only to pursue the employee for breaching the restrictive covenant, but also to go after the subsequent employer for business conspiracy (treble damages in Virginia), violation of the state trade secrets act (attorneys' fees), and tortious interference with contract or business expectancy (punitive damages), as appropriate. So it is important for technology companies not only to do their due diligence when enforcing a restrictive covenant, but also to make sure that new employees aren't subject to non-competes or other obligations that could cause them to be sued.

Question: Why are some courts so disinclined to enforce non-compete agreements? In the usual case, didn't the employer and the employee bargain in good faith and at arm's length and arrive at the agreement when the employee was first hired, so why shouldn't the agreement be enforced under the ordinary rules of the contract law of the state?

Sawyer: The reason some courts are disinclined to enforce non-competition agreements is because they view them, despite their contract basis, as illegal restraints of trade. California, for instance, actually has a statutory prohibition on non-competes. Most courts, however, do allow for the enforcement of non-compete agreements, subject to a public policy-based determination that they are necessary for the protection of a legitimate employer interest, such as trade secrets or good will, and that the related restriction is reasonable.

Click here to read part II of the interview.

If you are interested in discussing labor and employment issues, please contact Tom at (703) 790-4681 or other members of the Womble Carlyle Labor & Employment Practice Group.