Wednesday, June 9, 2010

The "White-Hat" Effect, Once Again (Peavey Electronics Corp. v. Pinske)

I have written before about the proverbial "white-hat." If you're wearing it in a competition lawsuit, you're likely to win.

A perfect example of this can be found in a recent preliminary injunction proceeding arising out of Mississippi. At issue was an industry-wide non-compete signed by the general manager of an audio products supplier. The agreement prohibited the employee from working for a competitor within any geographic area in which the employer conducted business.

After the employee was terminated, he moved to California and worked for an audio engineering firm as director of sales. The employer waited several months to file suit and could not show that the employee attempted to solicit any former customers. In fact, the employer had to admit that it was unaware of any projects in which it competed with the employee's new company for any customers.

The court had little trouble concluding that the non-compete was not necessary for protection of any legitimate business interest. It even suggested that if the employee violated the covenant, the employer could seek money damages - a position that may not be entirely correct.

So when does the employee wear the "white-hat"? Well, the ultimate "white-hat" position is to argue successfully that there has been no breach. But, as I have written on numerous occasions, non-compete cases generally turn out favorably for employees when the following facts are absent, even if there is a technical breach:

(1) No direct solicitation of the employee's accounts;
(2) No misuse of company data or information; and
(3) No pre-termination conduct that is suspect, dishonest or shady.

There are always exceptions, and employees do win cases when some combination of those facts is present. But avoiding these three problem areas usually results in an employee-friendly outcome.


Court: United States District Court for the Southern District of Mississippi
Opinion Date: 6/1/10
Cite: Peavey Electronics Corp. v. Pinske, 2010 U.S. Dist. LEXIS 53616 (S.D. Miss. June 1, 2010)
Favors: Employee
Law: Mississippi

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