Wednesday, January 19, 2011

Let's Talk Procedure!! The Burden of Proof In Non-Compete Cases

You can tell from the title of this blog that I am very excited to discuss mundane aspects of civil procedure with my readers.

In actuality, though, this procedural issue - the burden of proof - is a fairly important one for clients and attorneys to understand. By now, if you've been reading this blog, you're aware that non-compete contracts must be reasonable to be enforceable.

This is important in practice for a couple of reasons. First, it is not enough for an ex-employer simply to establish a breach of the non-compete agreement. A court must also find the agreement is reasonable in time, space and scope. Second, in most jurisdictions, this requires an employer to plead in the Complaint that the agreement is reasonable.

Experienced attorneys normally set forth detailed factual allegations to show why the non-compete is reasonable. These allegations may include statements about a unique product or service that the employer offers, the development and protection of confidential information, and an employee's development of client goodwill.

But when it comes down to brass tacks - to trying a case at a preliminary injunction hearing or trial on the merits - whose burden is it to tackle the issue of reasonableness?

Like many areas of non-compete law, jurisdictions vary in their answer to this question. In some states, the employer bears the burden of demonstrating reasonableness. These states include: Arizona, Illinois, and Mississippi. In other states, like Connecticut, the employee must demonstrate unreasonableness.

There are some twists. In Florida, the burden is on the employer to demonstrate a protectable interest that would support the covenant, while the employee has the burden of showing that a facially reasonable covenant is overbroad and beyond what is necessary to protect the employer. In Michigan, much like its flagship school's football program, the answer is unclear. A recent case in 2007 stated the burden is on the employer, but in doing so relied upon the law in place before the legislature significantly reformed non-competes in 1985. Much like Brady Hoke trying to work with Rich Rodriguez's recruits, this seems to be a square peg in a round hole solution.

In Ohio, an employer actually has a heightened burden. That is, it must demonstrate reasonableness by "clear and convincing evidence", a not insignificant factor to consider when picking choice of law.

In practice, does all this stuff about burden of proof matter? Absolutely. In a jurisdiction that puts the onus on an employee to establish reasonableness, that employee's counsel will have to request a significant amount of discovery that may relate to the protectable interests asserted by an employer. The employee certainly would have a longer case to present, with more witnesses to show that the covenant is unreasonable and overbroad.

At the end of the day, cases still turn on their facts, and an employer who has a poorly drafted covenant still faces an uphill battle. But who has the burden of proof is a factor to consider for all attorneys at the outset of any non-compete case.

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