Monday, February 4, 2013

Once Again, Selective Enforcement Defense Is Unconvincing

I've written in the past why the "selective enforcement" defense rarely - if ever - seems to work in non-compete litigation. For those who don't recall, the defense is based on the idea that if a company does not enforce a non-compete agreement against a previous employee who left to compete, it can't enforce it against later departing employee.

So why doesn't it work? The defense is really based on waiver, which requires an employee to show an "intentional relinquishment of a known right." That's a tall order of proof. And in cases where an employee is trying to show an implied waiver, the standard of proof is even higher. He must show that the suggestion of waiver was "clear, unequivocal, and decisive." Put another way, there can't be another explanation for the conduct.

Those aren't my words. They're straight from a summary judgment order in Custom Hardware Eng'g & Consulting, Inc. v. Dowell, 2013 U.S. Dist. LEXIS 8904 (E.D. Mo. Jan. 23, 2013), out of the Eastern District of Missouri.

From a practical perspective, the defense of selective enforcement doesn't make a whole lot of sense. The biggest hurdle to the defense is that it's entirely collateral to the action and improperly focuses the court on employees who aren't even part of the case.

In particular, assessing the defense would require the court to approve a wide range of discovery into the following subjects:

(a) former employees who had agreements and what occurred with them post-termination (degree of competition between employers, customer solicitation, disclosure of confidential information);

(b) the relative value of those former employees compared with the employees asserting the defense;

(c) the particular reasons for the former employees' separation of employment;

(d) contract formation or consideration problems relating to former employees' contracts.

That's just a start. A court could get bogged down in litigating a "case within a case" to see whether the comparison-employees and defendant-employees were even similarly situated.

A business may have a lot of reasons not to enforce a non-compete, the most obvious being that in certain cases it makes no economic sense. Suppose a former employee with a non-compete engaged in a relatively minor breach by, say, soliciting a handful of small accounts for a product or service that was marginally competitive. The company may, correctly, determine that pursuing that employee wouldn't yield a net positive economic return. And there may be mitigating circumstances, too, that would make it difficult to prevail. Approving the selective enforcement defense would, therefore, encourage wasteful, economically inefficient litigation.

A company's decision not to enforce shouldn't have any impact on enforcement against another employee in the future. Courts rightly determine that each non-compete case is different, and that every employee's situation is unique. If that's truly the case, then the only proper use of the waiver defense is when a company indicates to a specific employee that his agreement won't be enforced and then sues anyway.

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