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Court ruling highlights effective use of non-compete agreements

Non-compete agreements are now standard clauses in corporate employment contracts – especially among executives and upper management. These workers usually have the inside knowledge of how a company operates, including its business plans and strategies. As a company owner, you can’t risk losing this valuable knowledge to a competitor who poached one of your employees.

Too often, non-compete agreements don’t hold up in court because they are written too broadly, are deemed “unreasonable,” or attorneys for the company don’t adequately show that an employee’s decision to violate the contract would or did cause substantial harm. Recently, however, national chain CVS Pharmacy set an example of how non-compete agreements are most effectively written and how they can be enforced.

The litigation concerned a man named John Lavin, a CVS executive who left the company and was hired by PillPack, a unit of Amazon and a direct competitor to CVS. Lavin had signed a non-compete agreement lasting for 18 months after leaving CVS, but was hired by PillPack before that time ban had expired.

A judge in the case ruled that the non-compete agreement was valid and that Lavin had violated it. As such, he issued a preliminary injunction to stop Lavin from working for PillPack until the restrictive covenant expires (it may start over again as a result of this ruling).

Here are the reasons why the non-compete was likely deemed enforceable:

  • It was supported by due consideration for the employee (Mr. Lavin was given $150,000 in exchange for signing the agreement)
  • It was reasonable in duration: The restriction lasted just 18 months. Similar corporate non-competes sometimes set terms of three to five years.
  • It protected a legitimate business interest. In this case, the interest was confidential company information.

The court ruled that Mr. Lavin would be providing PillPack very similar services as those he provided to CVS, and that “it is highly likely that Mr. Lavin's new employment will result in the disclosure of Confidential Information to CVS's Competitor.”

Contract terms (of any kind) are only useful if they are enforceable. That’s why you should work with a highly experienced attorney when drafting contracts and when seeking to enforce them through litigation.

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