Dueling Lawsuits

MERGERS, BUY-OUTS and other acquisitions within the waste industry have sent thousands of employees scurrying for new jobs. Although many of these individuals signed noncompete agreements (NCAs) with their former employers, some have landed new jobs only hundreds of miles away and have begun competing directly with the old company without interference. A key reason: a mish-mash of court rulings throughout the United States are oblivious to the dynamic realities of the new economy.

Employers that hope to rein-in key employees with an NCA need to keep in mind a few facts of business. For one thing, an employee may be willing to move hundreds or even thousands of miles for the right job opportunity. Also, the employee may pose a greater competitive threat from across the country than from across the street. Meanwhile, conspicuous differences exist among the state courts when enforcing NCAs. If enough money is at stake, litigants — employers and former employees — will file dueling lawsuits in different locales, depending on which court is most sympathetic to the filer's circumstances. As a result, it is not unusual to find a ruling by a court in one state that conflicts with a ruling by a court in another state on the same agreement between the same parties.

After working for a company in Ohio for 11 years, James Keener, as a condition for keeping his job, signed an NCA with Convergys Corp. The telecommunications and computer software firm had bought out the company. The agreement had a provision that Ohio law would govern any disputes. Keener remained with Convergys for another six years in Ohio and Illinois until he resigned. He told the firm he was switching careers and going to work in the banking field. However, he promptly took a job with H.O. Systems, a Convergys competitor located in Georgia. The new arrangement went undetected for several months until, while making a business call, Keener encountered a Convergys salesperson.

Soon afterward, Keener received a written demand from Convergys to honor the NCA. Keener took the offensive by filing suit in a Georgia federal district court seeking an order to prevent Convergys from enforcing the agreement. The key question was whether the court should apply Ohio or Georgia law.

Convergys, of course, wanted Ohio law to control the dispute. After all, the NCA was signed in Ohio and invoked Ohio law, which allows a court to modify an NCA if any provision is too broad. Significantly, an Ohio court may enforce an NCA even where the geographic limits are not determined until after the agreement is signed.

Keener said he was now a Georgia resident and employed in Georgia. Georgia's public policy, he argued, frowns on NCAs. Moreover, the state's law does not permit a court to modify any term of an NCA that is unreasonably broad. Instead, the court must invalidate the entire agreement.

At the outset, the district court decided that it had to apply Georgia law. It refused to honor “a contractual selection of law of a foreign state where such chosen law would contravene the public policy of Georgia.” Turning to the substantive provisions, the court found at least one restriction overbroad: preventing Keener from working for any competitor no matter where it was located. Finding that the agreement was partially contrary to Georgia public policy, the district court invalidated the entire agreement and granted an injunction prohibiting Convergys from enforcing the NCA worldwide.

On appeal, the U.S. Court of Appeals for the 11th Circuit, modified the injunction by limiting its effect to Georgia. “Georgia cannot … apply its public policy decision nationwide [which would] interfere both with parties' ability to contract and their ability to enforce appropriately derived expectations.” [Keener v. Convergys Corp., 342 F.3d 1264, at 1246]

The Keener case illustrates that NCA litigation can descend into shopping for the most hospitable courthouse. The decision also sends a warning to employers and employees. Despite an agreement's precise wording about where litigation can be brought and what rules will apply, a court may ignore the parties' expressed intention in order to uphold the state's public policy where the case is pending.

A well-drafted NCA carefully identifies the interests of the employer and the location of likely competitive problems from the departing employee. Despite best-laid plans, however, ill-will quickly morphs into litigation — often concurrent lawsuits in different states. In the end, the parties may find it difficult and expensive to enforce rulings and injunctions outside of the state where they were handed down.