Dear Xemion,
First off, we cannot give legal advice and this answer is not that.
The reason, of course, is that an attorney will seek out all of the
relevant facts and apply those facts to the law in that state. I am,
though, using the law of Michigan to highlight my answer ? most of the
provisions found in Michigan are common in other jurisdictions.
OK, your friend the masseuse signs a ?non-compete? agreement with
?Pilates? and then your friend refers her client over to Pilates. The
client then wishes to make a change and seeks the advice of your
friend as to a new exercise place, or in the alternative your friend
wishes to advise the client to seek more massage therapy. What issues
arise from this apparent breach of the non-compete agreement?
The short answer is ?probably nothing.? Here is why:
1. Your friend entered into a contract with Pilates. A covenant ? a
promise. The specific flavor of contract was a ?covenant not to
compete.?
2. This is primarily an issue of Contract law. Not Tort law. The
distinction is important on one major regard ? damages in Contract law
are generally limited to actual damages. Tort law opens a possibility
of punitive damages (which are difficult to come by in the best of
circumstances) but such damages are not available in Contract.
3. In many states such Covenants Not to Compete are governed by state
statutes. In Michigan, for example, the statute reads as follows:
?An employer may obtain from an employee an agreement or covenant
which protects an employer's reasonable competitive business interests
and expressly prohibits an employee from engaging in employment or a
line of business after termination of employment if the agreement or
covenant is reasonable as to its duration, geographical area, and the
type of employment or line of business. To the extent any such
agreement or covenant is found to be unreasonable in any respect, a
court may limit the agreement to render it reasonable in light of the
circumstances in which it was made and specifically enforce the
agreement as limited.?
4. Note that the statute makes a point out of the Covenant being ?reasonable.?
5. The fact that the client was referred into Pilates is key. You
mention the confidentiality issue, but that confidentiality is able to
be waived. Even if not waived, your friend?s testimony as to the
relationships is admissible nevertheless.
6. The usual remedy for an employer/contractor in such as case is
?injunctive relief? ? a restraining order, if you will ? preventing
any further infringement. Read importance into the word ?further.?
7. The outcome of a case can vary depending on the day and the judge
and the alignment of the planets. With that said, this is not a case
where a breach of a covenant not to compete has huge financial
ramifications (e.g. a programmer of very specialized code with highly
selective and secret information of the newest Microsoft programming
where a hundreds of thousands or millions are at stake).
8. Legal fees are always an issue. The easiest conclusion to jump to
is that your friend is not going to want to be in a position where she
has to hire an attorney to defend her against a breach of contract
claim. But so too goes the consideration of Pilates ? obtaining a
restraining order and taking a civil action far enough to obtain any
kind of relief will cost a minimum of $3,000 to $5,000. Your friend
must make the call but it probably does not make economic sense for
Pilates to want to pursue this.
THE COURTS IN MICHIGAN HAVE INTERPRETED THIS ISSUE ALMOST 200 TIMES,
AND HERE ARE SOME OF THEIR FINDINGS:
A. Non-competition agreements are enforceable to extent they are
reasonable. Onyx Waste Services, Inc. v. Mogan, E.D.Mich.2002, 203
F.Supp.2d 777.
B. Non-compete agreement is enforceable provided it is reasonable with
respect to duration, geographical area, and line of business it seeks
to limit. Lowry Computer Products, Inc. v. Head, E.D.Mich.1997, 984
F.Supp. 1111.
C. Limitation on working in any capacity for competitor is too broad
to be enforceable. Superior Consulting v. Walling, E.D.Mich.1994, 851
F.Supp. 839.
D. Covenant not to compete contained in form employment agreement
would run afoul of Michigan law if read to bar computer programmer who
had been involved in work with hydraulic antilock braking systems for
light-duty vehicles from accepting any position involved in any field
of brake-system work. Kelsey-Hayes Co. v. Maleki, E.D.Mich.1991, 765
F.Supp. 402.
E. Non-compete clause of employment contract which prohibited
employees from selling computer barcode systems and related products
for one year was reasonable; one year limitation was reasonable given
highly competitive nature of field, geographical limitation was not
overly broad since employer serviced accounts in 48 states and various
foreign countries, and employee would only be limited from working in
small part of market for computer software products. Lowry Computer
Products, Inc. v. Head, E.D.Mich.1997, 984 F. Supp. 1111.
F. Corporation that provided home health care services could not
recover more than nominal damages on its breach of contract and
tortious interference claims against second corporation and nurses in
so far as the claims pertained to the termination of nurses' at-will
contracts to provide home health care services to corporation's
client; proving damages from the termination of an at-will contract
would be difficult. Health Call of Detroit v. Atrium Home & Health
Care Services, Inc. (2005) 695 N.W.2d 337, 265 Mich.App. 79.
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Now, of course, there is nothing for sure in this situation unless
your friend absolutely honors the agreement and never makes any
comment to a client that she refers into Pilates.
But the risk is probably minimal. This is a good opportunity for your
friend to consult an attorney ? a good business attorney. If she
hasn?t one, this would be a good time to get one. She can probably sit
down with one for a free consultation (the attorney might be willing
to invest an hour to impress your friend) and even if she has to pay,
she can fix the time for the meet up-front ? say an hour max ? and be
out only $150 to $200. Certainly, there is no need for a high-money
gray-haired litigator for questions of this sort. A junior partner or
seasoned associate will be well up to the challenge.
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Finally, you asked for a ?general overview of these kind of agreements
(independent-contractor/non-compete/dual-client-ownership)?.
An independent contractor ?An independent contractor is a person or
business which provides goods or services to another entity under
terms specified in a contract. Unlike an employee, an independent
contractor does not work regularly for a company.?
http://www.answers.com/independent+contractor&r=67
The IRS has strict rules governing independent contractors ? see the
IRS website here: http://www.irs.gov/govt/fslg/article/0,,id=112718,00.html
A good rule of thumb is that if the relationship looks like an
employment situation, it probably is, regardless of what the employer
calls it. The big difference is that an employer pays half of the
FICA/Medicare for an employer; for an independent-contractor the
employer pays none of it and the independent-contractor pays the
entire 15.3%
We are all generally free to contract. A ?contract? is a promise or a
set of promises for the breach of which the law gives a remedy, or the
performance of which the law in some way recognizes as a duty. Mutual
duties and obligations. I can give up my ability to operate freely in
the workplace by making a contract not to compete, and my employer or
senior can take that benefit for themselves. But where is the
consideration? I give, they take. I require some consideration in
return and for the contract to be enforceable, I must have a benefit.
Cash is a good evener.
Which is to say that I wonder whether Pilates paid separate money to
your friend in return for her signing the non-compete? If not, your
friend?s case is very much stronger.
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Here are a couple of links on covenants:
Here is a basic definition of a covenant not to compete:
http://business-law.freeadvice.com/trade_regulation/covenant_not.htm
and http://www.openknowledge.org/writing/business/management/noncompete-primer.html
This law firm has a detailed analysis:
http://www.loeb.com/CM/Articles/articles46.asp
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If there is anything not covered or ambiguous, please hit the
?clarification? button and I will be back!
And, tell your friend that she is probably in great shape. Figuratively, of course.
Weisstho-ga |
