Non Compete - Subcontactor and his prev employer

[rcomp]

We are a small professional service provider. An individual who was an employee of a company X was providing services to a client. This employee had a non-compete agreement with his employer X not to work for the client directly or indirectly through any other company at this client for a period of 1 year from termination of employment. He has left that company due to some issues and has immediately started providing services through our company at the same client. He is not an employee of our company but is as a subcontractor through his own company on a Corp to Corp. The company X has come to know about this and has sent a notice to us saying that this person has a non compete agreement with company X and hence cannot provide services to the client.

What are our legal obligations? Since we are not a party to this Non compete agreement do we ensure that this candidate who is providing services to our client (as a subcontractor) adheres to the Non-compete agreement that he has signed with company X? Are we required to take him out of the client even though we are not a party to this agreement? This company X has sent us a notice and required us to respond within 10 days. How do we respond or do we respond at all?
Thank You for your help!

 

[Michael Wechsler]

We are a small professional service provider. An individual who was an employee of a company X was providing services to a client. This employee had a non-compete agreement with his employer X not to work for the client directly or indirectly through any other company at this client for a period of 1 year from termination of employment. He has left that company due to some issues and has immediately started providing services through our company at the same client. He is not an employee of our company but is as a subcontractor through his own company on a Corp to Corp. The company X has come to know about this and has sent a notice to us saying that this person has a non compete agreement with company X and hence cannot provide services to the client.

What are our legal obligations? Since we are not a party to this Non compete agreement do we ensure that this candidate who is providing services to our client (as a subcontractor) adheres to the Non-compete agreement that he has signed with company X? Are we required to take him out of the client even though we are not a party to this agreement? This company X has sent us a notice and required us to respond within 10 days. How do we respond or do we respond at all?
Thank You for your help!

If you know that an employee has a valid contract not to compete, than having him compete via your company is a tortious interference with the contract of another... no? Whether or not he is an employee does not make a difference. You are hiring him as a subcontractor.

There are factors at play here though and that can be deciding whether this is worth the fight. This other company may take you to court on this and it will cost you, regardless whether you prevail. I would ask the employee to see the non-compete and have its probably validity determined. For the most part, the issue with non-competes are whether the employee is privy to special secrets during employment that would significantly damage his prior employer's business upon release of employment versus the employees right to freely work in the market.

Now 1 year can easily be a reasonable time not to compete. Factors determining whether it is valid concern fundamental fairness for an individual to find meaningful employment. The include (1) geography (2) level the employee held (3) access to the former company's secrets or sensitive materials, (4) potential damage to the company if employee works for a competitor (can be related to the issue of the "industry" the employee works) and (5) the length of time of restriction. I'm listing these off the top of my head when we used to deal with these issues. Most of the time these are written far more harsh than permissible and some toss in a clause that the contract is modified automatically to fit within the parameters of law. Much depends upon the law of the state regarding validity.

I'll try to give you a feel for being able to make a determination with your lawyer. If this employee was not critical to the organization, e.g. he is an outsourced bike messenger, chances are this non-compete is invalid. To say that he cannot work for another bike messengering company within 1,000 miles for a period of 1 year could be unduly harsh. After all, this individual didn't acquire any specific trade secrets, knowledge, etc. and leaving company A to do the same for company B would in no significant way tarnish the former employer's investment in that employee. Additionally, how is this person supposed to find such work in his area? Let's say that this individual was the VP of sales of a technology company for the east coast of the US. He would know all the client's trade secrets, upcoming products as well as the database of the company's clients. Having him on the loose in his territory using all the special knowledge he acquired at his prior employer could be devastating. I think you're getting the idea of what is going on here. Let me know if this helps you.