Celebrating 10 years! 2007-2017

Taking jobs with clients - a fact pattern.

John Smith is a part owner of ABC LLC which provides service mcacollector05/01/18
Non competes are generally disfavored, I guess that was wher trollfeeder05/01/18
Non-competes are not allowed for attorneys. jorgedeclaro05/02/18
That's for the rendition of legal services. I think they ar jeffm05/02/18
Right, it’s ambiguous, but that is the cover. Presumably, jorgedeclaro05/02/18
I passed along your guidance and it worked just fine - they mcacollector05/09/18
As an aside, in all states a 5-year noncompete is unenforcea dingbat05/10/18
mcacollector (May 1, 2018 - 3:50 pm)

John Smith is a part owner of ABC LLC which provides services to widget companies. John is in house attorney for ABC and 20% owner.

XYZ Widget Company, LLC offers John a job to go in house for them.

John hears through the rumor mill that ABC is planning to remove him as attorney for the company and is planning to dissolve ABC and open CBS company which does the same thing, but with a different attorney. Crazy, but true.

John, afraid for his career, accepts the job as in house attorney with the client widget company in preparation for being ousted.

A few weeks later, in negotiating the sale of his shares in ABC, the other side wants to put in some sort of non compete provision that states, in effect, that John cannot solicit, divert, or take away customers/ business from customers for a period of 5 years.

What are the ethical considerations for this? Also, how can John revise the provision so that he can go on his merry way to the widget company without ABC being scumbags and ruining his life?

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trollfeeder (May 1, 2018 - 4:40 pm)

Non competes are generally disfavored, I guess that was where you were going with all that exposition.

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jorgedeclaro (May 2, 2018 - 12:59 pm)

Non-competes are not allowed for attorneys.

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jeffm (May 2, 2018 - 5:53 pm)

That's for the rendition of legal services. I think they are wanting the employee, who happens to be an attorney who renders legal services, to refrain from competing in the widget business and to refrain from soliciting widget buyers of ABC Co.

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jorgedeclaro (May 2, 2018 - 8:22 pm)

Right, it’s ambiguous, but that is the cover. Presumably, he’s not obligated to agree to a non-compete. But he’s afraid that if he refuses it will key in that he’s planning on going to a competitor and they will make negotiations miserable.

So the cover is that non-competes are not allowed as to attorneys and if he agrees to one then he himself is engaging in unethical conduct. Claim that he can’t ethically sign a buyout agreement with the provision. The claim is at least plausible under the circumstances.

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mcacollector (May 9, 2018 - 3:36 pm)

I passed along your guidance and it worked just fine - they bought the ethical argument. John Smith (who happened to be my nervous semi- newly-admitted little cousin) was able to get out of this ok. She came to me crying and I was like “hmm... let me ask JDU.”

As always, thanks!

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dingbat (May 10, 2018 - 8:51 am)

As an aside, in all states a 5-year noncompete is unenforceable.

Generally speaking, there’s a 1 year max.
Companies get around this by structuring a vesting schedule contingent on not competing - ie when you sell your company you get paid out over X years.

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