Be Careful With Your Non-Compete Agreements When You Rehire Employees

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In a decision that may contain some useful reminders as businesses rehire employees who were let go during the coronavirus pandemic and economic downturn, the U.S. Court of Appeals for the First Circuit recently handed down a decision affirming the denial of a former employer’s request to enforce a non-competition agreement against an employee it had terminated and then rehired. Russomano v. Novo Nordisk Inc., No. 20-1173 (Ist. Cir. June 2, 2020). 

The employer did not have the employee sign a new agreement upon rehire, but instead tried to rely on the his original agreement. The First Circuit held that the non-compete ran from the date of the employee’s original termination and expired one year into his rehire, leaving him free to compete after its expiration.

The Facts: Employee Rehired After 3 Day Gap In Employment With No New Non-Compete

Russomano was hired by Novo Nordisk in 2016 and, as a condition of employment, signed a confidentiality and a 1-year non-competition agreement. Later in 2016, Russomano was informed that his position was being eliminated and that he would be laid off. He reapplied for an open position with the company and after about a three-week period in which he was not employed by Novo Nordisk was rehired for a new position. As a condition of being rehired, Russomano signed a second confidentiality and non-competition agreement with identical terms to the original agreement.

Approximately a year and a half later, Novo Nordisk again informed Russomano that his position was being eliminated and that it was terminating his employment “effective August 3, 2018.” The letter acknowledged that Russomano would need to find new employment and encouraged him to apply for open positions with the company.  Russomano did so and obtained a new position with the company “effective on August 6, 2018” (the Monday following the August 3 date his employment with the company terminated). Russomano was not required to sign a new confidentiality or non-competition agreement in connection with accepting this new position.   

Russomano resigned from Novo Nordisk in January 2020 and began work for a competitor a couple of weeks later. Novo Nordisk sought a temporary injunctive relief to prevent Russomano from working for his new employer and to prevent the new employer from employing Russomano. The trial court denied Novo Nordisk’s request for a temporary injunction and the Appellate Court affirmed.

The Rationale: Non-Compete Began Running From Date Of Original Termination & Expired During Employee’s Return Employment

The trial court concluded, and the Appellate Court agreed, that the one-year non-compete began to run when Russomano’s employment was terminated in August of 2018 and had expired in August 2019 several months before he resigned.  In reaching this decision, both courts relied upon the language in the letter Novo Nordisk sent to Russomano informing him that his employment was being “terminated” and that the termination was “effective as of August 3.” The courts also placed weight on the employer’s use of the word “effective” in the letter concerning the start date for Russomano’s new position.  The courts agreed that the language in the letters was unambiguous and could not be reconciled with Novo Nordisk’s claim that Russomano was continuously employed by the company and had simply undergone a job transfer. 

Comments: Employers Can’t Assume Original Non-Compete Will Apply to Rehired Employees

As employers look to bring back employees who were terminated, laid off, or furloughed as a result of the pandemic, they should consider whether new non-compete or non-solicitation agreements need to be executed with the returning employees.

As a further reminder, certain states require additional consideration beyond employment to support non-compete and non-solicit provisions. In rehiring an employee in one of those states employers may not only need to have the employee sign a new agreement with post-employment restrictions, but also provide the required additional consideration.

Finally, it should be noted that because the requirement to protect confidential information in the agreements signed by Russomano did not have an expiration date, he remained bound by the terms of those provisions.

Michael Braun concentrates his practice in labor & employment, civil litigation, and financial services. He litigates in both courts and arbitral forums, and counsels in the areas of employment, restrictive covenants, trade secrets, and business disputes.

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