Differing opinions issued on the duration of a non-compete
In a recent decision, Phoenix Capital, Inc. v. Dowell, the Colorado Court of Appeals appeared to establish a "bright line" rule for determining the duration of an employee's obligations under a non-compete. The trial court had ruled that the non-solicit provisions were only enforceable for the period set forth in the provision itself (that is, one year from the employee's termination). On appeal, however, the employer argued that the non-compete should be extended beyond the one year period.
The Court of Appeals rejected the employer's argument and held that any injunctive relief based on a restrictive covenant must be "co-extensive" with the terms of the contract. In other words, a one year non-compete could not be extended beyond the one year period.
A different conclusion was reached earlier this summer in a decision that how reveals how the scope of injunctive relief is often determined by a judge's effort to provide a "fair" decision. In Xantrex Technology v. Advanced Energy Industries, Judge Daniels on the federal bench was presented with a series of difficult issues but he eventually ruled that the employee was bound by a non-compete. Judge Daniels granted the employer's motion for preliminary injunction and ordered the employee not to work for certain companies in accordance with the non-compete.
Judge Daniels also ordered, however, that the "clock" for the duration of the non-compete should start on the date that the injunction was issued, not on the date of the employee's termination. This ruling was entered even though the non-compete itself stated that the non-compete was for one year following the termination of the employee's employment.
Based on the decision in Xantrex Technology, it may be possible, although difficult, for an employer to argue that a non-compete should be extended past the date set forth in the non-compete. On the other hand, the ruling in Phoenix Capital may lead employers to be more creative in drafting non-compete obligations. Employers may, for example, draft non-competes to provide that the duration of the non-compete will be extended if the employee violates the non-compete.
Any such efforts at creative drafting will face its own challenges. In a 2007 decision, for example, the Wisconsin Court of Appeals held that a provision extending the duration of the non-compete for any period of violation was unenforceable.
