Unilateral contractual fee shifting provisions
Many non-compete agreements include provisions that state that the employer is entitled to recover any attorneys fees and costs incurred in connection with an action to enforce the non-compete. These provisions are unilateral or one-sided; they allow the employer to recover its attorneys fees but not the employee.
By including these provisions in the agreement, employers seek to discourage employees from challenging the enforceability of the non-compete. An employees must be concerned that, if their former employer prevails, the employee will be liable for not only his own attorneys fees, but also the fees incurred by the employer. Those fees can be substantial.
Some states have adopted legislation that amends any unilateral fee shifting provision to make it bilateral. (That is, to allow either party to recover fees). Utah has adopted a statute, for example, that states that a court may award costs and attorneys fees to either party that prevails in an action when the provisions of a promissory note, written contract or other writing allow one party to recover its attorneys fees. Washington and California have adopted similar statutes.
In a December 2008 decision that didn't involve a non-compete, Morris v. Belfor USA Group, the Colorado Court of Appeals ruled, however, that unilateral fee shifting provisions are enforceable in Colorado under the proper circumstances. In Morris, the plaintiff argued that the attorneys fee provision should be interpreted to mutually benefit both parties. The Court of Appeals rejected this argument as it held that a fee-shifting provision did not need to be mutual to be enforceable.
The Court of Appeals left open the possibility that a unilateral fee shifting provision could be stricken or reformed under the proper circumstances. The court noted that the trial court had not made any findings about whether the fee shifting provision was unconscionable or void as against public policy. The plaintiff apparently never argued at the trial court that the fee-shifting provision was unconscionable or void.
It may be significant that the fee shifting provision in Morris did not arise from a non-compete agreement. Colorado has long had a public policy that disfavors the enforcement of non-competes. Trial courts may perceive unilateral fee shifting provisions in non-compete agreements as an attempt to undermine this public policy.
In any case, both employees and employers need to be careful in addressing attorneys fees in any non-compete agreement. If the employee has the ability to negotiate changes in a proposed non-compete, the employee should insist that any attorneys fee provision should be bilateral or mutual (that is, that the prevailing party, employer or employee, recovers fees). Employers, on the other hand, need to be careful not to impose a unilateral fee-shifting provision on employees under circumstances that could cause a trial court to decline to enforce the provision because it is unconscionable. Or because such a provision is inconsistent with Colorado's public policy governing non-competes.
