Tenth Circuit may clarify when a non-compete begins to run
In an interesting development, Judge Daniel's decision in Xantrex Technologies v. Advanced Energy Industries has been appealed to the Tenth Circuit. One of the issues on appeal is whether Judge Daniel erred when he ruled that the employee defendant should be enjoined from working for a competitor for a full year from the date of his order. On appeal, the employee has argued that, in accordance with the language of his non-compete, the one year period should have commenced on the date of the termination of his employment.
As one of my earlier posts suggested, there are several decisions from the Colorado Court of Appeals that support the employee's position. In a 2007 decision, for example, the Court of Appeals affirmed that a non-solicitation provision was enforceable only for the period set forth in the provision itself. That is, the non-compete period could not be extended beyond the period in the agreement.
In its appeal brief filed last month, Xantrex, the employer seeking to enforce the non-compete, has raised several intriguing arguments. Xantrex argues that Judge Daniel also found that the employee had misappropriated trade secrets and that there was a risk of future disclosure of trade secrets. Based on this misappropriation, Xantrex argues that Judge Daniel merely used the employment agreement's one year non-compete period as "guidance in issuing the length of the injunction". It was reasonable, according to Xantrex, for the Court to use a one year period from the date of its order because the parties had agreed to a one year period for the protection of Xantrex's trade secrets.
While intriguing, Xantrex's arguments raise a number of questions. Judge Daniel's Order, for example, doesn't really say that the employment agreement's one year period was being used merely as "guidance". In fact, Judge Daniel never explains why he decided that the one year period should commence on the date of his order. Xantrex also doesn't explain why any trade secrets couldn't be preserved by an order barring their disclosure or dissemination, rather than an extension of the non-compete.
There are practical reasons for Judge Daniel's decision that are never discussed in the appeal briefs. The employee terminated his employment with Xantrex in July 2007. Xantrex filed its action in January 2008, a hearing on Xantrex's motion was held in January 2008 and Judge Daniel issued his decision in May 2008. If the "clock" had begun to run on the non-compete when the employee terminated his position, any injunction issued by Judge Daniel would have expired within a few months after his order, or in July 2008. After finding that the employee acted wrongfully, Judge Daniel may have been concerned that this abbreviated injunction would not provide Xanrex with the relief that was equitable.
In its appeal brief, Xantrex also argues that many courts in other jurisdictions have extended non-compete periods beyond the period set forth in any employment agreement. Ample precedent has been provided of instances in which courts have not felt constrained by the agreement of the parties.
No guidance has been provided by the Tenth Circuit about when it might issue a ruling on the appeal. The employee has asked for expedited consideration but there hasn't been a ruling on his request.
Once the Tenth Circuit issues its ruling, it may provide some clarity on this key question of when the clock begins to run on an employee's non-compete obligation. There is a chance, however, that the Tenth Circuit will not need to face this issue. The employee has also argued on appeal that Judge Daniel erred in holding that the non-compete was enforceable. If the Tenth Circuit accepts this argument, it may not reach the timing issue.
