In a 2022 case, the Court of Appeals of Tennessee relied heavily on the specialized training the former employer (“Employer”) gave its former employee (“Employee”) in upholding a trial court’s decision that the non-competition agreement signed by the Employee was enforceable. Unlike many cases involving former employers trying to enforce non-compete agreements, in this case, the Employer made no argument that the Employee had become the “face of the company” because the Employer’s customers closely associated its business with Employee. The former Employer relied, successfully it turned out, on the specialized training it provided to the former Employee along with the former Employee’s access to trade secrets and proprietary information during his employment.
Many covenant not to compete cases involve facts that make them close calls as to whether the non-compete agreements at issue will be enforced. The case that is the topic of this blog post is worth a post, among other reasons, because it exemplifies a factual scenario in which, in my opinion, a Tennessee court would always enforce a non-competition agreement, if it followed the law.
Here are the key facts of the case:
- Employer was a staffing company that worked exclusively to provide healthcare information technology (“HIT”) personnel to hospital systems
- Before beginning work for the Employer, Employee had no experience or training in the industry served by Employer
- In 2012, Employee began employment with Employer as a recruiter
- At the time he began employment with Employer, Employee signed a “Confidentiality, Non-Competition and Non-Solicitation Agreement” with Employer
- That agreement contained typical terms including a term prohibiting Employee from working for a competing business for one year after terminating employment
- During his seven years of employment for the Employer, during which Employee advanced in responsibilities and was considered very valuable, Employer provided a substantial amount of training to Employee, including: (1) A week of classroom training on how to recruit HIT personnel; (2) a twelve to fourteen week class at a university, Belmont, regarding the healthcare industry; (3) a seminar in Chicago on leadership; (4) what the court described as “countless” lessons and mentoring from high-level executives at Employer; and (5) a variety of other HIT training
- During his seven years of employment, Employee also had access to a variety of trade secrets, and proprietary and confidential information of Employer, including: (1) client lists; (2) financial information; (3) information about prospective clients; (4) budgets and forecasts; (5) compensation structures; and (6) billing rates for all the personnel placed by Employer
- During his seven years of employment, Employee had also become an expert on unique software utilized by Employer
In 2019, Employee went to work for a direct competitor of Employer. Employer sued to enforce the non-compete agreement. The trial court upheld it. Thereafter, the court of appeals affirmed the trial court.
On appeal, Employee argued that Employer did not have a legitimate business interest which could be protected by a non-compete agreement. Under Tennessee law, a former employer cannot enforce a covenant not to compete to prevent a former employee from engaging in ordinary competition. A former employer must show “special facts over and above ordinary competition” such that the former employee and his or her new employer would have an “unfair advantage.” In deciding whether a former employee has an unfair advantage, a Tennessee court will consider three factors: (1) the amount of specialized training provided by the employer; (2) the employee’s access to trade secrets or other confidential information; and, (3) whether the employee’s repeated contact with customers made him or her the face of the employer.
Employee argued that the training he received was just generalized training and not specialized. He also argued that whether he had access to trade secrets and confidential information was not relevant because there was no proof that he took any such information with him when his employment ended. The court of appeals rejected both arguments, as it should have. The training which Employee had received was inarguably not generalized sales or leadership training, but highly specialized. Furthermore, as the court of appeals noted, the determinative focus is whether a former employee had access to trade secrets or confidential information, not whether he or she purloined them.
Tennessee lawyers handling non-compete cases and lay people alike can look to this case as a solid example of a factual scenario under which a former employee will not be able to escape the enforceability of a non-competition agreement.
