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More Companies Struggle to Enforce Noncompetition Agreements

published December 16, 2008

By CEO and Founder - BCG Attorney Search left
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In the current economy, more businesses and firms are being faced with this situation. Employees are leaving to join other competing companies and their previous employers are worried that information and trade secrets will be leaked, causing perhaps irreparable damage to them. Noncompetion agreements are common in companies like this, where employees agree to not work for competing companies.

Philip Berkowitz, chair of the international labor and employment team at Nixon Peabody, though not involved with this litigation, commented that he has seen the trend increase of companies struggling to enforce these noncompetition agreements. He says, however, that courts in New York have traditionally viewed attempts to enforce these agreements with ''a healthy skepticism'' unless they are very specific in their list of competitors the employee may not work for.

Papermaster argues that IBM and Apple are not ''significant or major competitors.'' He states, ''IBM primarily provides business enterprise services, while Apple's primary business is the design, manufacturing and marketing of consumer electronic products.'' Papermaster goes on to claim that even if IBM and Apple were significant competitors that his noncompetition agreement is ''unenforceably overbroad.''

While the issues are litigated, however, Southern District of New York Judge Kenneth Karas has issued an injunction barring Papermaster from working for Apple at this time. Karas has found that Papermaster worked on proprietary technology at IBM which could serve to help Apple expand the data storage capabilities of their iPhones and iPods. In response to Papermaster's claims that IBM and Apple are not significant competitors, Karas ruled, ''It is conceded that Mr. Papermaster has spent the last two years working on a product, the blade server, that competes directly with Apple's 'Xserve,' and this alone establishes that IBM and Apple directly compete.'' Though Karas admitted Apple has not hired Papermaster to work on their servers, he pointed out that Apple clearly had not hired Papermaster to work in something he was not qualified in. ''Instead, he has been hired specifically to help Apple make these two critical products (the iPhone and iPod) more profitable.''

After reviewing all pertinent information, Karas ruled that the noncompetition agreement which Papermaster declared unenforceable was ''reasonable in duration and geographic scope.'' The agreement which Papermaster signed provided a one-year period in which Papermaster could not work for a competing company.

Ronald M. Green, co-founder of New York's Epstein Becker & Green, pointed out that disputes like this between Papermaster and IBM have become ''especially prevalent in financial services, because those who have the strongest existing client connections are worth much more in this dwindling market.''

Litigation continues and a trial has been scheduled for February 24, 2008. An Apple spokesman said the company would ''comply with the court's order but [is] confident that Mark Papermaster will be able to ultimately join Apple when the dust settles.'' The question remains, though, will that time period be so great that Papermaster will no longer be of significant value to Apple?

Alternative Summary

Harrison is the founder of BCG Attorney Search and several companies in the legal employment space that collectively gets thousands of attorneys jobs each year. Harrison’s writings about attorney careers and placement attract millions of reads each year. Harrison is widely considered the most successful recruiter in the United States and personally places multiple attorneys most weeks. His articles on legal search and placement are read by attorneys, law students and others millions of times per year.

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