Covenants Not-to-Compete

Gregg Skall
Womble Carlyle Sandridge & Rice, LLP

Can You Go ... When To Go ... What To Take!

Several recent cases have again placed the spotlight on the broadcasting employee relationship ... and management efforts to lock in the employee and employee the branding with the use of covenants not-to-compete. Even in today's environment of voicetracking and audience research, skilled employees continue to be valued not only for what they bring to the station, but for the damage they can do if hired away by the competition.

A key sales employee can be worth her weight in gold, literally. And, while many stations are seeking to control costs by moving away from live talent, the key many stations; success is the successful promotion of its on-air talent. Indeed, a popular local personality, particularly in smaller and medium-sized markets, may be the ticket to ratings success and represents a substantial capital investment by the station in local promotion.

Once established, the station often wants to protect its "personality" investment against another station that might try to "steal" the talent (and the capital investment that went into his/promotion), or against the talent's attempt to capitalize on his/herularity with an offer from another local station. Key sales staffs evelop close relationships with advertisers, nd management frequently tries to keep that salesperson and advertiser relationships tied to the station with covenants not-to-compete and confidentiality clauses that claim the sales list as intellectual property or a trade secret of the employer.

While broadcasters have traditionally sought to protect themselves with covenants not-to-compete, such restrictive employment clauses have never been popular in the law. Principles of equity and public policy generally favor a person's ability to earn a living and require that such covenants be drawn narrowly, confined only to terms considered by courts to be the most reasonable and as favorable as possible to employees.

Several examples drawn from court cases illustrate the perils in employment covenants. In a recent Connecticut case of Cumulus Broadcasting LLC v. Okesson, a successful radio sales executive moved across the street to a Cox station and Cumulus sued to enjoin the salesperson from visiting its advertisers or soliciting any more of its employees to move to the new employer. As one commentator has mentioned, in an advertising sales position, the only legitimate business interests are the customer relationships, and Cumulus lost on the non-compete complaint. However, the court did award it an injunction that required the employee to return certain allegedly confidential materials and preventing her from soliciting other Cumulus employees to jump ship.

A Florida lawyer and author of a non-compete blog followed the case and took this from it: Cumulus basically lost the non-compete case, but the lesson here is "Leave it behind. Documents, customer lists, confidential files. Leave all of it behind. Do not attempt to take it with you for use at your new employer."

http://thenoncompeteblog.com/2012/09/06/one-more-time-leave-the-documents-behind/

Over the very vocal objections of its broadcasters,several state legislatures, including New York, Massachusetts and California, have enacted laws that make such covenants not-to-compete illegal and unenforceable within that state or strictly limiting their enforceability, and such laws are becoming more popular. Generally, the courts have supported these laws. For example, in one California case KISV hired and moved a husband-nd-wfe team from a mountain town in Colorado to Bakersfield, CAwhere they became the new morning team and signed a non-competition agreement. The station invested heavily in promoting them within the market and they became quite popular.

The California Code provides that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." In a previous case, Metro Traffic Control, Inc. v. Shadow Traffic Network, despite a detailed non-competition agreement, a court allowed a radio traffic announcer to go to work for a competitor to report traffic conditions to the same client station. In the KISV case, even though the covenant was for only a 90-ay period, it was still deemed invalid under the California code. Under the California law, contracts prohibiting work for competitors are valid only to protect trade secrets, or if made by the selling principal owners to a purchaser of an entire business. This is typical of many states, and some have enacted legislation pointed specifically at the broadcasting industry.

Even in a pro-business state like New York, the legislature has banned non-compete clauses for on- and off-air broadcasting employees that extend beyond the length of one's employment in the so-called Broadcast Employees Freedom to Work Act. So, when the contract of a Cumulus /New York morning team, Scott and Grosvent, marketed as "The Show" ran out, and the station did not respond to the talent's requests about renewing, they took their "gig" across town. Cumulus sued for violation of the post employment non-compete claiming a right-of-first-refusal to match a competing offer and violations of various intellectual property rights, including titling the show as "The Show" and using various fictional characters in their sketches.

A New York judge ruled that the non-compete, first refusal clause did not prevent the team from moving to a competitor station, but it did ban them from referring to their program as "The Show," ruling that the title belonged to Cumulus, since it had been created there. The team was also banned from using the fictional characters and named program segments. Once more, the lesson is: Go if you want to, but leave it behind.

The legal environment is generally hostile to covenants not-to-compete. Still, if you're that key employee, the path to the other station in town is not necessarily an easy one and many non-competes do indeed get enforced to some degree. Finally, remember, even if you prevail, you may not be able to take "everything" with you, as a great deal of what has been developed may be considered intellectual property of the company you originally worked for.

This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.