Too Harsh to Enforce: Unemployment and Economic Reality

Closed Factory
South Carolina’s unemployment rate has hit 9.5%, and all indications are that it will continue to rise. And as hard as it is for the unemployed to find a job, for too many it is made even more difficult because of a noncompete, which prohibits the unemployed person from working in the field she has the most and/or the most recent experience. The third prong in a court’s evaluation of enforceability is whether enforcement of the noncompete would be “unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood.” As with most questions of fact, context is critical, and it would seem particularly so on this question.

The logic of the argument against enforcement is clear: Unemployment means more people competing for jobs. Skill and experience are generally the most valuable assets someone has to offer a prospective employee, and if an jobseeker is barred from seeking employment in the field in which she has the most experience and/or the most recent experience, what are her chances of finding a job? Less for sure. And during a recession, much less.

And in an environment of tightening credit, if an employee does not have access to credit, the scenario becomes more harsh. And even more to the point: When the geographic scope of a covenant not to compete would require an employee to move to get a job, the housing market becomes relevant. Ability to sale one’s home within a reasonable time is critical when you are forced to move to find work.

And, what if the former employee is a budding entrepreneur, not so much scrapped for cash, but simply wanting to start her own business? Should a court consider the fact that a noncompete might prevent job creation in a shrinking job market? The fourth prong considers whether enforcement is reasonable from a standpoint of public policy. And as Congress considers extreme measures to stimulate the economy, should the court be enforcing restraints on trade that stifle economic growth?

These are good questions (if I say so myself), which can be turned into persuasive arguments. I have a case at the moment that I intend to make the argument that this economy makes enforcement of almost any noncompete too harsh and oppressive. Stay tuned.

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