Tuesday
Mar292011
Non-Compete Agreements with Health Club Employees
Tuesday, March 29, 2011 at 10:52AM An IHRSA Best Practice - January 25, 2005
BY ANTHONY J. ELLROD, ESQ.
With the strong focus on member retention in the health club industry, a defecting instructor or trainer can have a devastating effect on business. It is therefore not surprising that health club owners search for ways to prevent the defecting instructor from leaving to go to work for the new club across the street and taking an army of members with her. One way in which businesses seek to avoid this is through the use of non-compete agreements.
In the employment context non-compete agreements, also known as covenants not to compete, are agreements whereby an employee agrees as a condition of employment not to work for a competitor of the employer, either while working for the employer or for a period of time after the employment relationship terminates. These agreements are particularly attractive in the health club arena because of the personal relationships members often establish with key health club employees such as personal trainers, aerobics instructors, etc. However, their enforcement can be dubious, and in some states they are entirely unenforceable.
In California, for example, covenants not to compete which attempt to restrain an ex-employee from working for a competitor are deemed to violate public policy and will not be enforced at all. The California statute barring enforcement of such agreements is based on a policy that an employee's interests in mobility and betterment are deemed paramount to an employer's competitive business interests. In fact, California Courts have held that they will not enforce covenants not to compete in employment agreements which, by their terms, are to be governed by the laws of other states that do enforce non-compete agreements. Other states, such as North Dakota and Colorado refuse to enforce non-compete agreements.
In those states that do enforce covenants not to compete, they will generally be upheld only if they are limited in scope. They must restrict the ex-employee's activities only with respect to the time and geographic area necessary to protect the ex-employer's legitimate business interests.
Even in those states that enforce such agreements, they are frowned upon and will be strictly construed against the employer. The covenant not to compete must be 'reasonable', and what is reasonable often changes over time. This is particularly true in the age of the internet and other high tech industries where technology evolves rapidly.
What is reasonable from both a geographic and duration point of view will vary from business to business and industry to industry. In addition, some states have additional requirements, such as a showing that the services rendered by the employee are special, unique or extraordinary, or a showing that the covenant is necessary to protect the good will of the employer.
Virtually all states require that the covenant be supported by consideration. In other words, the employee must receive something in exchange for the agreement not to compete. Generally, it is the employment itself that serves as consideration. However some courts have refused to enforce covenants not to compete obtained from an employee subsequent to the employee being hired, finding a lack of consideration.
It is crucial that the health club considering incorporating a covenant not to compete into their employment agreements consult legal counsel so that the provision can be tailored to the laws of the applicable state. A poorly written covenant not to compete agreement may not only fail to accomplish its goal, it could void the entire employment agreement.
In states that refuse to enforce covenants not to compete, legal counsel may also assist the club by exploring other methods of protecting the employer's interest. These methods can include non-disclosure or confidentiality agreements, and non-solicitation agreements. The goal of such agreements is not to prevent the employee from continuing to work in the industry anywhere she chooses, but to prevent the employee from soliciting the ex-employers clients, or employees for that matter. Such provisions are generally enforced even in states that refuse to enforce covenants not to compete. However what is necessary for enforcement varies from state to state and can be rather complex. It is therefore crucial the legal counsel be consulted.
The health club industry continues to boom, with new clubs opening up on every corner. In light of the continued rapid expansion of the health club industry coupled with the notorious employee turnover in the industry, it is not surprising that health clubs are making efforts to protect themselves from losing their client base to a competitor across the street through a defecting employee. This can be accomplished in some states more easily than in others. However it is crucial that great care is taken to assure that you are protecting yourself to the extent possible in your jurisdiction.
Anthony J. Ellrod, Esq. is a partner with Manning & Marder, Kass, Ellrod, Ramirez LLP's Los Angeles office where he heads up the firm's Sports, Recreation and Attractions Litigation Team. Tony may be reached at (213) 624-6900 or by e-mail at AJE@mmker.com. All information provided is of a general nature and is not intended nor represented to replace professional, specialized legal advice, nor should the information be relied upon as same.
In the employment context non-compete agreements, also known as covenants not to compete, are agreements whereby an employee agrees as a condition of employment not to work for a competitor of the employer, either while working for the employer or for a period of time after the employment relationship terminates. These agreements are particularly attractive in the health club arena because of the personal relationships members often establish with key health club employees such as personal trainers, aerobics instructors, etc. However, their enforcement can be dubious, and in some states they are entirely unenforceable.
In California, for example, covenants not to compete which attempt to restrain an ex-employee from working for a competitor are deemed to violate public policy and will not be enforced at all. The California statute barring enforcement of such agreements is based on a policy that an employee's interests in mobility and betterment are deemed paramount to an employer's competitive business interests. In fact, California Courts have held that they will not enforce covenants not to compete in employment agreements which, by their terms, are to be governed by the laws of other states that do enforce non-compete agreements. Other states, such as North Dakota and Colorado refuse to enforce non-compete agreements.
In those states that do enforce covenants not to compete, they will generally be upheld only if they are limited in scope. They must restrict the ex-employee's activities only with respect to the time and geographic area necessary to protect the ex-employer's legitimate business interests.
Even in those states that enforce such agreements, they are frowned upon and will be strictly construed against the employer. The covenant not to compete must be 'reasonable', and what is reasonable often changes over time. This is particularly true in the age of the internet and other high tech industries where technology evolves rapidly.
What is reasonable from both a geographic and duration point of view will vary from business to business and industry to industry. In addition, some states have additional requirements, such as a showing that the services rendered by the employee are special, unique or extraordinary, or a showing that the covenant is necessary to protect the good will of the employer.
Virtually all states require that the covenant be supported by consideration. In other words, the employee must receive something in exchange for the agreement not to compete. Generally, it is the employment itself that serves as consideration. However some courts have refused to enforce covenants not to compete obtained from an employee subsequent to the employee being hired, finding a lack of consideration.
It is crucial that the health club considering incorporating a covenant not to compete into their employment agreements consult legal counsel so that the provision can be tailored to the laws of the applicable state. A poorly written covenant not to compete agreement may not only fail to accomplish its goal, it could void the entire employment agreement.
In states that refuse to enforce covenants not to compete, legal counsel may also assist the club by exploring other methods of protecting the employer's interest. These methods can include non-disclosure or confidentiality agreements, and non-solicitation agreements. The goal of such agreements is not to prevent the employee from continuing to work in the industry anywhere she chooses, but to prevent the employee from soliciting the ex-employers clients, or employees for that matter. Such provisions are generally enforced even in states that refuse to enforce covenants not to compete. However what is necessary for enforcement varies from state to state and can be rather complex. It is therefore crucial the legal counsel be consulted.
The health club industry continues to boom, with new clubs opening up on every corner. In light of the continued rapid expansion of the health club industry coupled with the notorious employee turnover in the industry, it is not surprising that health clubs are making efforts to protect themselves from losing their client base to a competitor across the street through a defecting employee. This can be accomplished in some states more easily than in others. However it is crucial that great care is taken to assure that you are protecting yourself to the extent possible in your jurisdiction.
Anthony J. Ellrod, Esq. is a partner with Manning & Marder, Kass, Ellrod, Ramirez LLP's Los Angeles office where he heads up the firm's Sports, Recreation and Attractions Litigation Team. Tony may be reached at (213) 624-6900 or by e-mail at AJE@mmker.com. All information provided is of a general nature and is not intended nor represented to replace professional, specialized legal advice, nor should the information be relied upon as same.
tagged IHRSA Best Practice in Jobs
IHRSA Best Practice in Jobs