Classifying A Coterie Of Covenants

Yesterday, I wrote about Judge Lucy Koh's decision in SriCom, Inc. v. eBisLogic, Inc., 2012 U.S. Dist. LEXIS 131082 (N.D. Cal., Sept. 13, 2012) concerning the enforceability of a no-hire agreement.  Judge Koh mentions an earlier ruling by Judge Marilyn Hall Patel that describes five categories of covenants not to compete, Thomas Weisel Ptnrs. LLC v. BNP Paribas, 2010 U.S. Dist. LEXIS 11626 (N.D. Cal., Feb. 10, 2010).  Here's Judge Patel's taxonomy of covenants not to compete in the employment context:

  • Agreements not to work for competitors;
  • Agreements not to solicit customers;
  • Agreements not to hire employees;
  • Agreements not to solicit employees; and
  • Agreements not to solicit or hire employees.

The Dyer's case mentioned yesterday involved the first type while SriCom, Inc. and Thomas Weisel Ptnrs. involved the fifth category.

Different folk, however, have different views.  Nevada actually has a statute addressing the enforceability of covenants not to compete in the employment context.  After first making it a crime willfully to prevent an employee from obtaining elsewhere in Nevada, NRS 613.200 permits employers and employees to negotiate and execute enforceable noncompetition covenants if they are supported by valuable consideration and are reasonable in scope and duration.  Thus, Nevada parts company with Judge Hull and echoes Chief Judge Parker (later Lord Macclesfield): "[w]here a contract for restraint of trade appears to be made upon a good and adequate consideration, so as to make it a proper and useful contract, it is good."  Mitchel v. Reynolds, 24 Eng. Rep. 347, 349 (1711).