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Those Internship Noncompetes: Employers Are Enforcing Them
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Delaney Dunne had an internship in Wilmington, North Carolina in her junior year with TekMountain.  She signed noncompete agreement and was paid $10 per hour as she also earned college credit.   Her noncompete agreement, prohibited Ms. Dunne from working for any software or finance company in Wilmington or within a 15-mile radius of Wilmington.  After Ms. Dunne completed her internship with TekMountain, the parent company of TekMountain sent her a letter to remind her about her obligations of confidentiality and inquired about her work for nCino (a finance-tech firm in Wilmington. Ms. Dunne did not respond to the letter or inquires.  Just before she graduated, she received another letter asking about her employment status and again reminding her of her obligations under the noncompete. Harriet Tory, "Noncompete Pacts Spread to Interns," Wall Street Journal, July 1, 2019, p. A5.

 

Ms. Dunne said that she was “only 20” when she signed the noncompete agreement and that it was “still haunting” her. There are some legal insights for Ms. Dunne.  The legal age for contracting is 18, so her contract was entered into after she reached the age of majority.  Noncompete agreements are valid in some states provided that they meet certain requirements.  Those requirements vary by state statutes and judicial precedent, but generally focus on the following issues:

 

  1. The noncompete agreement must be necessary to protect the employer.  The need for protection is high in tech and finance companies because of their software developments, processes, and licensing.  Companies can also protect proprietary information, such as their customer lists, information about customers, and program customizations for them.
  2. The employee subject to the noncompete agreement must be in a position of either having access to such proprietary or protected information (copyrighted and information not available publicly) or in a high-level position in the organization (where access and information runs across the company. Some states specifically cover employees under 18 as well as graduate and undergraduate students who are doing internships and permit enforceable noncompete agreements. Massachusetts just passed a very broad noncompete agreements statute that provides that protection for employers. 
  3. The noncompete agreement must be reasonable in time and geographic scope. A nationwide noncompete is possible, depending on the nature of the company’s work and information it seeks to protect. However, most noncompete agreements involve industry restrictions or geographic radius limitations. Courts seek to maintain a balance between the employee’s right to work and the employer’s need for protection.

 

In Ms. Dunne’s case, if the noncompete is valid, she cannot work in Wilmington or within 15 miles.  The companies hiring in her field are all located in Wilmington, so she would need to work in another city with a tech/finance presence. The closest cities of Raleigh-Durham (the tech triangle) and Charlotte (banking and finance) are 2-3 hours away from Wilmington. There are, however, more companies and jobs located there.

 

Ms. Dunne’s case probably boils down to whether the noncompete obligations can be imposed on interns.  While the need for protection is clear in tech and finance, not all employees, including interns, would be in a position to have access to such information The work, job description, and access would all be factors in making the determination of the need for a noncompete. Once that issue is decided, assuming the noncompete was needed, the issue becomes one of “How long?”  In the tech industries, the time is short – generally 18 months is the maximum because of ongoing changes. 

 

There is one additional issue that a court would consider – the relationship between the work at the new employer and the work for the employer with which there is a noncompete.  If the work is in different areas of the company, the need for enforcement is reduced, or the enforcement can be blue-penciled around certain areas.  For example, an executive who moves from Campbell’s Soup to Heinz might be able to work on ketchup and condiments, but not Heinz-brand soups. The character of Ms. Dunne’s work at TekMountain vs. that of her new employer would be issues to explore.

 

DISCUSSION ISSUES

 

What are the competing interest of employers and employees in noncompete agreements?

Explain the factors courts consider in determining whether to enforce noncompete agreements?