protecting employer investment in training

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uke University School of Law

Protecting Employer Investment in Training: Noncompetes vs. Repayment AgreementsAuthor(s): Brandon S. LongSource: Duke Law Journal, Vol. 54, No. 5 (Mar., 2005), pp. 1295-1320Published by: Duke University School of LawStable URL: http://www.jstor.org/stable/40040471

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2/27

PROTECTING EMPLOYER

INVESTMENT

IN TRAINING:

NONCOMPETES

VS.

REPAYMENT

AGREEMENTS

Brandon S. Long

Introduction

In

an

economy

withmore nd more

opportunities

or

workers

who

possess sophisticated

kills nd technical

ptitude,

American

companies

must

ight

o

recruit,rain,

nd retain he market's

most

talented

mployees.1

addled

with he

hallenge

f

competing

or

op

talent,

employers

frequently

use

noncompetition

lauses

( noncompetes )2

n

employment

greements

o

guard against

employee

efections.

hese lauses

havebecome

ncreasinglyopular

in recent decades

and have

been the

subject

of considerable

controversynd debate.At this ebate's ore s often hequestionf

what

specific

mployer

nterests hould

noncompetes rotect.

n

response

o

shifting

arket

onditionshat ffect

mployer-employee

relationships,3

tates

ontinually

eevaluate

he

degree

o which

hey

choose

o

uphold

hese

oncompetes.4

To take

an

example,

ouisiana

has

recently

e-assessed

hich

employer

nterests

houldbe

protectable.

istorically,

ouisiana

law

rejected

ll contracts

estrainingnyone

from

xercising

lawful

profession,

rade r

business

f

ny

kind, 5

ut

made n

exception

or

agreementsyanemployeeto refrainromarryingn orengaging

in a business

n

competition

ith is

employer

i.e.,

noncompetes).6

Copyright

2005

by

Brandon S.

Long.

1. See

Peter

Cappelli,

The New

Deal at

Work

1-16

(1999)

(discussing

conomic

factors

riving

hange

n

employer-employee

elations).

2.

Traditionally, oncompete

greements

estrictedn

employee

from

ompeting

with n

employer

within

specified

eographic

egion

nd

for finite erm fter

he

employment eriod

ended. See

generally

Harlan

M.

Blake,

Employee Agreements

ot to

Compete,

73

Harv. L.

Rev.

625

(1960) (defining

oncompetition

greements

nd

tracing

he

legal

enforceability

f

noncompetes

hroughout

nglish

ndAmerican

aw).

3.

See

infra

otes 3-43

and

accompanying

ext.

4.

See

infra

art

I.B.

5.

La. Rev. Stat.

Ann.

23:921

A)(l) (West 2003).

6.

M23:921(C).

http://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsphttp://www.jstor.org/page/info/about/policies/terms.jsp


3/27

1296

DUKE LAW JOURNAL

[Vol.

54:1295

In

2001,

n ts

ontroversialwat

41

ecision,

heLouisiana

upreme

Courtnterpretedhis xceptionarrowly,oldinghat noncompete

will

be

unenforceable

f

t restrictsn

employee

rom

working

or

business

competitor.8

n

contrast,

he court

agreed

to

uphold

noncompetes

hat

prevent

n

employee

from

tarting

is

own

business.9

hus,

under

Swat

24,

companies

ould not

restrictn

employee

rom

working

or n

existingompetitor

utcould

prevent

an

employee

rom

pening shop

across he treet.10

his

ruling

eft

Louisiana

mployers

ithmuch

ess

protectiongainst

heir oss

of

investment

n

employees.

n

dissent,

ustice

het

Traylor

mentioned

this concern,arguingthat without broader enforcement f

noncompetes

employers

an not

sic]

afford o invest

ptimally

n

product

evelopment

r n

their

mployees. 11

In

reaction o

this

holding,

he Louisiana

egislature

tatutorily

overruled

wat

4 in

June 003.To

do

so,

t enacted

provision

hat

permitted

nforceability

f

noncompetesgainst mployees

ho are

employed y

competing

usiness,

egardless

fwhetherr not hat

person

s

an

owner or

equity

nterest older of that

competing

business . . . 12 n

other

words,

he

enforceability

f

noncompetes

wasexpandedo allow estrictionsoth rom orkings anemployee

of

competing

usiness

ndfrom

pening

ne's ownbusiness.13

7.

Swat 24

Shreveport

ossier,

nc. v.

Bond,

808 So.2d 294

(La. 2001).

8.

See

Jennifer .

Faroldi,

What's till

Brewing

n

the 003

Legislative

ession?,

La. Emp.

L.

Letter,

June

003,

t 4

( [Y]ou currently

an't

prevent

ormer

mployees

rom

working

or

competing

usiness. ).

9.

Swat

24,

808

So.2d at 296.

The facts f

the case are

fairly traightforward.

he

employee

had been promotedby the employer, constructionompany, o the positionof production

manager,

a

status that

required

him to

sign

a

noncompete agreement.

The

noncompete

agreement

ad

stipulated

hat

he

employee

would not serve as an

officer,

mployee,

director,

agent

or

consultantof

any

business,

which is in direct or

indirect

ompetition

with the

employer.

d.

at

296-97. In

striking

own

this

contract,

he

court examined

the

legislative

records

behind

ection

23:921

and

concluded that he

statute's

egislative

ntent

emanded that

the

exception

n

subsection

C)

only

applied

to

employees

who establish

heir

wn

competing

businesses,

ot

to

employees

who

chose to

workfor

lready-existingompetitors.

d.

at 302-07.

10.

Id.

11.

Id. at

313

(Traylor,

.,

dissenting).

12.

2003 La.

Sess. Law

Serv.428

(West).

13. This tension between the legislatureand the courts is common in the area of

noncompete

aw. In

the ate

1980s and

early

1990s,

he state of

Texas endured similar

onflict.

The Texas

Supreme

Court had

interpreted

he

state's

noncompete

tatute

narrowly, efusing

o

enforce

noncompetes

gainst

at-will

mployees.

The Texas

legislature

ollowed this decision

with

law

specifically

ncluding

t-will

mployees

under

he

purview

f the

noncompete

tatute.

For a

detailed

description

f this

conflict,

ee Katherine

V.W.

Stone,

Knowledge

at Work:



4/27

2005]

REPAYMENT

AGREEMENTS

1297

In

the LouisianaHouse of

Representatives

ebates

regarding

thisprovision,numberfargumentseremade nsupport f the

bill.14

House

Representative

Jack Smith

justified

broader

enforceability

f

noncompetes y cautioninggainst

he risk

of an

unrestricted

mployee

haring

rade ecrets

nd customerists.15

number

f

representatives

lso

expressed

oncern

hat

employer

investment

n

employee

raining ight

e

squandered

f

companies

could

not enforce

oncompetes.16

hus,

they rgued,

ouisiana

aw

should

be

expanded

o

allow businesses o

protect

nvestment

n

employee

trainingthrough

the enforcement

f

noncompete

agreements.17his desire oprotectmployernvestmentntraining

marks

considerable

eparture

rom he urrent

aw

n

many

tates.18

Louisiana

s correct

n

recognizing

he

mportance

f

protecting

an

employer's

nvestment

n

training.

et,

thisNote

argues

hat

sing

a

per

e

enforceability

tandard

or raditional

oncompetes

o

effect

this

goal

limits

employees'

post-employment

ob prospects

disproportionately

ompared

o

what

mployers

eedto

protect

heir

training

nvestment.

n contrast

to traditional

noncompetes,

repayment

greements

ffer

sensible

alternative

whereby

n

employer'sevelofprotection ovesn ockstep ith he ostof, nd

value

derived

rom,

he

raining.

hat

s,

repayment

greements

ore

closely pproximate

he

degree

f

protection

equired

o

encourage

employer

nvestment

n

training.

Part

of

this

Note discusses

he

ncreased

mportance

f

training

investment

n

today's

workforce

nd

the

need

for

udicial

protection

of that

investment.

art

II

traces

both

the

policy

arguments

supporting

nd

condemning

oncompetition

greements

nd

the

ests

courts

ommonly

se

to

evaluate

nforceability.

art

II.A

analyzes

trainingnvestmentn the contextof traditional oncompete

Disputes

over

the

Ownership

of

Human

Capital

in the

Changing

Workplace,

34 CONN.

L.

REV.

721,

744-46

2002).

14.

La.

House Chamber

Proceedings

Day

20,

Discussion

of House

Bill

1770

May

7,

2003)

(statement

of

Rep.

Jack

Smith),

available

at

http://house.louisiana.gov/rmarchive/2003/

May2003.htm.

15.

Id.

16.

Id.

17. See

id.

( Look

at

the

company.

hey're

going

o

make

an investment

n that

ndividual,

they're oing

o

give

him

n

education,

hey're oing

o

train

him

. . and

all

they

want

n return

is don't

compete

gainst

me for

wo

years'

I think

t's a fair

rade. ).

18. See

infra

art II.A.



5/27

1298

DUKE LAW JOURNAL

[Vol.

54:1295

agreements,

nd

Part II.B

argues

hat

epayment

greements

re

a

more ensible lternativeo traditionaloncompetes.

I. Training Investment n Today's Economy

In

theAmerican

orkplace,

nvestment

n

training

s essential

f

businesses

hope

to

keep pace

with

competition.

ccording

o

Department

f Labor research n the

changing ynamics

f theU.S.

job

market,19

echnologicalmprovements

ontinue o transformhe

American

orkplace

n

dramatic ashion.20

mployers

re

constantly

lookingfor more efficient ays to managetheirbusinesses s

technology

nd

speed

become critical o business uccess.21 s a

result,

ompanies

emand

mployees

hat re

equipped

o contribute

meaningfully

n

a

fast-paced

usiness

etting.22

ith

technological

innovation

ccelerating

n

the

twenty-firstentury,obs

will

require

more

ophisticated

orkers;

[t]he

demand or

knowledge'

orkers

across wide

spectrum

f

occupations

s forecastedo

increase. 23

Economic

nnovation

ill

affect ll

jobs;

certain

echnology-related

jobs,

namely

omputer

oftware nd

support pecialists,

etwork

systemsnalysts,nd databaseadministrators,illbecome more

abundant

during

he

twenty-firstentury

nd

will

be

especially

affected.24

19.

See

generally

.S.

Dep't

of

Labor,

Strategic

lan FY

2003-FY 2008

(2003)

[hereinafter

U.S. Dep't ofLabor Plan] (describing hechangingAmericanworkforce nd theDepartment's

goals

for

mproving

abor

conditions),

vailable at

http://www.dol.gov/_sec/tratplan/main.htm.

20.

See U.S.

Dep't

of

Labor,

Report

on the

American

Workforce

(2001)

[hereinafter

.S.

Dep't

of

Labor

Report]

(describing

he

twentieth-century

nnovations hat

have transformed

the

American

workplace,

ncluding [communication

devices,

measuring

devices,

computer

controlled

equipment,

[and]

the

x-ray ),

available

at

http://www.bls.gov/opub/rtaw/

rtawhome.htm.

21.

Id.

22.

See id.

at 6

(providing

hat

men and

womenwith

ollege

degrees

arn

almost wo-thirds

percent

more than

those

with

nly

high

chool

degrees).

This

study

lso

reports

hat n the

year

2000

the

unemployment

ate

for

individualswith

only

a

high

school

degree

approached

4

percent,

whereas

herate for

ollege graduates pproximated nly

1.5

percent.

d. at 193.

23.

U.S.

Dep't

of Labor

Plan,

supra

note

19,

at

3;

see also

U.S.

Dep't

of

Labor

Report,

supra

note

20,

at

3

( Over

the

course of the

20th

century,

he

composition

f the

labor force

shifted rom

ndustries

ominated

by

primary

roduction

occupations,

uch as

farmers nd

foresters,

o

those

dominated

y

professional,

echnical,

nd

service

workers. ).

24.

U.S.

Dep't

of

Labor

Plan,

upra

note

19,

at 4.



6/27

2005]

REPAYMENT

AGREEMENTS 1299

Just

s the need

for

technology-sawy

mployeesgrows,

o does

the need forformalob training.25ew woulddenythatthe twentieth

century

aw

[e]ducationplay[]

an

important

ole

n

the advancement

of

the individual

worker,

the

workforce,

nd

the

economy. 26

Employees

rely

on

training pportunities

s

incentives or

hoosing

particular

ine of work

or a

particular

mployer.27

ccording

to one

study,

30

percent

of those

surveyed

claimed that

training

opportunities

ere an

extremelymportant

actor

n

choosing

heir

careers.28

ikewise,

many arge professional

ervices

firms dvertise

their

raining pportunities

o

help

recruit

op

talent.29ust

y visiting

a company'sWeb site,one can discover hevastarray f educational

courses

available

to its

employees.

One law

firm,

ing

&

Spalding,

boasts

K&S

University,

formal ducational

curriculum

esigned

to offer

ttorneys rofessional

evelopment pportunities

t all

stages

of their

careers.30

Broadly

speaking,

employees

recognize

that

education

eads

to

marketability,

arketability

eads

to

professional

advancement,

and

professional

advancement

leads

to

personal

satisfaction.

With

training

becoming

a

necessity

for

anyone

looking

to

succeed in today'sworkforce, ow does one become trained?More

specifically,

who

should

pay

for

this

training?

Obviously,

formal

education

plays

a

major

role

in

helping

ndividuals

evelop

skills hat

25. See

id. at 3

( Increasingly,

he

majority

f

obs

will need

workers

who have

acquired

knowledge

nd skills

via

two-year

olleges,

vocational

training,

moderate

to

long-term

n-the-

job

training,

nd

real world

xperience. ).

26.

U.S.

Dep't

of

Labor

Report,

upra

note

20,

at 6. See also U.S.

Dep

t of Labor

Plan,

supra

note

19,

at

41

( Knowledge

workers

ow

account

for third

f

the

American

workforce,

outnumberingactory orkers ytwotoone. ).

27. See

Stone,

upra

note

13,

at

722

( Employees

see

the

growth

f their

human

apital

and

the enhancement

f

their abor

market

pportunities

s one of the

benefits

f the

ob.

Jobs

re

often valuated

and

selected on

the

basis

of whether

nd how

much

opportunity

or

earning

and skill

nhancement

re

provided. ).

28.

CAPPELLI,

upra

note

1,

at 24.

The same

study

found

that

47

percent

of workers

characterize

heir

nterest

n

professional

evelopment

s

important.

d.

29.

Many company

Web

sites,

nd

especially

hose

of

professional

ervice

firms,

out

their

emphasis

on

employee

training

o

help

attract

talented workers.

See,

e.g.,

AIG,

Career

Development,

at

http://www.aig.com/careers/about_dev_frameset.htm

last

visited

June

19,

2005)

(on

file

with he

Duke

Law

Journal);

Bank of

America,

Team

Bank of

America,

t

http://

www.bankofamerica.com/teambank/index.cfm?template=tb_leaddevlast

visitedJune

19,2005)

(on

filewith

he Duke

Law

Journal);

McKinsey

&

Company,

Broaden

Your Career

Options,

t

http://www.mckinsey.com/aboutus/careers/undergraduates/broadencareeroptions/index.asp

last

visitedJune

19,

2005) (on

file

with he

Duke

Law

Journal).

30.

King

&

Spalding

LLP,

K&S

University,

t

http://www.kslaw.com/training/training.asp

(last

visitedJune

19,

2005) (on

filewith

he Duke

Law

Journal).



7/27

1300

DUKE LAW JOURNAL

[Vol.

54:1295

will

translate nto success

throughout

heircareers.

Universities,

communityolleges,nd vocationalchools, ll typicallyaidforby

the

mployee/worker,rovide

foundationf

necessary

ccupational

competencies.

Government

programs

also

help support

the

cultivation f the Americanworkforce.31

elfare

programs

nd

subsidies created

through egislation

uch as the Workforce

Investmentct32llocate

government

ollars o assist

rimarily

ow-

income

workers

n

attaining

he

ob

skills

required

o

compete

n

today's

workplace.

Most

often, owever,

merican

ompanies ccept

heburden f

educatingheir wnemployees.33hisarrangementeems to work

wellfor

oth

mployee

nd

employer.

ew

employees

ould

isagree

that

formal ducation

provides

he framework ithinwhichone

builds the

expertise

necessary

o sustain a

living.

Marketable

professional

kills,

uch s howto

interpretcompany

alance heet

or how

to weld

together

wo

pieces

of

iron,

can be

taught

nd

understood

n

the

lassroom;ften, owever,

n

employee's

kills

will

fully

lourish

nly

within

heir

professional

ontext.34s Aristotle

stated:

Forthe

hings

hichwe have o earn

eforewe can do

them,

we learnby doing. 35urther,rom n employer's erspective,

business

will

ften

otrealize he

full

alueof an

employee

ntil he

learns

the

employer's

methods,

echniques,

nd

systems.

n

those

situations,

ormal

raining

s

only

a

jumping-offoint.

On-the-job

31.

See,

e.g.,

Workforce

nvestmentAct

of

1998,

Pub. L. No.

105-220,

112 Stat. 936

(codified

n

scattered ections f

20 U.S.C. and 29

U.S.C.).

32. Id. In its tatement f

purpose,

heWorkforcenvestment ct

proclaims

he

following:

The

purpose

of

this

ubchapter

s

to

provide

workforcenvestment

ctivities,

hrough

statewide and

local

workforce nvestment

ystems,

hat increase the

employment,

retention,

nd

earnings

f

participants,

nd increase

occupational

kill

ttainment

y

participants,

nd,

as a

result,

mprove

he

quality

of

the

workforce,

educe welfare

dependency,

nd enhance the

productivity

nd

competitiveness

f the

Nation.

29

U.S.C.

2811

(2000).

33.

Gary

Becker

argues

that

mployer

nvestmentn

training

s,

n

actuality,

n

employee

investment,

ince

the

employee

presumably grees

to a

lower

alary

n

payment

or he

acquired

skills.

Gary S.

Becker,

Human Capital: A

Theoretical

and

Empirical

Analysis,

with

Special

Reference

to

Education

33-51

(3d

ed.

1993)

(discussing pecific

nd

general

training

f

employeesby

their

mployers).

34.

Daron

Acemoglu

&

Jorn-Steffen

ischke,

Beyond

Becker:

Training

n

mperfect

abor

Markets,

109

ECON. J. 112

(Feb. 1999)

(noting

the

advantages

of

investment n

workplace

training

nstead of

general

education,

because

on-the-job

raining

llows

employers

o

target

specific

kill

ets

required

o

keep

the business

n

pace

with

echnological

rogress).

35.

Aristotle,

Nicomachean

Ethics 34

(Martin

Ostwald

trans.,

962).



8/27

2005]

REPAYMENT

AGREEMENTS

1301

training

urthers ducation

by merging

lassroom

study

with

real-

world xperience.

Employer

investment

n

such

training

an take

many

forms:

proprietary

raining

urricula

uilt

by

the

employer pecifically

or

ts

employees,

funding

ommitments

or

employees

to attend classes

taught

by

a third

party,

nd

informal

pprenticeship rograms

re

examples

of

a few of the more common

methods.36 o meet the

financial

demands

of

training

nd

retaining

n

adequate

workforce,

an

employer

must llocate

an enormous

portion

f its annual

budget

to

employee

development.

According

to one

report,

American

companiesspend moremoneyon education thando all the public

school

systems

n

the United States.37

Further,

nce an

employer

has

paid

for

training,

n

employee

forever

etains

monopolypower

over

his

skills,

which

an be used to

obtain

additional

compensation

from

competing

businesses.38 uch

like

any

other

nvestment,

mployers

will invest

n

training nly

if

they

an

recoup

that

nvestment

y

exploiting

he skillsof those

who

receive

the

training.39

n that

sense,

human

capital

is

indistinct rom

nonhuman

apital:

employers

weigh

the

costs of investments

made

in worker kills gainst he stream fbenefitshey xpectfrom aving

more

skilled

employees. 40

f the costs

of investment

re

enlargedby

the

risk that

an

employee

can receive

the

training

without

any

contract

r commitment

o remain

with

he

employer

ong enough

to

provide

an

investment

eturn,

n

employer's

incentive

to

invest

optimally

n

training

diminishes.41

his risk

is

heightened

if

an

36. In-housetraining as becomeless common s companies truggle o assesswhat skills

are

required

n an

ever-changing

conomy.

CAPPELLI,

upra

note

1,

at 198-220.

Rather,

s new

degree-specific

chools

like

the

University

f

Phoenix

grow

in

popularity,

mployers

find

t

more

cost

effective

o outsource

training

o third

parties.

n those

cases,

employers

might ay

for

raining

n a

specific

iscipline

with

hopes

of

building

narrower

nowledge

base within he

company.

By Cappelli's

account,

72

percent

of the

University

f

Phoenix's

tuition evenue

s

derived

from

mployers

ubsidizing

heir

mployees'

chooling.

d. at 209.

37.

David

Lange,

Guest

Commentary,

raining rograms

hould

Be

Seen

as

Investment,

Not

Expense,

NASHVILLE

Bus.

J.,

Sept.

15,

2003,

available

at

http://www.bizjournals.com/

nashviUe/stories/2003/09/15/smallb5.html?t=printable.

38. See

Stewart

E.

Sterk,

Restraints

n

Alienation

f

Human

Capital,

79

Va. L.

Rev.

383,

392-93

(1993)

(discussing

he risk

of

employer

nvestment

n

training

f

ong-term

mployment

contractsre not

upheld).

39.

CAPPELLI,

upra

note

1,

at 46.

40. Id.

41. The

growing

number

of

opportunities

waiting

those

who choose

to leave their

employer

fter

eing

trained

xacerbates

his

problem.

ee

id. at 182-S7

providing

xamples

of



9/27

1302

DUKE

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JOURNAL

[Vol.

54:1295

employee

as the

opportunity

ot

only

o

leave

with kills

hat he

employerubsidized,ut lso to use those kills gainsthe mployer

byworking

or

competitor

usiness.42

Other ationales lso

support

he

need to

protect

nvestment

n

training.

lack of

protectiongainst mployee

mobility

cts

as a

double

hit to the

employer,

hichnot

only

oses

its

monetary

investment

n

developing

he

employee's

kill et but

also sacrifices

potential

market

dvantage

o the

ompetitor

ho s able to enlist

he

recently

eparted

mployee.43

aking

matters orse s that he

ossof

trained

mployees

eaves the

employer

withno residual

nterest,

unlikemany raditionalorms f businessnvestment.he free-rider

principle rovides

n

additional ationale:

f

he

mployer

as no

way

to

protect

ts

nvestment,

ompetitors

eluctanto

invest n

training

can

recruit

ell-trained

mployees

ithout

aving

o assume he ost

ofthe

raining.

Thus,

employers

eeking

to recruit

top

talent

and

stay

competitive

ithin

oday's

workforce ave a

significant

nterest

n

protecting

heir nvestmentsn

training.

s discussed

n Part

II,

traditional

oncompetes

re an ineffective eansof

doing

o,

and

better lternatives,uch as repaymentgreements,xist.But to

appreciate

these

alternatives,

ne must first understand

he

traditional

ationales for

noncompetes,

he current tate

of

noncompete

aw,

and

how

regularly

courts have enforced

noncompetes

o

protect

n

employer's

raining

nvestment.

II.

Noncompete

Agreements

A.

Public

Policy

Rationales

Numerous

ublic

policy

considerationsave led

to

divergent

opinions

egarding

he

degree

o which

noncompete

lausebetween

an

employer

nd an

employee

hould e

upheld.

or

instance,

ome

courts

have

found that

freedom

f contract

rinciples upport

the

widespread

use of

golden

handcuffs nd

signing

bonuses as methods of

poaching

top

talent

way

from

ompeting usinesses).

42.

See

Rachel S.

Arnow-Richman, argainingfor Loyalty

n the

Information ge:

A

Reconsideration

f

the

Role

of

Substantive

airness n

Enforcing mployeeNoncompetes,

0

OR.

L. Rev.

1163,

1203-04

2001)

( [D]espite

the

strategicmportance

f

cultivating

nternal

alent,

employers

may

not make

such

investments

or fear that their

efforts

will

merely

aid the

competition. ).

43. Id.



10/27

2005]

REPAYMENT

AGREEMENTS 1303

enforcing

ll contracts

ade

between

ompetent arties,

o

long

as

those ontractsre neitherllegalnorunconscionable.44oncompete

agreements

etween

mployer

nd

employee,

t has been

argued,

all

under this

general

rule.45

oncompete

dvocates lso

argue

that

restrictionsre

necessary

o subvert

ttemptsyrogue mployees

o

poach

trade ecrets

nd customer

ists,

which ould be used to

gain

advantage

ver

former

mployers.46

his

seems to follow

naturally

from he

contentionhat

an

employer

eserves

right

o

protect

investment

n ts wnbusiness.47

If

noncompetes

re not

enforced,

mployers

will

lack the

incentiveospendmoney reatingrade ecrets nd customerists.48

Such

investment

urthersusiness

goals,

creates

ompetition,

nd

contributes

o theoverallwelfare

f the

economy.

ome

proponents

of strict

nforcement

o

even furthernd

argue

that n

employer

should

have a

right

o

use

noncompetes

o

protect

ny

nvestment

n

its

business,

ncludingmployee

raining.49ecognizing

he

ignificant

outlay

n

training

osts,

hose

proponents

upport

he

protection

f

training

nvestment

hould he

beneficiary

f the

training

erminate

employment.50

44.

See,

e.g.,

UniCredito

taliano SPA

v.

JPMorgan

Chase

Bank,

288 F.

Supp.

2d

485,

499

(S.D.N.Y.

2003)

( Sophisticated

parties

.. are held

to the terms

f

their

ontracts. );

Wiard v.

Liberty

Northwest

ns.

Corp.,

79 P.3d

281,

285

(Mont. 2003) ( [T]he parties

o a contract

may

agree

to

anything

hat

s not

llegal,

riminal,

r

immoral

).

But see Maureen B.

Callahan,

Comment,

ost-Employment

estraint

greements:

Reassessment,

2

U.

CHI.

L. REV.

703,

704

(1985) (suggesting

hat

although

American

law

generally

upholds agreements

rrived at

by

competent

arties,

ost-employment

estraints o

not share this

presumption

f

validity).

45. See Stone, supra note 13, at 740 ( When an employment elationship ncludes a

covenant

not to

compete

.. it is reasonable

to

assume that the

employee

has consented to

restrictions

n his

or her

post-employment

ctivities.

ccordingly,

here s a

strong

rgument

or

courts

o enforce

he covenant

).

46.

See,

e.g.,

Water

Servs.,

nc.

v. Tesco

Chems.,

nc.,

410

F.2d

163,

170

(5th

Cir.

1969)

( Although

ovenants

not to

compete

are

proper

o

protect

rade ecrets

heymay

also be valid

simply

o

prevent

former

mployee's

using

his

expertise

gainst

his former

mployer. );

ee

also

Blake,

supra

note

2,

at 627

( From

the

point

of

view of the

employer,

ostemployment

restraints

re

regarded

as

perhaps

the

only

effective

method of

preventing nscrupulous

competitors

or

employees

from

appropriating

valuable trade information

nd customer

relationships

or heir

wn

benefit. ).

47. See

Arnow-Richman,

upra

note

42,

at 1170

[N]oncompetes

an

be seen as

legal

tools

necessary

o

preserve

ey

business nterestsndrelationships. ).

48. See

Blake,

supra

note

2,

at

627

(suggesting

hat

employersmight

equire

covenants o

protect

nvestment

n

research

nd

development).

49. See

infra

art

II.A.

50. See

infra

art II.A.



11/27

1304

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[Vol.

54:1295

On

the other

hand,

those

decrying

mployment

oncompetes

generallydvancefour olicy ationales.51irst, omescholars ave

expressed

oncern hat estrictiveovenants

re

anticompetitive.52

f

employees

re hindered rom

moving

aterally

etween

ompanies,

firms

an tie

up

valuablehuman

apital

nd create

monopoly

n

market alent.53

ccording

o

Professor

arlan

Blake,

noncompetes

diminish

ompetitiony

ntimidating

otential

ompetitors

nd

by

slowing

own hedisseminationf

deas,

rocesses,

ndmethods. 54

Second,

pponents

ave criticized

oncompetes

or

hindering

worker's

ability

to earn a

living. Geographic

and durational

noncompetes,fenforced,ould imit n employee'sbilityo take

advantage

f her

talents nd

provide

ustenance

orher

family.55

o

the same

extent hat n

employermight

e reluctanto invest

n

employee

raining

f

employment

oncompetes

ere

unenforceable,

an

employee

who

values

ob transferabilityight

e ambivalent

o

generalob

training

f

restrictive

ovenant

bstructedhat

mployee

from

tilizing

he

newly

cquired

knowledge

utside f her current

employment.

uch

a

result

could

stunt he

development

f the

American

orkforce.56

The final woprimaryolicy onsiderationsre invoked ess

frequently.

ome courts

have

rejected noncompetes

hat allow

employers

o

take

advantage

f

superior argainingositions

o the

detrimentf

their

mployees.57

ssuming paternalistic

ole,

ourts

51.

Mitchelv.

Reynolds,

4

Eng.

Rep.

347,

348-50

Ch. 1711).

See

generally

allahan,

upra

note 44

(arguing

hat the

restraint-of-trade

ationale,

he

employee-protection

ationale,

and the

loss-to-society

ationaledo not

sufficiently

arrant

nenforceability

f

noncompetes).

52. Blake,supranote2,at627.

53. Id.

54.

Id.

55.

See,

e.g.,

ABC v.

Wolf,

420

N.E.2d

363,

368

(N.Y. 1981)

(recognizing

hat

despite

a

strict

pproach

to

enforcement f

..

covenants,

public policy

mandates

skepticism

oward

restrictions

impairing

he

employee's

bility

o earn a

living

r the

general

ompetitive

mold

of

society );

All-Pak,

nc. v.

Johnston,

94 A.2d

347,

351

(Pa.

Super.

Ct.

1997)

( [I]n determining

whether o

enforce

post-employment

estrictive

ovenant,

we must

balance the interest he

employer

eeks to

protect gainst

he

mportant

nterest f the

employee

n

being

ble to earn a

living

n his

chosen

profession. ).

56.

See

Stone,

upra

note

13,

at

722

( Employees

see the

growth

f

theirhuman

apital

and

the

enhancement

f their

abor market

pportunities

s

one of the

benefits f the ob. ); U.S.

Dep't

of

Labor

Plan,

supra

note

19,

at 5

( The

fast

pace

of

technological

hange

will . .

require

that

workers

ommit hemselves

o

lifelong earning

f

[the]

Nation's

workforce s to remain

competitive

n the21st

Century. ).

57.

See Schmidl v.

Cent.

Laundry

&

Supply

Co.,

13

N.Y.S.2d

817,

823

(Sup.

Ct.

1939)

(recognizing greater

differentialn

bargaining

ower

between

employer

nd

employee

than



12/27

2005]

REPAYMENT

AGREEMENTS

1305

that

cite this rationale when

striking

own restrictions

ssume that

employers, iventheir n-house egal resources and experience, re

more

sophisticated argainers

nd

likely

to induce

employees

nto

unnecessarily

estrictiveovenants.

Lastly,

ome courts re

reluctant

to enforce

noncompetes

that

deprive

the

public

of an

employee's

effort nd

productivity;58

escribed

by

one commentator s the loss-

to-society

rationale,59

his

line

of

reasoning

is rare

in

today's

jurisprudence.60

B.

Case Law

Giventhe

complex

policy

onsiderations hat re folded nto the

analysis,

t is no

surprise

hat

many

states have been reluctant o

establish

a consistent

standard for

analyzing noncompetition

agreements.

he American

case law

in this

area has been

described

by

one

court as

a sea vast

and

vacillating,overlapping

and

bewildering. 61

ithout onsistent

tandards,

ourtshave

struggled

o

find olid

footing

n a field

of

legal uncertainty.62

ften,

ourtsuse a

balancing

est

whereby

he

various

policy

considerations re

weighed

to determine

the outcome

best

attuned to

the interestsof the

employee,

mployer,

nd the

general

public.63

he focusof this test

between

two

corporate

ntities);

Arthur

Murray

Dance Studios

v.

Witter,

05

N.E.2d

685,

704

(Ohio

1952) (expressing

oncern

hat

n

employee's

bargaining

isadvantage

ould

produce

a

rash,

mprovident

romise ).

But see

Hilb,

Rogal,

& Hamilton

Agency

of

Dayton

v.

Reynolds,

610

N.E.2d

1102,

1107

(Ohio

Ct.

App.

1992) ( While

an

employment

elationshipmay by

definition

esult

n an

employer

having slightly

etter

bargaining

osition

han

an

employee,

this

disparity

n

bargaining ower

s

inherent n the

relationship

nd is not sufficient

o render

contract nenforceablebsent showing f abuse]. ).

58.

See,

e.g.,

Tarr

v.

Stearman,

105 N.E.

957,

961

(111.

914) (finding

he interests

f the

public

to

be

paramount,

nd

stressing

oncern

fornot

ust

the financial

rofits

o be

made

from

rades

r

professions,

ut

theconvenience

f

the

public

s

well ).

59.

Callahan,

upra

note

44,

at 712.

60. See

Blake,

supra

note

2,

at

686

(recognizing

hat

he courts

usually

ook at the

burden

on the

employee

nd

almost

never consider

he

njury

o

society eparately);

Callahan,

supra

note

44,

at

706

( [T]hough

[the

loss

to

society'

rationale]

s not much

relied

upon

today,

hese

agreements

were

once

considered

a

threat to the

economy

because

they

could remove

a

productive

erson

from he

work

force. ).

61.

Arthur

Murray

ance

Studios,

05 N.E.2d

at 687.

62. See Tamara Loomis, Non-Compete

Pacts: Whether

These

Agreements

Hold

Up

Is

Uncertain,

.Y.L.J.,

Aug.

24,

2000,

at 6

( At

the end of the

day,

however,

he one

thing

hat s

certain

with

non-compete

greement

s that

nothing

s

certain. ).

63. See

Bendinger

v.

Marshalltown

rowell

Co.

[sic],

994 S.W.2d

468,

472

(Ark.

1999)

( We

review

ases

involving

ovenants

not

to

compete

on a

case-by-case

basis. );

42 AM. JUR.

2D

Injunctions

138

2003) ( A

court

may

ook

at the

equities

on both ides

n

deciding

whether



13/27

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[Vol.

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becomes hereasonablenessfthe

restraint,

onsidering

he

needs

of

both mployeendemployer.64hiscase-by-casepproach otonly

provides

ittle

uidance

orfuture ourt

roceedings,

t also

hinders

the

employer's bility

o

predict

which ontracts

re

likely

o be

upheld

n

court.65uch

uncertainty

esults

n

a vast

amount

of

litigation

ver the

validity

f

noncompete

greements,66

dding

another

ostto an

already-expensivemployer

nvestment

n human

capital.67

The

degree

o which tates

will

nforce

oncompetes

aries.On

one

end,

a few statesfavor

rejection

f all restraints

f

trade,

leaving oom or nly handful fnoncompeteshat re sonarrowly

defined s to

have a

negligible

ffect n the

employee's

ight

o

practice

is trade.68

n the other

nd,

Judge

Richard

Posnerhas

to issue an

injunction

rohibiting

former

mployee

from

ompeting

withhis or

her former

employer ).

64.

See,

e.g.,

All

Stainless nc. v.

Colby,

308

N.E.2d

481,

485

(Mass. 1974) (determining

enforceability y

weighing

the reasonable needs of the former

mployer

.

.

against

both the

reasonableness f the restraint

mposed

on the former

mployee

nd the

public

nterest ).

65. See PeterJ.Whitmore, Statistical nalysis fNoncompetitionlauses nEmployment

Contracts,

5 J.

CORP.

L.

483,

485

(1990)

( [I]t

still s difficultor

awyers

o

predict

onfidently

how a

courtwill react to

any

givennoncompetition

lause. );

Greg

T.

Lembrich,Note,

Garden

Leave: A

Possible Solution o

the Uncertain

nforceabilityf

Restrictive

mployment

ovenants,

102

COLUM.

L.

REV.

2291,

2303

(2002) ( The

lack of

consistency

hat ourtshave

demonstrated

in

deciding

hese

cases has led to an

atmosphere

f

uncertainty,

hich

may help

to

explain

why

lawyers

ind t

very

difficulto advise

clients. ).

66.

See

Whitmore,

upra

note

65,

at

485

( [T]he ambiguity urrounding

he

enforceability

of

these clauses

has resulted n vastamounts

f

itigation

nd

reported ppellate

decisions. )

67.

One factor ften

ndervalued n the

determination

f

noncompete

nforceability

s

the

degree

to which

mployer

nvestmentmustbe

protected.

ut

simply,

he

greater

he cost of an

investment,

he

higher

he

return n

employer

xpects.

ee

infra

art II.B.

Employer

ncentive

to trainemployees hingeson seeinga return n that nvestment.ee supra Part I. Likewise,

employer

ncentive o establish

noncompetes

s

directly

elated to the

ability

o enforce hem

without

ostly itigation.

iven the

difficulty

n

balancing

ach of the

givenpolicy

onsiderations

and the

unpredictability

f

udicial

enforcement,

his Note

stipulates

hat the

employer

must

assume

greater

responsibility

n

ensuring

he

validity

f

its

noncompetes.

ee

infra

Part III.B.

One

type

of

noncompete

that

might

be more

consistently

pheld,

advocated

herein

as

an

alternative o

traditional

oncompetes,

s the

post-employmentepayment

greement,

iscussed

infra

art

II.B.

68.

California

law,

for

instance,

stipulates

that

every

contract

by

which

anyone

is

restrained rom

ngaging

n a

lawful

profession,

rade,

r

businessof

any

kind s to that xtent

void.

Cal. Bus. &

PROF. Code

16600

(West 1997).

California ourtshave

interpreted

his

statute

o acceptnot even reasonable restraints f trade.See, e.g.,Metro Traffic ontrolv.

Shadow

Traffic

Network,

2

Cal.

App.

4th

853,

859

(Cal.

Ct.

App.

1994) ( Section

16600 has

specifically

een

held to

invalidate

employment

ontractswhich

prohibit

n

employee

from

working

or

competitor

when the

employment

as

terminated,

nless

necessary

o

protect

he

employer's

rade

ecrets. ).

Courts

will,however,

llow a

very

imited

xception

f he

employee

is barred

from

ursuing nly

small or

limited

art

of the

business,

rade or

profession.

BM



14/27

2005]

REPAYMENT

AGREEMENTS

1307

advocated

per

se

enforceability

f

noncompetes ubject

only

to

the

traditional octrines ffraud, uress, r unconscionability.69urther,

many

tateseven allow a blue

pencil

test,

whereby

ortions

f the

employment

ontractdeemed too

restrictive

may

be

removed from

the

agreement,eaving

he restof the

noncompete

nforceable.70

Despite

some

inconsistency

between

states,

common

frameworkshave

emerged

to

settle issues of

enforceability.

s

previously

described,

most courts are

wary

of

upholding

contracts

that

restrict

n

individual's

right

to

pursue

a trade.71n

addition,

although

many

courts

disfavor

noncompetes,72

ome

courts find

v.

Bajorek,

191 F.3d

1033,

1040

9th

Or.

1999)

(quoting

Campbell

v. Bd.

of

Trs. of

The Leland

StanfordJunior

Univ.,

817 F.2d

499,

502

(9th

Cir.

1987)).

Other

states,

uch as

Alabama and

North

Dakota,

have devised similar

tatutory rohibitions

f

noncompetes.

ALA.

CODE

8-1-

l(a) (1975);

N.D.

CENT. CODE

9-08-06

1987)

(voiding noncompetes,

nd

making tatutory

exceptions

nly

for

he

sale of

a

business r the dissolution f

a

partnership).

69.

See Outsource

Intl.,

Inc.

v.

Barton,

192 F.3d

662,

670-71

(7th

Cir.

1999) (Posner,

J.,

dissenting) advocating widespread

enforcement f

noncompetes

and the

application

of a

reasonablenesstest

only

to

address

questions

of

fraud,duress,

or

unconscionability);

ee also

Eraser Co.

v.

Kaufman,

138

N.Y.S.2d

743,

750-51

(Sup.

Ct.

1955)

( Negative

covenants n

employmentontracts re not presumptivelynvalid and will be enforced n the absence of

proof

that

they

are

unconscionable,

nequitable,

or in contravention f

public

policy. );

Callahan,

supra

note

44,

at 725

( [T]he

doctrine f

unconscionabilityrovides

n

appropriately

limited mechanismfor

protecting mployees

in

those narrow circumstanceswhere

udicial

scrutiny

f contractss

actually ustified. ).

70.

The blue

pencil

test

has

been

applied

in a few variations.Some courts take a

restrictive

pproach

by removing nly

the unreasonable

provisions

f

a

contract

hat

re

easily

severable

from he valid

provisions.

ee,

e.g.,

Hahn

v.

Drees,

Perugini

&

Co.,

581 N.E.2d

457,

461-62

(Ind.

Ct.

App.

1991) (eliminating

n

easily

removable

phrase

that

suggested

an

employee

would not

be allowed to deal with clients

obtained

prior

to his

employment);

Bridgestone/Firestone,

nc.

v.

Lockhart,

F.

Supp.

2d

667,

683

(S.D.

Ind.

1998)

(reserving

he

right

o

remove

overly

broad restrictions

rom he terms f

a

contract

when

doing

so does not

expand the original anguage of the agreement).More commonly,modern courts exercise

greater

reedom

o

modify

r rewrite

nreasonable

provisions

hat

re unenforceable s written.

See,

e.g.,

Nestle Food Co.

v.

Miller,

36 F.

Supp.

69,

78

(D.R.I.

1993) (applying

Rhode Island's

rule of

partial

nforcement

o

modify

he terms

f a

noncompete

when

necessary

o

protect

the

employer's

nterests).

71.

Courts

re

generally

more

ikely

o

uphold

noncompetes

or ale of businesses hanfor

employment

ontracts.

n the former

ituation,

noncompete

willrestricthe seller

of a

business

from

ompeting

with

the

buyer

for a

particular

uration fter he

sale is consummated. he

sales

price

of a business

will include the value

of that business'

goodwill.

Serena

L.

Kafker,

Golden

Handcuffs: Enforceability

f

Noncompetition

Clauses in

Professional Partnership

Agreements

f

Accountants,

hysicians,

nd

Attorneys,

1 Am.

BUS.

L.

J.

31,

33

(1993).

72. See, e.g., Amex Distrib. Co. v. Mascari, 724 P.2d 596, 600 (Ariz. Ct. App. 1986)

( Restrictive

ovenantswhich

tend to

prevent

n

employee

from

pursuing

similarvocation

after

termination

f

employment

re

disfavored. );

Poole v. Incentives

Unlimited, nc.,

548

S.E.2d

207,

209

(S.C.

2001)

( [Covenants

will be

critically

xamined nd construed

gainst

he

employer. );

Modern

Env'ts,

nc. v.

Stinnett,

61 S.E.2d

694,

695

(Va. 2002)

( [Covenants

in

restraint f trade

are not

favored,

will be

strictly

onstrued, nd,

in the

event of

an

ambiguity,



15/27

1308 DUKE

LAW

JOURNAL

[Vol.

54:1295

that

policy

interests

warrant

enforceability

nder certain

circumstances.73

In

assessing

uch

ircumstances,

ourts

ommonly

se a

two-part

test o delineate etween nforceablend unenforceable

rovisions.74

First,

noncompetes

re

permitted

when

the

employer

can

demonstratehat he

contracts

necessary

o

protect

n

employer's

legitimate

business interests.75

f

the

employer

establishesa

protectable

nterest,

he

noncompete

will become

presumptively

enforceable

nd the burden

will

hift o

the

employee.76

econd,

o

overcome his

resumption

nd void he

ontract,

he

mployee

must

showthattheagreements unreasonablen itsscope,geographic

boundaries,

r

duration,

r that t is

particularlynjurious

o the

interests f the

generalpublic.77

f these unreasonablenessactors

sufficientlyutweigh

the

employer'sprotectable

nterests,

he

noncompete

ill

e

voided.78

This

reasonableness

est

enerally

nvolves

eighing

he

need to

protect

he

employer's

usiness

gainst

he

agreement's

ppressive

effects

n

the

employee.79

xcessive

eographic

nd time

estrictions

will

be

construed n

favor of the

employee. );

see also Gillian

Lester,

Restrictive

ovenants,

Employee

Training,

nd

theLimits

f

Transaction-Cost

nalysis,

6

IND.

L.J.

49,

54

(2001) ( As

a

presumptive

matter,

contracts

restricting

postemployment employee mobility

are

unenforceable

t common

aw. ).

73.

See

supra

notes61-70.

74.

Restatement

(Second)

of

Contracts

188

(1981)

characterizes his test as

follows:

(1)

A

promise

o

refrain rom

ompetition

hat

mposes

a restrainthat s

ancillary

o

an

otherwise

alid transaction r

relationship

s

unreasonably

n

restraint f

trade f

(a)

the

restraints

greater

han s needed

to

protect

he

promisee's

egitimate

nterest,

or (b) the promisee'sneed is outweighedbythehardship o the promisor nd the

likely

njury

o

the

public.

75.

For

examples

of

cases

demonstrating

his

nalysis,

ee

Blake,

supra

note

2,

at 651-84.

76.

Id.

77.

Though

many

cholars

gree

that he

loss-to-society

ationale s

not

favored

by

most

contemporary

ourts,

t least a

handfulof

cases have

employed

this

policy argument

when

determining

he

enforceability

f

restrictive

ovenants

against

physicians

nd

dentists.

ee

Kafker,

upra

note

71,

at

37-41

(discussing

ases that

nticipate

he

njury

o

society

resulting

from

nforceability

f

noncompetes gainst

physicians

nd

dentists).

t is worth

mentioning

hat

the

public

interest

rgument

works

both

ways

for

these cases: courts

might

trikedown a

noncompete

or

restricting

doctor's

ability

o

provide

medical services o a

particular egion,

but

conversely

ourts

might phold

a

noncompete

hat

will distribute

octors o other

reas of

thestate. d

78.

Blake,

supra

note

2,

at

651-84.

79.

Lester,

upra

note

72,

at

54-57;

see

also,

e.g.,

Availability

nc. v.

Riley,

336

So.

2d

668,

669-70

(Fla.

Dist.

Ct.

App. 1976)

(upholding

a

noncompete

restricting

n

employee

from

working

within

one-hundred-mile

adius

when the

employer

conducted 85

percent

of its



16/27

2005]

REPAYMENT

AGREEMENTS

1309

are

the

factors hat

will most

often

result

n

unenforceability,80

ut

provisionshatunreasonably estrictn employee'srangeofactivities

may

also

be

invalidated.81

urther

onsiderations,

uch as whether he

employee

was

involuntarily ischarged82

r

whetherthe

employee

provides

a

unique

service

to the

business,83

ay

also factor nto the

reasonableness

alculus.

Questions

arise

over

what

types

of

employer

nterests re

likely

to be

protectable.

Many

commentators

gree

that the two interests

most

n need of

protection

re trade secrets nd customer ists.84

y

providing

ompanies

with rade secret

protection,

he Uniform

rade

Secrets Act helps companies to guard informationhat derives

independent

economic

value,

actual

or

potential,

from not

being

generally

nown

o

.. other

persons

who can obtain

economicvalue

from

ts disclosure

or

use,

and is the

subject

of efforts hat

are

reasonable

under

the circumstances

to maintain

its

secrecy. 85

However,

because

the statute

does

not

fullyprotect

the

employer

from

disclosure,86

urther

protection,

n

the

form of restrictive

covenants,

s needed.

business

within

hatradius

nd when

the

employee

was

otherwise

well able to

support

himself

and

his

family );

owa Glass

Depot,

Inc. v.

Jindrich,

38

N.W.2d

376,

382

(Iowa

1983)

( Proximity

o customers

s

only

one

aspect.

Other

aspects,

ncluding

he nature

of the business

itself,

ccessibility

o

information

eculiar

to the

employer's

business,

nd the nature

of the

occupation

which

s

restrained,

must e

considered

long

withmatters f

basic

fairness. ).

80.

For

a

general

discussion

of

time,

geography,

nd

scope

restrictions,

ee

Blake,

supra

note

2,

at

674-84.

81.

Id.

82.

See,

e.g.,

Ma &

Pa,

Inc. v.

Kelly,

342

N.W.2d

500,

502

(Iowa

1984) (distinguishing

he

discharge

f an

employee

from n

employee

resignation

nd

finding

discharge to

be]

a factor

opposing hegrant f an injunction ).

83.

Compare

Ticor

Title

ns. Co.

v.

Cohen,

173 F.3d

63,

70-72

(2d

Cir.

1999) (applying

New

York

law

to

uphold

a

noncompete

when the

employer

eeking

nforcement

emonstrated

hat

the

employee

had

built

unique

relationships

ith

limited

roup

of

clients

n the real estate

title

insurance

ndustry

nd that

those

clients

had been

developed

at

the

employer's

xpense)

with

Vander

Werf

v. Zunica

Realty

Co.,

208

N.E.2d

74,

77

(111.App.

Ct.

1965) (refusing

njunctive

relief

o an

employer

when

there

was

no

showing y

defendant

hat

the

employer's]

methods

of

doing

business

were

original

r

unique ).

84.

See,

e.g.,

Lester,

upra

note

72,

at 54-55.

85.

Unif.

Trade Secrets

Act

1,

14 U.L.A.

433

(1990).

86.

Whereas

the

Trade Secrets

Act

merelyprovides

tort

remedy

for n

employer

nce

trade secret disclosureoccurs, a restrictive oncompeteideally preventsdisclosurefrom

occurring

n the

first

lace.

Also,

if

charges

re

brought

gainst

n

employee

for

breach of

trade

secret

aw,

the

employer

isksdisclosure

f

the

protected

sset

n court.

Lester,

upra

note

72,

at

53.

For

these

reasons,

noncompetes

fill

gap

whereother

egal

and

extra-legal

mechanisms

all

short.

d. For

a

general

discussion

f the

need

for

noncompetes

n trade

secret

aw,

see id.

at

52-53.



17/27

1310 DUKE

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[Vol.

54:1295

Similarly,

ourts ave been

willing

o

uphold

noncompetes

hat

protectnemployer'snvestmentnprocuringndmaintaininglient

relationships.87

ales-intensive

usinesses,

ike

technology

onsulting

or

insurance

ompanies,

re driven

y

customer

elationships;

uch

businesses ften

spend huge

sums

of

money

to

develop

these

relationships. y

one

account,

costs

of customer

relationship

management

oftware,

ommonly

sed

by

businesses

o track ontact

with

customers nd

analyzepurchasing atterns,

an

range

from

several

housand

ollars or

basic

ystem

o

$50,000

er

alesperson

for

more

sophisticated roducts.88

ecause of this

significant

investmentn developingustomer ata, employers o not want

salespeople

o

depart

with lients hat he

company pent ignificant

money

o

develop.

Otherwise,

ompanies

have little ncentive

o

invest t

the outset.

Accepting

his

rationale,

ourts

have

upheld

covenants

arrowly

rawn o

protect

nvestments

n

customer

ata.89

Despite

courts'

general

willingness

o

protect

employer

investment

n

trade

ecrets nd customer

ists,

more ontroversial

question

s

whether

udges

should

protect mployer

nvestment

n

employee

raining.

Most courts ee investment

n

training

s an

employee xpense, ot an employerost, he udicialprotectionf

which s not

legitimate

oncern.90 small

minority

f

courts

llows

companies

o

protect

nvestments

n

training,

f

the

protection

s

narrowly

onstructed.91he

remainder f thisNote addresses

he

issue of

noncompetes

s an

effective eansof

protectingmployer

87.

The

misappropriation

f

customer ists

generated

for

both

sales of

services,

uch as

accounting

or

consulting

companies,

and

sales of

fungible goods

have been

deemed

as

protectablenterests. ee, e.g.,Fair Assoc, Inc. v. Baskin,530 S.E.2d 878,881 (N.C. Ct.App.

2000)

(finding

hat

behavioral

onsulting

irm

ad a

protectable

nterestn

limiting

he risk f

client

misappropriation y

a

consultant-employee

hen

work

require

d]

that ts Consultants

develop

an

intimate

elationship

ith

ts

clients );

Arnow-Richman,

upra

note

42,

at 1176 n.40

( Cases

which are

particularly

onvincing

o

courts

are those in

which the

product

sold is

fungible

r

where

it is

easy

for the

customerto

mistake

the

sales

person

with the actual

employer. ).

88.

See Erika

Morphy,

The

Real Cost

of

CRM,

NEWSFACTOR

ECHNOLOGY

NEWS

(Oct.

29,

2001)

( [P]er-seat

costs for

high-complexityrojects

that have

1,000

users start t

around

US$50,000

and

slowly

rop

to

about

$15,000

s

the number f users

ncreases

o

5,000. )

at

http://www.newsfactor.com/story.xhtml?story_id=14447on

file

with

he Duke Law

Journal)',

Emma

Nash,

The

High

Cost

ofCRM,

COMPUTERWEEKLY.COM

Aug.

17,

2001)

(describing

he

rising ost of CRM

software)

t

http://www.computerweekly.com/Articlel05058.htm

on

file

with

he

Duke

Law

Journal).

89. See

supra

note 87.

90.

See

infra

art II.A.

91.

See

infra

art II.A.



18/27

2005]

REPAYMENT AGREEMENTS 1311

investment

n

training

nd

questions

whether

epayment greements

provide more suitable lternative.

III. NONCOMPETES VS.

REPAYMENT AGREEMENTS

With

employers

hard-pressed

o

protect

their

investments

n

training,

hey

often ook to

noncompete

agreements

s a means

of

protection.

However,

the area of

noncompete

aw is

in

a constant

state

of

flux;

tates,

ontinually eevaluating

heir

noncompete

aws,

play

a

perennial

game

of

catchup

as

market conditions

revolutionize mployment atterns nd practices.This environment

has

resulted

n

employer

onfusion

n

predicting

whether ovenants

will be

upheld

and court

frustration

t

having

to

constantly

evise

employment

aw doctrine.92

epayment

greements

ffer

less

risky,

and

more

suitable,

method

for

protecting

employer training

investment.

A.

Traditional

oncompetes

re Unsuitable

rotection

gainst

Training

nvestment

oss

The increasingvolume of employee trainingsuggests that

employers

will continue

o use

noncompete

greements

s a

way

to

protect

heir

raining

nvestments.

owever,

courts

have

historically

disfavored

covenants

designed

solely

to

protect

an

employer's

investment

n

training.93

survey

of

105

noncompete

cases did not

even

find he

employer's

nvestment

n

training ignificant

nough

to

warrant

discussion.94

Although

some

contemporary

ourts have

occasionally

held

these

nvestments

o

be

protectable

when the cost

s

92.

See

CAPPELLI,

upra

note

1,

at 1-16.

93.

See,

e.g.,

USAchem,

Inc.

v.

Goldstein,

12

F.2d

163,

167 n.4

(2d

Cir.

1975) ( [T]he

fact

that

a former

mployee

was

trained

by

the

employer

s not a basis

for

granting

n

injunction

enforcing

restrictive

ovenant. );

Kelsey-Hayes

Co.

v.

Maleki,

765

F.

Supp.

402,

407

(E.D.

Mich.

1991),

vacated,

889

F.

Supp.

1583

(E.D.

Mich.

1991) (holding

that

whatever

xpertise

defendant

eveloped

as

a

computer

rogrammer

t

Kelsey-Hayes,

with

he assistance

f on-the-

job

instruction

nd

published

manuals,

has been

his

alone,

historically,

nd would

not fallwithin

the

proscription

f

contracts

rotecting

n

employer's

propriety

r confidential

nformation );

Clark

Paper

&

Mfg.

Co.

v.

Stenacher,

40

N.E.

708,

711-12

(N.Y.

1923) (refusing

o

protect

n

employer's

nvestment

n

the

generaltraining

f a

wrapping apersalesperson);

Kidde Sales

&

Serv.,

Inc.

v.

Peairson,

493 S.W.2d

326,

330

(Tex.

Civ.

App.

1973) (stating

the court's

unwillingness

o

enforce

noncompetes

o

protect

raining

even

ifthe

training

as

complex

nd

extensive ).

94.

Stone,

supra

note

13,

at 751

(citing

Peter J.

Whitmore,

A

Statistical

Analysis of

Noncompetition

lauses

n

Employment

ontracts,

5 J.CORP.

L.

483,

524-25 & n.243

1990)).



19/27

1312

DUKE LAW

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[Vol.

54:1295

significant,95

ourts

enerally

avenot ccorded

nvestment

n

training

the ame protectable tatus rantedo trade ecrets nd customer

lists.96

This has

left cholars o debatewhethernvestment

n

training

should

e a

protectable

nterest.

erhaps

he

most

ecognized

heory

attacking

ovenants

rotecting

mployer

nvestment

n

training

s

Professor

ary

Becker's

human

apital

model.97ecker

begins

with

the

premise

hat

wodistinct

ypes

f

training

xist:

eneral

raining,

which

ncreases n

employee'smarketability

o

many

firms,98

nd

specific

raining,

hich

nhances

n

employee's

alue

only

o the

firm

providinghetraining.99ccordingo Becker'smodel,neither f

95.

See,

e.g.,

Borg-

Warner

Protective

erv.

Corp.

v.

Guardsmark, nc.,

946

F.

Supp.

495,

501

(E.D.

Ky. 1996)

(finding

private security

irm's nvestm

protecting employer investment in training

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