Non-Compete Agreement Enforced Where Former Employee was Provided Specialized Training by his Former Employer

In a 2022 case, the Court of Appeals of Tennessee relied heavily on the specialized training the former employer (“Employer”) gave its former employee (“Employee”) in upholding a trial court’s decision that the non-competition agreement signed by the Employee was enforceable.

Unlike many cases involving former employers trying to enforce non-compete agreements, in this case, the Employer made no argument that the Employee had become the “face of the company” because customers closely associated its business with the Employee.

Instead, the Employer relied successfully on the specialized training it provided to the Employee, along with the Employee’s access to trade secrets and proprietary information during his employment.

Many covenant not to compete cases involve facts that make them close calls as to whether the agreements will be enforced. The case that is the subject of this post is worth noting because it exemplifies a factual scenario in which, in my opinion, a Tennessee court would always enforce a non-competition agreement if it followed the law.

Here are the key facts of the case:

• Employer was a staffing company that worked exclusively to provide healthcare information technology (“HIT”) personnel to hospital systems

• Before beginning work for the Employer, Employee had no experience or training in the industry served by Employer

• In 2012, Employee began employment with Employer as a recruiter

• At the time he began employment, Employee signed a “Confidentiality, Non-Competition and Non-Solicitation Agreement” with Employer

• The agreement contained typical terms, including a prohibition on working for a competing business for one year after leaving employment

• During seven years of employment, Employee advanced in responsibilities and became highly valuable

• Employer provided substantial training, including:

  1. A week of classroom training on how to recruit HIT personnel

  2. A twelve-to-fourteen week class at Belmont University regarding the healthcare industry

  3. A seminar in Chicago on leadership

  4. What the court described as “countless” lessons and mentoring from high-level executives at Employer

  5. A variety of other HIT training

• During employment, Employee had access to a wide range of Employer’s trade secrets and confidential information, including: client lists, financial information, prospective client data, budgets and forecasts, compensation structures, and billing rates for all personnel placed by Employer

• Employee also became an expert on unique software utilized by Employer

• In 2019, Employee went to work for a direct competitor of Employer. Employer sued to enforce the non-compete agreement. The trial court upheld it, and the Court of Appeals affirmed.

On appeal, Employee argued that Employer did not have a legitimate business interest that could be protected by a non-compete agreement.

Under Tennessee law, a former employer cannot enforce a covenant not to compete to prevent a former employee from engaging in ordinary competition. A former employer must show “special facts over and above ordinary competition” such that the former employee and his or her new employer would have an “unfair advantage.”

In deciding whether a former employee has an unfair advantage, a Tennessee court considers three factors:

1. The amount of specialized training provided by the employer

2. The employee’s access to trade secrets or other confidential information

3. Whether the employee’s repeated contact with customers made him or her the face of the employer

Employee argued that the training he received was generalized rather than specialized. He also argued that whether he had access to trade secrets and confidential information was irrelevant because there was no proof that he took any such information with him when his employment ended.

The Court of Appeals rejected both arguments, as it should have. The training provided was not generalized sales or leadership training, but highly specialized. Furthermore, as the Court noted, the determinative focus is whether a former employee had access to trade secrets or confidential information, not whether he or she actually took them.

Tennessee lawyers handling non-compete cases, as well as employees facing them, can look to this case as a solid example of a factual scenario under which a former employee will not be able to escape the enforceability of a non-competition agreement.