posted on Wednesday, March 29, 2006 4:44 PM
by
Rod Satterwhite
A wafer by any other name . . .
Non-compete agreements generally have to be narrowly tailored to be enforceable. So when an employee of a silicon wafer manufacturer agrees not to go to work for another silicon wafer manufacturer, that’s pretty narrow, right? Nay, not so. Such was the lesson learned by an unlucky St. Louis employer. Pirooz v. MEMC Elec. Materials, Inc., E.D. Mo., No. 4:05MC521, 3/7/06. After terminating its VP of Corporate Technology (not exactly a low-level grunt position), MEMC tried to enforce its non-competition and confidentiality agreements when the former employee went to work for a “competitor.” The problem for the company, though, was that neither the arbitrator nor the reviewing court agreed that the former employee’s new employer was a competitor.
The court described MEMC as a “leading manufacturer and supplier of silicon wafers used to make semiconductors for the computer and electronics industries.” Similarly, the court found that the new employer also made “silicon wafers”—sounds the same, or at least very similar, to me. The former VP of Corporate Technology argued that he had not violated the agreements because his new employer did not have any product that was competitive with or similar to his former employer’s products during the five years prior to his termination. The court agreed, and found that there was nothing inconsistent with the arbitrator’s findings that both companies produce and sell “silicon wafers,” but that the new employer did not sell a product which was competitive with or similar to any product manufactured by the MEMC. The court upheld the arbitrator’s findings that the two employers had different products during the relevant time period, as well as different market segments. And to pour salt in the wounds, it was also slapped with the penalty of paying over $100,000 to cover the former employee’s attorneys’ fees.
So, while you may be sure who your competitors are, this case teaches that you’ve got to spell it out with crystal clarity in a non-compete agreement. Time, geography and scope of job limitations are a must, but broad terms (like “silicon wafer,” I guess) can be fatal if not properly qualified. So, while a “wafer” may be a “wafer” in terms of competition, the goal is to make that clear to the court, lest it begin to opine on the different flavors of “wafers”—chocolate or strawberry?