Discovery Requests Can Play Important Role In Determining Reasonableness of Non-Compete (SNS One v. Hage)

Many clients are under the impression that a non-compete agreement can be analyzed strictly by looking at the four corners of the document.

While in some cases this may be true, the vast majority of non-compete issues turn on specific facts that fall outside the terms of the agreement. When a non-compete dispute ripens into a lawsuit, discovery plays a big role in determining whether a covenant is reasonable or overbroad. Counsel for an employee always will need to determine how to frame discovery requests to try to lock in an employer. Conversely, an employer must carefully consider how it responds to a discovery request and assess the implications of its answer.

A recent case out of Maryland illustrates the importance discovery plays in non-compete disputes. In SNS One v. Hage, the employee's non-compete agreement prohibited him from being employed by a competitor for a one-year period after termination. The employee's attorney requested of the employer a list of who those competitors were. The employer repeatedly refused to do so, and on a motion to compel, the court even warned the employer that its refusal to respond may lead to an inference that the covenant was overbroad.

And that's just what the court found at summary judgment. In so holding, the court stated an important maxim for attorneys to remember: "An employee needs firm, solid guidance on what he can and cannot do if he leaves his employer." In that case, the employer provided no such guidance and never really tried.

At a bare minimum, the employer should have provided a preliminary, good faith list of competitors that it considered off-limits. Had it done so, the court might have concluded that the agreement was reasonable. Employers would be well-advised to keep a list of actual or potential competitors so that responding to this type of discovery does not cause a fire drill or result in an incomplete list. The same is true of particular customers that an employer contends falls within a non-solicitation clause.

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Court: United States District Court for the District of Maryland
Opinion Date: 7/11/11
Cite: SNS One, Inc. v. Hage, 2011 U.S. Dist. LEXIS 74718 (D. Md. July 11, 2011)
Favors: Employee
Law: Maryland