Leaving a job with a non-compete? Got any savings for the litigation expenses?

More news on non-compete agreements. This time out of Milwaukee:

A bitter fight between investment firm Robert W. Baird & Co. Inc. and a rival company started by two of its former portfolio managers has been resolved, both firms announced Friday.

Baird and Red Granite Advisors LLC, a company that Joel D. Vrabel and David W. Bowman formed after they left Baird, said they had resolved their differences and that lawsuits pending in county circuit and federal courts would be dismissed.

Baird did not have much luck in court:

Shortly after the first lawsuit was filed, Circuit Judge Patricia D. McMahon denied Baird's request for a temporary restraining order stopping Red Granite from doing business while the litigation was pending.

At a pretrial hearing in November, McMahon dealt Baird another blow, rejecting its request that Red Granite return documents. There wasn't sufficient evidence that the firm's founders took them, McMahon said.

I found another article and this factoid seeming highly interesting:

Vrabel, Bowman and Bosworth left Baird Investment Management, a division of Milwaukee-based Baird, at the end of April 2006 to form Red Granite, Milwaukee. Eight Baird employees also resigned and joined Red Granite. Red Granite, in Milwaukee, now has 14 employees.

I do not practice law in Wisconsin. I have no idea what Wisconsin's standards are for non-competition agreements or preliminary injunctions. I cannot believe that Wisconsin is any more conservative on non-competition agreements than Indiana. So my following comments are purely speculative about Wisconsin:

1. Baird must have had a pretty poor non-competition agreement.
2. Baird must not have had very much in the way of evidence supporting its trade secrets claims.

Red Granite started off with ten Baird employees. They apparently compete in the same trade and in the same geographic location.

In Indiana, a non-competition agreement must be ancillary to an employment contract, it must be limited to a reasonable geographic area or client list, and it must be for a reasonable time. Generally, the non-compete requires no contact of the former employer's clients, no direct competition in the same area of business.

Recently, Dow Agrosciences lost an appeal on a preliminary injunction over a non-compete agreement. The opinion is here. I think that the Baird case and the Dow cases are probably more alike than not. Dow's non-compete agreement lacked the proper restrictions on area and/or clients. Dow's trade secrets argument failed to saved its flawed non-competition agreement. Yes, I think the similarities are there.

I suspect the principals in Red Granite consulted a lawyer before jumping ship. Anyone who has a non-competition agreement who does not consult counsel when they leave that employer to form their own company needs their head examined.

I do not see any other way of putting the matter. Starting a competitive company is a red flag for the former employer. Litigation will follow. So long as the employer avoids the mistakes of Dow and Baird, they will get a preliminary injunction. Getting a preliminary injunction means that the employee's company is stopped from the work that is competitive. Generally speaking, the work infringing on the non-competition agreement is the lucrative, profitable trade. Stopping the profit makes the future of the new company appear bleak. It may also impinge on a person's ability to pay for things like food,clothing and shelter.

Therefore, get legal counsel before challenging a non-competition agreement. Failing to do so may involve more costs than you will enjoy.