Concerns about retaliation under Title VII do not typically intersect with questions about noncompete enforcement. However, as this blog illustrates, employers should be mindful of potential retaliation claims when responding to an employee’s request to be released from a noncompete or to have the scope or geographic reach of a noncompete reduced.
What Is Retaliation?
In general, an employee may assert a prima facie case of retaliation under Title VII if he/she shows:
1) that he or she engaged in protected employee activity, such as asserting or filing a claim of discrimination;
2) adverse action by the employer either after or contemporaneously with the protected activity; and
3) a causal connection between the employee’s protected activity and the employer’s adverse action.
Typically, the adverse action by the employer supporting a retaliation claim is a termination, demotion, or other action that impacts the complaining employee’s compensation. However, a recent decision suggests that if a company refuses to waive a noncompete because the employee engaged in protected activity, the employer’s conduct could constitute adverse action sufficient to support a retaliation claim.
A Sales Manager Is Allegedly Fired Because of His Age
David Swanson v. Salvin Dental Specialties, Inc., No. 5:23-cv-00247, 2023 WL 3097644 (E.D. Pa. April 26, 2023), involved a 62-year-old male sales manager at a dental equipment manufacturer.
According to his allegations, he managed his team successfully and received positive feedback. A few days after he was awarded a raise, he was abruptly fired. The next day he was replaced by a woman who was approximately 35 years old. The head of the company had referred to the sales manager as a “dinosaur,” and there was allegedly a pattern of the company firing older workers and replacing them with younger employees.
The Company Refuses To Waive His Noncompete
The sales manager had signed a restrictive covenant agreement which included a noncompete. After his termination, the company expressed a willingness to waive his covenants.
The sales manager subsequently communicated to the company that he intended to file a charge of discrimination. The company then refused to release him from his noncompete. According to the sales manager, the company waived noncompetes for other departing employees who did not file or threaten to file discrimination charges. Not surprisingly, the sales manager’s noncompete impaired his ability to find another job.
The Company’s Change in Its Position Supports a Retaliation Claim
Mr. Swanson asserted claims for age discrimination in violation of the ADEA, for retaliation, and other claims. The employer moved to dismiss the retaliation claim, but the court concluded that he had sufficiently stated a claim for retaliation under Title VII.
The court focused on the following facts:
1) he engaged in protected activity when he notified the company he would be filing a charge of discrimination with the EEOC;
2) prior to that communication, the company had expressed a willingness to waive his noncompete; and;
3) after he communicated his intention to file a charge of discrimination, the company refused to release him from the noncompete, even though it had done so for other employees who did not threaten to file charges.
The Court found these facts sufficient to show that the company had taken an adverse employment action after he engaged in protected activity. It also found there was sufficient causal connection between the protected activity and the adverse action.
Avoiding Retaliation Claims
So, what are the lessons for employers to learn from this case? Employers are frequently approached by former employees – particularly those who are terminated without cause – about waiving or modifying post-termination noncompetes.
A company should consider whether the former employee is a litigation threat before it agrees to waive a noncompete. If the company agrees to waive the noncompete and then is sued by the former employee, the company may be sued for retaliation if it flip-flops and then tries to enforce the noncompete. To avoid a lawsuit, the company can agree to waive a noncompete in exchange for having the former employee sign a release of claims.
As always, please let us know if we can help.
Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.