Noncompetes and the PA Energy Biz

My argument about the foolishness of PA's willingness to enforce noncompetition agreements for employees that want to switch jobs -- read it here -- hit at a great time.

The Pittsburgh Business Times recently reported that local coal and gas giant CONSOL is suing a former employee for breach of a noncompete.  The employee in question wants to work for another energy firm.

From the PBT:

When Deemer [a senior geologist working on the company’s Marcellus Shale operations] left CONSOL on July 16 and the company learned she was headed for a position with Talisman Energy USA Inc., another Marcellus Shale exploration and production firm, her former employer sued her for breach of contract and Talisman for aiding in the breach, according to court documents.

In the case, CONSOL claimed that, in her capacity as a senior geologist, Deemer knew where the company had natural gas assets, the quality of those assets, what technologies CONSOL was planning to use to develop them and when, and how much profit they would yield. Deemer signed the noncompete agreement as part of her participation in CONSOL’s equity incentive plan.

Things like "where the company had natural gas assets, the quality of those assets, what technologies CONSOL was planning to use to develop them and when, and how much profit they would yield" are, quite plausibly, trade secrets that belong to CONSOL.  If CONSOL could prove that the geologist had disclosed them or was likely to disclose them to her new employer, then CONSOL is likely entitled to a legal remedy -- maybe even an injunction of some sort.

But because CONSOL can stand on top of a noncompete, none of that is necessary.

Oh, and the PBT has an additional note pointing out how noncompetes may backfire in an industry that asks even indepedent contractors to sign them -- as the natural gas business is doing.

On this Labor Day, celebrate the freedom to work where you choose -- not just where your old boss says you can.


12 Responses to "Noncompetes and the PA Energy Biz"

The Wiz said... 9/08/2010 6:54 PM

I have to weigh in on the side of Consol here. They are at risk of losing huge amounts of information that cost millions of dollars to develop. And if she were allowed to work for a direct competitor, she could divulge the info in way that could never be proven in a court of law. She doesn't even have to divulge said info but just use her knowledge gained at Consol in her own work capacity, giving Talisman an unfair competitive advantage.

She signed the non-compete of her own free will. She could have taken a job elsewhere instead of Consol if she didn't want to sign a non-compete. And it seems that the non-compete was for her "perticipation in Consol's equity incentive program" and not a condition of employment. She could have taken another job that wasn't with a direct competitor of Consol.

Mike Madison said... 9/09/2010 4:53 PM

If there is any real risk to Consol regarding disclosure of confidential information, then Consol should get protection via trade secret law.

If Consol can't show any real risk via trade secret law, then my view of the right public policy (which is different than current PA law) is that this person should be able to find employment wherever her skill set will take her.

The Wiz said... 9/09/2010 11:44 PM

You stated in your original post that the information "quite plausibly" protected by trade secrets law. So it is not settled law but an opinion, and while a strongly held position, it would appear is not given with great certainty.

Then you state "If CONSOL could prove that the geologist had disclosed them or was likely to disclose them to her new employer," CONSOL would "likely" be entitled to a legal remedy, again opening the door to considerable uncertainty. Additionally, it is entirely reasonable that she could conduct her work in such a way that utilizes her knowledge gained at CONSOL without any "disclosure" at all. Would trade secret laws prevent such an advantage when no disclosure is given? And how can one prove whether or not any disclosure was given if it is given orally?

Seems a tremendous amount of highly valued knowledge is at stake with little assured protection without a non-compete.

Mike Madison said... 9/10/2010 8:39 AM

That is exactly my point. If an employer cannot prove that it has been injured or is likely to be injured -- via actual or truly threatened disclosure of trade secrets -- then the employer has no business stopping someone from taking a job.

When I get a chance (no time in the immediate future), I will post separately on the odd psychology of a region that nominally takes pride in its support for its hard-working population -- but when the rubber hits the road signs up for Big Business over the interests of individual workers.

The Wiz said... 9/10/2010 12:49 PM

And my point is that it is nearly impossible to prove injury in these cases. And lack of proof doesn't mean innocence,,, re OJ Simpson.

The employer using a non-compete doesn't stop one from getting a job but stops them from being employed by a company in direct competition. The employee in this case had the option of using her knowledge and training with a firm that is not in direct competition as an environmental firm, law, education, a state or federal agency or a multitude of other positions.

I look forward to your post on labor psychology in the Pittsburgh area.

MH said... 9/10/2010 1:57 PM

Unless the independent contractor could plausibly work in something besides the energy field (say an accountant), it would seem to me that requiring a noncompete is as good as admitting that you’ve falsely defined someone as a non-employee. I realize that there are many industries where the “contractor ruse” is so common that any single employee probably couldn’t avoid it even if he were to try to work at a salary low enough to factor the benefits and lower SS taxes. However, I don’t see why an employer should be able to have his cake and eat it.

Mike Madison said... 9/11/2010 10:45 AM

@Wiz -- The difficulty of proof may be due to problems with collecting evidence, or it may be due to the fact that the evidence doesn't exist. I used to litigate trade secrets cases. If the injury is there, good lawyers will be able to show it. CA has no shortage of lawsuits alleging and proving misappropriation of TS.

In many cases, a noncompete does have the effect of keeping someone from finding work in their chosen field. I don't know about career options for this particular individual, but I wouldn't be quick to conclude that she has an abundant menu.

ChrisP said... 9/12/2010 10:23 AM

Consider Bill Guerin, former penguins winger. He could coach junior/college, become a broadcaster, work as an administrstor for some league. But we should definitely not allow him to go to the Flyers, even though the pens didnt see fit to make his employment satisfactory enough to. stay.....

n'at said... 9/15/2010 4:56 PM

Non-compete in this instance is specious. Consol doesn't operate within 100 miles of Tailman's holdings - that we know of.

Consol may have significant assets, but I would happen to gather that much of it is from fee simple agreements obtained from 150 years of coal mining, and not from deep natural gas explorations. Additionally, Consol most likely couldn't assert a "trade secrets" position because historically they're a shallow deposit coal and natural gas company. They most likely have no extensive background in the exploration and extraction of resources from deep deposits.

Check their website. They're throwing money at this venture and scrambling to obtain competent people.

The Wiz said... 9/16/2010 10:12 AM

@ChrisP; Different situation; Mr Guerin was given his outright release and became a free agent. The geologist was not. Plus sports has been granted an exception from anti-trust laws because of its "special status."

@n'at; Good point. I am not familiar with all the nuances of Consol's gas project. It may be difficult for them to claim trade secrets on a new project. Depends on how much R & D that they have developed so far. Also leads to an interesting contradiction; they are hiring outside expertise that was developed elsewhere but will not allow their own to leave the nest.

And @ Mike Madison; Quote "CA has no shortage of lawsuits alleging and proving misappropriation of TS. That's part of the problem. These cases may be tied up in courts for years and may never be resolved. Companies will have spend lots in mullah in litigation and will have to deal with lots of uncertainty arising from the litigation and potential loss of intellectual property. The only ones that profit from such a system are the lawyers.

Mike Madison said... 9/16/2010 11:07 AM

@Wiz-- On litigation: Sometimes yes, suits are expensive and take time, but often no. Trade secret cases are often made or broken on preliminary injunctions, so that the whole thing is over in a month or two, or less. Moreover, the fact that a company has to make a strategic judgment about the cost of suit (is this alleged trade secret and this former employee really worth it?) keeps some spurious claims out of the courts. On balance, I think that it's a pretty efficient system.

Mike Madison said... 9/16/2010 11:14 AM

One more thing:

Some sports have exemptions from some antitrust laws, but their exemption from antitrust laws (particularly baseball's exemption) actually *perpetuated* the system of enforceable noncompetes (in baseball: the reserve clause) far longer than it otherwise would have survived. Read the opinions of the Supreme Court in the Curt Flood case: Curt Flood fought for free agency all the way to the highest court, and essentially sacrificed his career in doing so. He lost -- free agency lost -- *because of the antitrust exemption.* The players won free agency later, through collective bargaining.

Setting aside that historical correction, the baseball case actually makes my point stronger:

Professional athletes don't have to suffer with noncompetes. (And professional teams and professional sports haven't suffered, by the way; if anything, the level of competition has increased, salaries have increased, and team owners have gotten wealthier.)

Why do the rest of us mortals?

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Updated September 2020:

Pittsblog 2.0 was written by Mike Madison, a law professor at the University of Pittsburgh, from January 2004 through December 2011.

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