Roy Smith, Auctioneer has asked Aaron Davis to help him with his every-Friday produce auction in South Carolina.
Roy is the regular auctioneer for this three hour event, but during the spring and fall, his farming operation requires he find a replacement for some Friday auctions.
Aaron graduated from auction school four years ago, and has agreed to be the auctioneer when Roy is unavailable, and work the ring otherwise. Roy has included in their agreement a non-compete clause.
This non-compete provision basically says that Aaron cannot serve as the primary auctioneer for this produce auction absent Roy, and also that Aaron cannot start a produce auction of his own, nor work any other produce auction within 500 miles upon termination or resignation from Roy’s produce auction for a period of 18 months.
Today, we discuss two issues regarding Roy’s non-compete clause:
Basic non-compete clauses in regard to employment contrasted with independent contractor status.
What about Aaron interfering Roy’s relationship with the produce auction? We look at “tortious interference.”
In regard to basic non-compete clauses, the most material issue in our analysis is whether or not Aaron’s agreement with Roy is an independent contractor agreement or an employee agreement. Here’s the highlights of this distinction:
If Aaron has been hired (contracted) as an independent contractor, it’s quite likely any non-compete provision is unenforceable.
If Aaron has been hired as an employee, then this non-compete clause may or may not be enforceable and will depend on the specifics of such agreement.
The essence of an independent contractor status (outside of the special treatment of real estate licensees) is that the person is independent of the so-called hiring party and works to benefit themselves while fulfilling the requests of the the other party.
On the contrary, the essence of employment is the employee is part of (and acts for the benefit of) the employer — in other words loyal to the employer. The employee is employed under certain conditions set out by the employer, as agreed to by the employee.
As such, an independent contractor inherently competes if he desires; he’s independent of restrictions about not competing. Employees on the other hand might be held to a non-compete clause, but it’s likely difficult to enforce by the employer.
The major issues in enforcing a non-compete clause in an employment agreement include if some sort of compensation was granted in exchange for the clause, and if the clause itself is reasonable.
Compensation might be in the form of actual money and/or benefits (higher salary, stock options, car, club membership) and would be contrasted with other like employees to see if similar benefits were afforded those employees with the right to compete.
Reasonableness addresses several issues, including evaluating the restriction itself. For example, is the restriction overly broad geographically (all across the United States?) Does it harm the local economy or local consumers? Is it for an extended period of time (years?)
Our other issue is with the lack of a non-compete clause or the unenforceable of such, an employer or contractor might suggest tortious interference which is a claim for damages against someone who has wrongfully interfered with the claimant’s contractual or business relationship.
For example, did Aaron approach the produce auction owner and suggest or imply that he would be a better auctioneer than Roy? Or, did Aaron take any action to jeopardize Roy’s job performance (even the perception thereof) thus making his own appear better?
A valid claim of tortious interference would typically follow the flow of:
A valid contractual agreement between the claimant and a third party
The defendant having knowledge of this arrangement
The defendant improperly, willfully and intentionally interferes with the contract
The claimant suffers damage
Tortious interference is a difficult claim to prove, and in addition to the above must contain clear motive on the part of the defendant. Lacking motive, such claims are almost always dismissed.
If you are an auctioneer and you wish to keep your staff from competing — the first steps are to employ them and compensate them for a [reasonable] non-compete stipulation; otherwise (and despite those aforementioned efforts,) a claim desiring compensatory damages for competing against you will be very difficult to substantiate.
Mike Brandly, Auctioneer, CAI, AARE has been an auctioneer and certified appraiser for over 30 years. His company’s auctions are located at: Mike Brandly, Auctioneer, RES Auction Services and Goodwill Columbus Car Auction. He serves as Distinguished Faculty at Hondros College of Business, Executive Director of The Ohio Auction School and Faculty at the Certified Auctioneers Institute held at Indiana University.
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