Former Executives Settle Non-Compete Dispute for $20 Million

Two former senior executives at one of the nation's largest banks recently agreed to pay their former employer $20 million to settle the claims brought against them for allegedly violating their non-compete agreements.

The senior executives left the giant financial institution in 2007. However, both executives had signed a non-compete agreement that prohibited them from competing with their prior employer in New York, New Jersey and Connecticut until 2012.

After departing their positions, both executives began working at another bank - one as CFO and the other as Vice Chairman and Chief Lending Officer. Initially, the new employer only had branches in Florida so the non-compete agreements appeared to be sound; until, of course, the new employer agreed to purchase another bank located in New York. The acquisition of this new bank put the new employer in direct competition with their prior employer in New York - an area restricted by the non-compete agreements.

In addition to the $20 million payment, the settlement also restricts the second bank from opening any bank branches in the tri-state area until January 2013. It also requires the newly acquired bank to operate as a separate entity for 6 months. The execs are also prohibited from having any role in the New York bank until the 6 months are up.

"Non-competes" and other restrictive covenants in employment contracts have become common for executives, engineers, and sales and marketing professionals. Businesses want to protect their confidential information, including client lists and intellectual property. Non-compete agreements allow protection that is limited in time and scope. In this case, the non-compete agreements restricted competition in three states for a period of five years.

The non-compete agreements were upheld in this case. It is essential, however, that any restrictive employment agreements are drafted appropriately and all the legal requirements are met. Failing to appropriately draft these clauses can result in the agreement being legally unenforceable.

Source: The Washington Post, "BankUnited executive pay $20M to Capital One," Danielle Douglas," July 19, 2012

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