The COVID-19 pandemic has had an unprecedented impact on U.S. businesses of all types and sizes. Between March and June of 2020, more than 40 million Americans filed for unemployment benefits, many after being laid off from their jobs as a result of COVID-related lockdowns. Now, as companies across the country begin to reopen and scale their operations back up, they are rehiring many of those laid-off workers as quickly as possible. In doing so, they should take the time to ensure that the terms of their pre-existing employment agreements, including in particular confidentiality, non-compete, and intellectual property assignment provisions, remain in place and enforceable.
A recent decision by the United States Court of Appeals for the First Circuit demonstrates the need for such vigilance. That court held in Russomano v. Novo Nordisk Inc., No. 20-1173 (1st Cir. June 2, 2020), that a three-day gap between an employee’s being laid off from one position with Novo Nordisk and then being rehired for a different position broke the chain of employment for purposes of enforcing a non-compete agreement. Prior to the layoff at issue, Russomano was bound by a confidentiality and non-compete agreement that prohibited him from working for a competitor of Novo Nordisk for a period of twelve months following the termination of his employment for any reason. The company eliminated his position effective August 3, 2018 but rehired him for a different position effective August 6, 2018. Critically, Novo Nordisk did not require Russomano to sign a new confidentiality and non-compete agreement upon accepting his new position. More than twelve months later, in January 2020, Russomano resigned from Novo Nordisk and took a similar position with a competing company. Novo Nordisk sought a temporary restraining order and preliminary injunction to enforce the confidentiality and non-compete agreement, arguing that Russomano’s August 2018 transition should not be considered a true termination because he was quickly rehired by the company. Both the lower court and the First Circuit rejected that argument, finding that the language of the letters eliminating Russomano’s prior position and rehiring for his new job were plain and unambiguous.
The outcomes of similar cases involving the enforceability of employment-related agreements may vary from state to state, and will depend on the particular facts and circumstances of each case. For example, critical facts may include whether the employee in question was laid off or merely furloughed, and whether or not the employee returns to the same position. As Russomano makes clear, however, companies should not merely assume that a rehired or recalled employee will automatically be subject to the same covenants as before. Significantly for many of our clients, this applies not just to confidentiality and non-compete agreements, but also to agreements requiring the assignment of rights to inventions or other intellectual property. Accordingly, we are recommending that our clients require all employees that are rehired after layoffs or brought back from furloughs re-sign or otherwise reaffirm the applicability of all such prior employment obligations as a condition of their rejoining the company.
Raphael Bellum – Advocates for Innovation – Advisors on Invention℠
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