Covenants Not-to-Compete

Gregg Skall
Womble Carlyle Sandridge & Rice, LLP

How To Tie Them Down!

In my last article, I discussed covenants-not-to-compete from the employee point of view. But really, that was only half the story. Good broadcasters know that it is wise to invest in and promote good talent who will relate to the community, promote the public service value of the station and cause the community to relate to the station. But, as we all know, that can be expensive.

So, it is not unreasonable that if done successfully, the station will want to and should seek to protect its "personality" investment against another station that might try to "steal" the talent. It made the capital investment and sure, another station might offer a higher salary by allocating the money they did not have to invest in promoting the personality in the first place. In a sense, and all other things being equal, stealing talent from across the street that benefited from heavy promotion and other perks by first station is, in a very real sense, stealing. Station number two didn't have to spend that capital. That's why many broadcasters have traditionally sought to protect themselves with covenants not-to-compete.

As said in the earlier article, such restrictive employment clauses have never been popular in the law. But while principles of equity and public policy generally favor a person's ability to earn a living, the courts have often upheld such restrictions when drawn narrowly and confined only to terms considered by courts to be the most reasonable.

Therefore, if management believes it has an employee situation, or will have such a situation with a new hire, it is critical for it to be familiar with the specific state law involved before making decisions about how to protect an investment in personalities and other employees who are critical to the station's competitive position in the market. Further, it is general law across all states that covenants not-to-compete need to be limited in scope to a reasonable distance and term. Absent specific state law and other considerations, here are some general principles that boost the prospects for enforceability:

• Limiting the area to places where the station's signal is actually heard and local advertising sales are actually made. Such a geographical area might be the 60 dBu radio contour.
• Restricting the length of time to as short a period as possible, such as one year in the case of management employees, ninety to 180 days for personalities, or a period that might devalue the investment of their names in the community.
• Supporting the covenant not-to-compete with separate consideration either as 1) an inducement by the employee to obtain employment from the station at the time of initial hiring, or 2) with separate monetary consideration apart from salary and bonuses.
• Replacing the non-compete with a compensated consulting period following termination of the employment for a reasonable period of time, with or without actual consulting taking place. It cannot be overemphasized that this is a very difficult area and should be undertaken only with the advice and guidance of a skilled professional knowledgeable in this area of employment law.

This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.