Given the increasing disfavor of judges and state legislators against the enforceability of non-compete agreements in the broadcasting industry, should prudent broadcast management use them to keep talent from jumping ship to work for a competitor? The answer depends on the broadcaster’s goal. If the goal is to restrict post-contract employment of a local morning personality or a news anchor, a non-compete might seem to be the best option, but the time and expense of enforcement may not be worth it. If the goal is to prevent a local working for a competitor while still under contract, there are other ways to achieve that goal than through use of a non-compete agreement. The historic justification for broadcast non-compete agreements has been the need to protect the investment made by a station in hiring and creating a strong public image for on-air talent.
That justification, however, has given way in the face of the current marketplace. Most on-air talent don’t get the big bucks and billboard exposure, and as a result, the business justification for restricting their ability to work post-contract is unlikely to be persuasive to the courts. The costs of enforcing a non-compete agreement against such talent can far outweigh the benefit, particularly when the broadcaster might have to pay the attorney’s fees and costs of the on-air talent if the broadcaster loses in court. On the other hand, a broadcaster might want to fight to keep a major talent, such as highly-paid anchors and DJs responsible for increased market share, from working for a competitor at the end of his or her contract. Before engaging in a fight to protect against this outcome, ask the following questions:
1. Does your state have a statute precluding the enforceability of a broadcast non-compete?
Eight states have laws on the books that severely restrict the enforceability of a broadcast non-compete agreement — Massachusetts, Maine, Arizona, Illinois, District of Columbia, Washington, Oregon, Connecticut, and New York. California does not ban non-compete agreements in the broadcast industry – it bans them for all industries. In general, statutory bans mean that a broadcast employer starts out with the presumption that a non-compete provision is not reasonable. The statutes vary based upon the facts of how the employment ends. Some statutes fail to protect the employee if he or she is at fault in the termination of the employment (i.e., Washington), whereas others apply only if the termination occurs without fault (i.e., Maine). The bottom line is that enforceability is much more difficult in states with statutory bans on broadcast non-compete agreements. Because some states provide for attorney’s fees, costs and damages (Illinois, Connecticut, New York or Massachusetts), litigation against an ex-employee may be far more costly than the possible economic return.
2. Does your non-compete pass the reasonableness test?
In most states, non-compete agreements will be subject to a reasonableness test which considers whether a) the agreement is separate from a valid, existing employment contract, or alternatively, separately supported by something other than an offer of continued employment in exchange for the employee’s promise not to compete; b) specific as to time and territory which must be reasonable in scope (i.e., six months and a 25 mile geographic area); c) necessary to protect the employer’s legitimate business interests; and, d) neither unduly harsh toward the employee nor injurious to the public.
It is possible to draft non-compete agreements that will meet the reasonableness tests. In applying the reasonableness tests, in reality, courts usually won’t enforce a non-compete when the employee is left with a choice of unemployment or choosing another occupation. If the employee truly had the opportunity to negotiate at the time of entering into the contract and received separate and fair consideration for the employment restriction, then courts may enforce an agreement, concluding that the employee bargained for something that outweighs any inconvenience caused by a non-compete restriction. Given the unpredictability of courts, however, and the state of the law that rests upon case-specific facts, a broadcast employer faces a difficult decision in deciding to enforce a non-compete agreement against a departing employee.
3. Have you considered other contract clauses designed to keep talent from working for a competitor?
As noted above, courts particularly dislike enforcing restrictions on employees after their contract ends. Employers should consider using alternative methods to prevent talent defection.
First, consider long-term contracts that have “first negotiation” rights.
For instance, the contract could state that during the last six months of the contract an employee will not talk to competitor and will give the current employer the first opportunity to reach an agreement. Such “right of first refusal” provisions should be enforceable even under statutory broadcast non-compete bans if they do not go into effect after the termination of employment.
Second, exclusivity provisions in a contract will be enforceable when they restrict an employee’s ability to work for other employers during the employment period.
Third, make it worth the employee’s economic while to stay. If the broadcaster truly pays market rates for services and if that anchor is truly a valued employee, pay the anchor accordingly so that he or she will not be inclined to jump ship.
Fourth, use a “forfeiture for competition” provision in the employment contract. This is a provision that allows employees to gain some benefit, like stock options, if they decide to stay with the station. If the employee goes to work for a competitor the benefit is lost. Such provisions don’t prevent employees from working for competitors, but simply reward employees who choose to stay.
Fifth, use a “green garden” provision that pays an ex-employee for a period of time, but prevents him or her from going to work for a competitor. The enforceability of green garden provisions may rest on whether this provision considers the employment period as continuing or terminated during the green garden period. If the green garden provision treats the employee as still employed, it may be more enforceable than if the period commences at employment termination. In the latter case, a court may view that as a post-employment restriction and invalidate it as such.
One size does fit all. Broadcast employers should be wary of using standard stock and trade non-compete agreements to protect their on-air talent. When renewing an employee’s contract or extending an offer to a new employee, we recommend that you answer the three questions posed above before drafting an agreement. Perhaps the best way to retain talent is to nurture them and provide them with incentives for staying with the station.
–Erwin G. Krasnow, former General Counsel of the National Association of Broadcasters, is the co-chair of the Communications Group at the law firm of Garvey Schubert Barer. He has been described by the Legal Times as the “dean of the communications bar” and by the American Film magazine as “the Superlawyer of Communications.” He can be reached at (202) 298-2161 and [email protected]
–Judith A. Endejan is a communications lawyer in the Seattle office of Garvey Schubert Barer. Over the past 25 years she has represented a variety of media clients, including print and broadcasters, on issues ranging from First Amendment challenges to retransmission consent agreements. She served as General Counsel for Fisher Communications, Inc. in Seattle. She can be reached at 206-816-1351.