“Transfer” Following Job Elimination Triggered Non-Compete Countdown

By Fiona W. Ong - Shawe Rosenthal LLP

June 30, 2020

A recent case warns employers that there may be non-compete implications when employees are transferred to a new job after a position elimination – an issue of particular relevance in the current economic climate.

In Russomano v. Novo Nordisk, Inc., an employee had a non-compete agreement that prohibited him from working for a competitor for 12 months following his termination. He was notified that his position was being eliminated and he would be terminated on Friday, August 3, 2018, but he was invited to apply for open positions within the company. He applied for and was selected for a new position, and the company sent him a letter confirming his “transfer,” with the new position beginning on Monday, August 6, 2018 – three days after the previously designated separation date. He did not sign a new non-compete agreement. In 2020, the employee resigned and took a position with a competitor – which his former employer claimed to be a violation of his non-compete.

Rejecting the former employer’s argument that the employee had been continuously employed and that he had simply been transferred to a new role, the U.S. Court of Appeals for the 1st Circuit held that the letter notifying him of his job elimination was unambiguous in stating that his position ended on August 3, and that the offer letter for the new position was equally unambiguous that it started on August 6. Thus, his employment terminated on August 3, triggering the one-year non-compete period, which expired in August 2019, well before he began working for the competitor in 2020.

This case offers several lessons for employers with regard to non-compete agreements and layoffs. If an employee is selected for layoff but invited to apply for other positions, it is important to make clear that there is no termination of employment if the employee is selected for another position. In addition, it is wise to have employees execute a new non-compete agreement each time they change job positions.