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A Case in Point: When and How to Use Non-Compete Agreements for Bank Executives

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Lane Powell Shareholder Susan K. Eggum authored an article in the Spring 2014 issue of Oregon Bankers Association’s Banking Matters magazine titled “A Case in Point: When and How to Use Non-Compete Agreements for Bank Executives.” In the article, Eggum discusses how a properly scoped non-compete agreement may protect the interests of consumer and commercial banks from encroachment by departing executives and key managers. She cited a recent Capital One Financial Corporation lawsuit against its former president and vice president for conduct in violation of their agreements. Capital One’s non-compete agreements acknowledged that these executives received confidential business information concerning legitimate business interests. The agreements with Capital One also outlined what banking activities would be permissible following the executives’ separation from employment, and also defined what specific “Competitive Business” of Capital One the non-compete was to protect. This included conduct consisting of consumer and commercial banking business operations in New York, New Jersey and Connecticut.

Two years into the five-year non-competition agreement, the former Capital One executives formed their own bank in Florida. However, certain portions of each portfolio were secured by property or equipment located in New York, New Jersey and Connecticut. Also, a portion of the new bank’s deposits were from customers with addresses within the three-state area. Given the clear and specific definitions of the business lines Capital One sought to protect in their non-competition agreement, the federal court for the District of Virginia agreed that Capital One could fully enforce its non-competition agreements against the two former executives. The case illustrates Eggum’s point concerning the importance of having a specifically defined scope of prohibited activity where the knowledge of proprietary information of the former employer would confer an unfair advantage.

While many jurisdictions tend to disfavor non-competition agreements, where the agreement is narrowly and specifically constructed against a well-compensated employee who had access to, and knowledge of, protected business information, the non-compete is very likely to be enforced.

Read the article (PDF).