A recent case decided by the Western Section of the Tennessee Court of Appeals illustrates the difficulty in enforcing non-compete agreements even where an employer is found to have a properly supported protectable business interest in procuring the non-compete agreements. See Columbus Medical Services, LLC v. Thomas, 2009 WL 2462428 (Tenn. Ct. App. August 13, 2009). opinion.pdf

The case involved a staffing company (Columbus) whose employees (speech and occupational therapists) were assigned to work at a Tennessee state residential care facility (Arlington) for severely disabled adults under a contract with the state of Tennessee. After Columbus lost its contract with the State to a competing company (Liberty), Columbus’s former employees, i.e. the therapists, were hired by Liberty to continue working at Arlington.

Although the court of appeals held that Columbus established that it had a legitimate business interest in protecting itself from “opportunistic disintermediation” by its customer or by a competing employment agency such as Liberty, the court of appeals refused to enforce the non-compete agreements against the therapists.

(As an aside, the court explained that the concept of “opportunistic disintermediation” is the improper elimination of the staffing agency as the “middle man” or the appropriation of the staffing agency’s services without proper compensation.)

The court of appeals first refused to enforce the non-compete agreements on the basis that the hardship to the therapists weighed heavily against enforcement of the non-compete agreements. Notably, Columbus did not offer the therapists the opportunity to work at another facilty after it lost its contract with the State. Also, any employment opportunities that did exist paid substantially less money.

Additionally, the court of appeals found that enforcement of the non-compete agreements would result in loss of continuity of care to the “fragile” and “vulnerable” residents of the Arlington facility, as well as a loss to the State of the value of highly specialized training that it paid for on behalf of the therapists.

Thus, based on the hardship to the therapists and the harm to the public and the State, the court of appeals concluded that the non-compete agreements were not enforceable under Tennessee law.