The Noncompete Across Two States

Question 55: The Noncompete Across Two States

Your role

Prepare a neutral choice-of-law analysis for Arcadian Signal Corp. and its former executive, Elise Rowe. Arcadian seeks to stop Elise from joining a competitor. The employment agreement chooses the law of one fictional state, while Elise lived and principally worked in another whose law would materially change the result.

Governing law

Assume the following conflicts rules of the forum, the fictional State of Bracken, apply:

1. A contractual choice of law is enforced when the chosen state has a substantial relationship to the parties or transaction, unless applying it would violate a fundamental policy of a state that has a materially greater interest and whose law would govern absent the choice.

2. Absent an effective choice for an employment covenant, relevant contacts include the employee's principal place of work, residence, location of customers and injury, place of negotiation and signing, employer headquarters, and where confidential information is maintained.

3. A state has a materially greater interest in regulating restraints on a resident who principally performs work there when the restraint determines whether the resident may continue working there.

4. A statute expressly declaring employee noncompetition restraints void and nonwaivable states a fundamental policy. Ordinary differences in reasonableness standards do not by themselves establish fundamental policy.

5. Choice of law may be issue-specific. A court may apply one state's law to a noncompetition restraint and another to confidentiality or trade-secret duties when the policies and contacts differ.

6. A contractual forum clause does not by itself decide governing law. The forum applies these conflicts rules.

7. The court may not avoid the conflicts analysis by applying its preferred policy or by assuming that contract choice always controls.

State laws

Arcadia law: A 12-month noncompetition covenant is enforceable to the extent reasonably limited by geography, customers, and role. Courts may narrow an overbroad covenant. Customer nonsolicitation and confidentiality duties are enforceable when reasonable.

Bracken law: Employee noncompetition covenants are void and nonwaivable except in a genuine sale of at least 10 percent of a business for separate consideration. Courts may enforce a six-month nonsolicitation covenant limited to customers the employee personally served and may enforce confidentiality and trade-secret duties. Bracken's statute declares its noncompete ban a fundamental policy protecting residents principally working in Bracken.

Facts

Arcadian Signal is incorporated and headquartered in Arcadia. Its secure design repository and executive team are in Arcadia. Elise worked for Arcadian for five years. She lived in Bracken and worked from her Bracken home approximately 70 percent of the time. She spent approximately 30 percent of her time at Arcadian headquarters and customer sites in both states.

Elise negotiated and signed her agreement during a three-day meeting at Arcadian headquarters. The agreement selects Arcadia law and an Arcadia forum. For this assignment, assume the Bracken court is properly hearing the dispute and neither party seeks transfer or enforcement of the forum clause. The agreement bars Elise for 12 months from working for any competing signal-security company anywhere in either state and from soliciting any Arcadian customer. It separately requires protection of confidential information.

Elise owned 1.5 percent in employee equity, which Arcadian repurchased at fair market value when she resigned. The agreement did not characterize the employment covenant as part of a business sale, and no separate sale consideration was paid.

Elise plans to join Beacon Cipher, a competitor, from her Bracken home. Her role will cover both states. She intends to serve three customers she personally managed at Arcadian and several customers she never served. Arcadian has evidence that she downloaded confidential pricing files before departure, but no evidence yet that she gave them to Beacon.

Arcadian argues that headquarters, signing, repository location, and selected law require Arcadia law. Elise argues that Bracken has the materially greater interest because she resides, principally worked, and will continue working there. Both agree that the two states' laws produce different outcomes.

Assignment

Analyze neutrally:

• Whether Arcadia has a substantial relationship.
• Which state's law would govern the noncompetition issue absent the choice.
• Bracken's fundamental policy and materially greater interest.
• The strongest argument for enforcing the Arcadia choice and the strongest argument for displacing it.
• The likely law governing the noncompetition covenant.
• Whether issue-specific analysis changes the customer nonsolicitation, confidentiality, or trade-secret claims.
• The result under Arcadia law and the result under Bracken law.
• Available interim relief tied to confidential information rather than an assumed governing law.
• The concrete litigation and settlement posture for both sides.

Q55 key (Noncompete Across Two States)

1. Arcadia has a substantial relationship through headquarters, signing, repository, executive work, and customer activity, so the choice is not invalid at the first step. The Arcadia forum clause does not itself determine governing law in the stipulated Bracken forum. Missed: the analysis skips directly to preferred policy or lets forum language replace the conflicts test.
2. Absent choice, Bracken likely governs the noncompete because Elise resides and principally worked there, will work there, and the restraint determines her ability to earn there, despite material Arcadia contacts. Missed: principal work is underweighted or headquarters treated as automatic.
3. Bracken's express nonwaivable ban is a fundamental policy, and its resident-workforce interest is likely materially greater for the noncompete issue. The strongest Arcadian counter is national role, 30 percent Arcadia performance, signing, headquarters, information location, and two-state customer injury. Missed: either side's substantial argument is erased.
4. The likely result is displacement of the Arcadia choice for the noncompete, making the broad work ban void under Bracken law. Under Arcadia law it would likely be narrowed and enforced for a reasonable scope. The choice therefore is dispositive. Missed: outcome is stated without the conflicts path.
5. Issue-specific analysis permits enforcement of confidentiality and trade-secret duties and, under Bracken law, a six-month nonsolicit limited to the three customers Elise personally served. The all-customer bar is overbroad in Bracken. Missed: invalid noncompete is treated as immunity to data or solicitation rules.
6. Arcadian should seek device preservation, return and nonuse of pricing files, limited forensic relief, and a customer-specific standstill while law is decided, not a blanket employment ban. Elise should offer those protections while contesting the noncompete. Missed: emergency relief depends entirely on the weaker broad restraint.
7. Settlement should permit Beacon employment, prohibit use of confidential files, restrict solicitation of the three served customers for six months, and resolve device inspection. Missed: both sides spend the case on a binary covenant when narrower protection survives either law.