A non-compete clause, covenant not to compete or restrictive covenant is a contract provision under which one party agrees not to enter into or start a similar profession, trade or business in competition with another. For-profit employers commonly require them of employees, franchisors require them of franchisees, and buyers require them of sellers of businesses. Whether nonprofits can demand non-compete agreements is unsettled in several jurisdictions. Businesses have a legitimate interest in protecting their valuable proprietary and confidential information and in not having to compete against persons formerly associated with them who may use their trade secrets against them. Covenants not to compete prevent employees from bringing the customers from their old job to their new job, and they also prevent sellers of businesses from opening a location down the street to compete directly with the buyer. Some contend that nonprofits do not "compete" in the same way and that duplication of their good works should be incentivized rather than penalized. Within the nonprofit community, some appear legitimately to compete (including with for-profit entities) more than others, but even churches are reasonably concerned when ministers leave the institution for another nearby church or start-up and threaten to divide the congregation. States regulate the extent of the anti-competitive effect that non-compete clauses have by limiting their geographic scope, duration and function. Companies may not be able to enforce them at all against lower-level employees without access to sensitive information, yet, interestingly, some religious institutions have begun to require them of even volunteers. Seek legal counsel if you are struggling with whether and how to structure a restrictive covenant. We can help.
Settlement Agreement Excluding Faith-Based Provider was Consent Decree Necessitating Fairness Inquiry
In Pedreira v. Sunrise Children's Servs., Inc., No. 14-5879, 2015 WL 5813178 (6th Cir. Oct. 6, 2015), the court ruled that a settlement agreement entered into between the State of Kentucky and Plaintiff requiring monitoring by nonparties American Civil Liberties Union (ACLU) and the Americans United for Separation of Church and State (AUSCS), without consulting the defendant, amounted to a "consent decree," rather than a private settlement; therefore, the district court was required to address the defendant's objections thereto. The agreement required the defendant to inform a child and the child's parents of the foster home's religious affiliation, to provide children with opportunities to go to the church of their choice, to provide non-religious alternatives to religious activities, not to discriminate against children on the basis of religion, and to provide an exit survey asking children whether the provider tried to convert them to a new religion. The agreement gave the ACLU and AUSCS enforcement authority, but not the defendant. The court ruled that, because the agreement was a consent decree, the district court was required to determine whether it is "fair, adequate and reasonable, as well as consistent with the public interest." The court of appeals found that the district court did so only in dicta and remanded for a hearing on the merits. The court observed, "[T]he decree denies Sunrise a chance to clear its name – and instead, over Sunrise's objection, imposes the very reputational harm that Sunrise sought to avoid by means of 15 years of litigation."
Facial Challenge to Laws Targeting Rabbinical College Survives; Destruction of Evidence of Discrimination Sanctioned
In Congregation Rabbinical College of Tartikov, Inc. v. Village of Pomona, No. 07-cv-6304, 2015 WL 5729783 (S.D. N.Y. Sept. 29, 2015), the plaintiff argued that the defendant intentionally discriminated against it by passing laws targeted to prevent building a Hasidic rabbinical school in the community. The court granted summary judgment to the defendants in connection with the plaintiffs' free speech and corresponding Article 1, §8 New York Constitution claims and to the plaintiffs on defendants' affirmative defenses, but denied it as to all other claims. Also, the court granted the plaintiffs' motion for sanctions on the grounds that the mayor intentionally destroyed Facebook postings, which were suggestive of religious discrimination. The plaintiff sought to construct a rabbinical college to address a shortage of rabbinical courts where Orthodox Jews must resolve conflict in lieu of the secular courts. Unlike others in the area, students and their families would live at this rabbinical college. The building of the college in Pomona became a significant issue in local elections; some contestants promised to stop it. The defendant passed three laws creating at least a question of fact whether they foreclosed building the college altogether: (1) the Accreditation Law, requiring that educational institutions be accredited by the New York State Education Department; (2) the Dormitory Law excluding rooms that contain separate cooking, dining or housekeeping facilities; and (3) the Wetlands Law requiring a buffer around wetlands such as those on the property where the college was to be built. The court ruled that if the challenged laws were passed with a discriminatory purpose and had a discriminatory effect, strict scrutiny applies. It ruled additionally that aesthetics, traffic and community character are normally not compelling interests and, even if they were, that the defendant had not pursued these interests in the least restrictive manner. Consequently, the court found that plaintiffs stated a claim for a violation of equal protection clause (state and federal); free exercise clause (state and federal); free association clause (state and federal); various claims within the Religious Land Use and Institutional Persons Act (RLUIPA) (e.g., substantial burden, equal terms-gerrymander, nondiscrimination and exclusion); the Fair Housing Act non-discrimination clause; and the Berenson doctrine under New York common law on the theory that the Village enacted the challenged laws for an improper exclusionary purpose. The court also rejected defendant's challenge to the constitutionality of RLUIPA under the Tenth Amendment and Establishment Clause.
Church Could Not Withdraw from Synod in Connection with Terminating Its Minister, But Synod's Decision Was Merely Advisory
In Hillenbrand v. Christ Lutheran Church of Birch Run, No. 319127, 2015 WL 5432862 (Mich. App. Sept. 15, 2015), the court ruled that the defendant was precluded from withdrawing from the Lutheran Church-Missouri Synod due to language in the bylaws prohibiting withdrawal when it would render a decision of the Synod's dispute resolution panel inapplicable, but the court ruled that it made no difference because the Synod's decision was merely advisory. The court decided that the Lutheran Church-Missouri Synod is congregational and self-governing, not a hierarchical church; consequently, the decision of a dispute resolution panel was advisory requiring review of the church's termination of its minister and payment of compensation to him until he accepts a call to another congregation. The court rejected the plaintiff's and Synod's effort to consider it a "hybrid entity." The court also rejected the plaintiff-pastor's request "to do exactly what the United States Supreme Court said courts should not, i.e., impose an unwanted minister on a church."
Biology Teacher and Kairos Retreat Director States Claim for Sexual Harassment
In Bohnert v. Roman Catholic Archbishop of San Francisco, No. 14-cv-02854, 2015 WL 5652647 (N.D. Cal. Sept. 25, 2015), the court ruled that a female biology teacher stated a claim for sexual harassment and hostile work environment against the defendant for the conduct of students, some of whom were expelled and others of whom were otherwise disciplined. The student took and disseminated several "upskirt" photos and videos of female teachers. The defendant asserted the ministerial exception doctrine because of the teacher's role in the school's Campus Ministry Department, her position as Kairos Retreat Director, and her development of the Big Brother program and Freshman Formation Program. She had one less class because of her Campus Ministry duties. But the court rejected the applicability of the ministerial exception doctrine because the teacher was not an ordained minister, allegedly was not "called," and had no religious degrees. Likewise, the court rejected the applicability of the church autonomy doctrine on the grounds that her claim does not impinge on evaluation of the defendant's "religious policies"; disagreed that the plaintiff waived her right to proceed in court as a union member part of a collective bargaining agreement; and rejected defendant's statute of limitations defense and defense to the hostile work environment claim that it took proper corrective action. In addition, the court allowed the plaintiff's intentional and negligent infliction of emotional distress claims to proceed. The court granted summary judgment exclusively on the plaintiff's attempt to impute liability to the school under the Fair Employment and Housing Act on the theory that it was a different entity than the exempt Archdiocese because it allegedly has little involvement in the school's day-to-day operations.
Law Prohibiting Orientation Change Treatment Neutral and Generally Applicable
In Pickup v. Brown, No. 2:12-cv-02497-KJM-EFB, 2015 WL 5522265 (E.D. Cal. Sept. 16, 2015), the court dismissed the plaintiffs' complaint alleging that SB 1172 unconstitutionally prohibits licensed mental health professionals in California from engaging in "sexual orientation change efforts" (SOCE) with persons under age 18. SOCE involves "aversion and nonaversion treatments intended to 'change gay men's and lesbians' thought patterns by reframing desires, redirecting thoughts, or using hypnosis, with the goal of changing sexual arousal, behavior and orientation." The plaintiffs, SOCE practitioners, argued that the law violated their free exercise rights, but the court found it neutral and generally applicable without any purpose to suppress, target or single out the practice of any religion and, thus, constitutional as rationally related to the interest of protecting minors. The court dismissed this facial challenge to the law without leave to amend, but dismissed the plaintiffs' as applied First Amendment challenge with leave to amend to allege how the law has been applied against them.
Denial of Special Use Permit Does Not Substantially Burden Religious School
In Livingston Christian Schs. v. Genoa Charter Township, No. 15-cv-12793, 2015 WL 5439942 (E.D. Mich. Sept. 15, 2015), the court denied the plaintiff's emergency request for a temporary restraining order on the grounds that the township board of trustees' 4-3 denial of the landlord's special use permit imposes a substantial burden on its religious exercise and the religious exercise of its students in violation of the Religious Land Use and Institutionalized Persons Act (RLUIPA). Plaintiff entered into a lease with the Brighton Church of the Nazarene to move its school to the church. To accommodate this, the church applied to amend its special use permit, and the plaintiff leased its property to a charter school contingent on relocation. After opening enrollment to the community, the school's enrollment increased 20 percent. After residents complained, the board found that the church's application was not consistent with the Master Plan due to increased traffic and a claimed history of non-compliance with site plan and ordinance requirements. The court ruled that the township's decision does not substantially burden the school because it can continue to operate, just not from the property it desires. Therefore, the court found that the school was unlikely to succeed on the merits.
Court of Appeals Enjoins Contraceptive Coverage Mandate and Accommodation Process
In Sharpe Holdings, Inc. v. United States Dep't of Health and Human Servs., No. 14-1507, 2015 WL 5449491 (8th Cir. Sept. 17, 2015) and Dordt College v. Burwell, No. 14-2726, 2015 WL 5449504 (8th Cir. Sept. 17, 2015), the court of appeals affirmed the grant of preliminary injunctions to the plaintiffs against the defendants' enforcement of the contraceptive coverage mandate and accommodation process for religious organizations as a substantial burden on their religious exercise. The court rejected the United States' argument made in similar cases that the accommodation process cannot substantially burden the plaintiffs' exercise of religion because it does not trigger, facilitate or make them complicit in the provision of the coverage. In the case involving CNS International Ministries (CNS) and Heartland Christian College (HCC), the court of appeals ruled that it is forbidden from second-guessing the plaintiffs' sincerely held religious beliefs: "The question here is not whether CNS and HCC have correctly interpreted the law, but whether they have a sincere religious belief that their participation in the accommodation process makes them morally and spiritually complicit in providing abortifacient coverage. Their affirmative answer to that question is not for us to dispute." Suggesting the government protests too much about the insubstantiality of the accommodation process, the court added, "We need look no further than to the government's own litigation behavior to gauge the importance of self-certification in the regulatory scheme." Also, the court of appeals concluded that, even assuming that the government's interests in safeguarding public health and ensuring equal access to health care for women are compelling, the mandate and accommodation process likely are not the least restrictive means of furthering those interests. As evidence, the court looked to several orders of the United States Supreme Court approving alternative methods of notice and the government's ability to make contraceptives available directly.