Religious Institutions: October 2015

Nathan Adams IV is a Partner in Holland & Knight's Tallahassee office

Timely Topics

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...