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Covenants not to compete: Spread the Gospel, just do it somewhere else

By David Middlebrook and Robert W. Rucker

Under what circumstances should you attempt to stop a pastor, who is a former employee of your church, from preaching or operating his own church? Should you even try to stop another pastor from spreading the Gospel? That question is a growing concern that many church leaders are wrestling with these days.

The dilemma is that there are two competing concepts in play. On the one hand, there is the religious or spiritual consideration. Most church leaders feel a duty based upon their understanding of the religious teachings of their faith to evangelize. And most church leaders also believe that every available person and resource should be used. Rather than there being too many pastors, most church leaders believe there are not enough to meet the needs of our world.

On the other hand, the modern church organization is also essentially a small business. It usually provides services in the form of religious worship and instruction as well as products such as books or audio/visual materials. It has a full-time staff of employees who spend the typical work week planning for ways to make their church more effective in delivering its message and content.

Learning through trial and error

It may have staff as well as hired contractors who help the church develop new marketing and branding strategies, new musical and worship concepts, new technological advances, new donor development programs, and countless other innovations. Most importantly, the church will learn through trial and error what works in its community and what does not. Based upon the substantial hard work and unique knowledge of the church, is it fair to allow a former employee to leave your church with the benefit of that knowledge and set up a “competing” church across the street?

Many pastors believe it is not fair to allow that kind of competition. They have adopted the secular business practice of asking new employees to enter into a “covenant not to compete” or non-compete agreement.

Church leaders are familiar with the word “covenant” from scriptural writings and understand it to mean a promise to act or perform in a certain manner and perhaps having more personal meaning than an “agreement” or “contract.” It usually means that both parties make mutual assurances to each other.

A covenant not to compete is an agreement where the church employer agrees to hire a new employee, provides the employee with training, and allows him to obtain valuable experience in exchange for the employee agreeing that upon his departure, whether voluntary or by firing, he will not engage in any activities that would be viewed as competition. In most jurisdictions, such agreements need to be in writing and signed by both parties.

Extra benefit issue

Many courts will not enforce covenants not to compete unless there is an additional payment or benefit to the employee. Some employers have tried to argue that they are providing the employee with the right to earn a living and that the extra benefit is training or education. But many courts have said that this is not an extra benefit because the employer is expected to do that anyway or because the so-called training was not of any kind of special or proprietary nature.

Many states have struggled with the public policy behind enforcing a covenant not to compete. Our country was founded upon the concept of allowing free enterprise, so non-compete provisions are viewed as a restraint on trade that may not be consistent with our notions of freedom. However, many business leaders have argued that covenants not to compete are necessary to protect their interests, or more specifically to protect their property rights. Because of the tension between free enterprise versus protecting property rights, there are some states where covenants not to compete have been enforced for a time and then not enforced for a time, depending upon the mood of that state’s courts and legislatures.

Most states will enforce covenants not to compete if they are (a) reasonable as to limitations on location, (b) reasonable as to time, and (c) are shown to be necessary to protect unique business interests. A court will not enforce a covenant that says that a former employee pastor cannot conduct church within the United States. It might enforce one that says the pastor cannot hold church within a 25-mile radius of his former church. A court will not enforce a covenant that says that the pastor cannot conduct church for the next 15 years. It might enforce one that places a one or two-year limitation.

Even if the covenant not to compete is reasonable in limitations on location and time, the court may still not enforce it if it is not shown to be really necessary. In other words, the employer church would probably need to show that it had some kind of unique information or knowledge or process that the former pastor employee is using at the new church. Some states will not enforce a covenant not to compete if they believe the employee is engaged in an occupation that is known as a “common calling” or “ordinary occupation.”

Lesser training required

A common calling employee is engaged in activities that do not require extensive, highly sophisticated training in a complex field. Barbers, auto mechanics, office staff and salesmen have been found to be in such common calling occupations.

As one example of how these matters can be dealt with in court, a nonprofit corporation that provided wedding services in Tennessee sued its former employee, a pastor, for violating a covenant not to compete. The agreement required the pastor to agree that for a period of five years after termination of his employment, he would not accept employment with another church or entity providing the same wedding service in competition with the ministry in the same county or town.

The court refused to enforce the agreement because there were no “special facts” such as a threat to trade secrets, repeated contact with the employer’s customers or exclusive client list that needed protection. That court ruled that an employee “owns” his general knowledge and skills even if those skills were acquired by expensive training from the former employer. Put another way, the former employee was not using any information or practice that was unique to the former employer.

Churches that wish to protect their unique creative ideas or intellectual property, or that are worried about former employees establishing a competing church or ministry in their same general neighborhood, may wish to enter into non-competition agreements. As mentioned they need to be in writing and signed by the employee and the church, they need to have a reasonable limitation in location (such as within a 25 or 50-mile radius of the church, depending upon where the church is located), reasonable limitation in time (to last no longer than one or two years), and to describe why the agreement is needed (that is, describe in general terms the unique knowledge, capabilities, goodwill of the church that needs to be protected).

David Middlebrook is a partner, and Robert W. Rucker is an attorney, with Anthony and Middlebrook P.C., Irving, TX, which specializes in the practice of nonprofit law. [www.churchlawgroup.com]

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