Defining “Marketing” in Connecticut Non-Compete Agreements

Defining “Marketing” in Connecticut Non-Compete Agreements

Express Scripts, Inc. v. Sirowich, 2002 Conn. Super. LEXIS 3444

Ms. Patricia Sirowich worked as a broker at Express Scripts, Inc. (ESI) offering pharmacy benefit management products and services to employers, unions, and third party administrators.  ESI had Ms. Sirowich sign a contract in connection with her employment with the company wherein she agreed to a restrictive covenant.  The March 1, 1990 document prohibited her from marketing services similar to ESI’s for a competitor for two years to any ESI client in New England (defined as Maine, Vermont, New Hampshire, New York, Connecticut, Massachusetts, and Rhode Island).  Ms. Sirowich voluntarily terminated her employment with ESI on December 31, 2000 and started her own company, Pharmacy Benefit Intermediary (PBIrx).  In response to her actions at her new company, ESI alleged that Ms. Sirowich “marketed competitive products and services to its clients in violation of the parties’ noncompetition agreement”.  In particular, ESI alleged that Ms. Sirowich marketed products to Diversified Group Brokerage and Group insurance, two of its clients.

ESI sued Ms. Sirowich for breach of the non-compete agreement and sought to enjoin further violations through December 31, 2002.  Ms. Sirowich claimed that she had not violated the covenant because her activities were not marketing, but merely introducing clients to National Medical Health Card (NMHC), a direct competitor of ESI.  She claimed that she did not do any presentation or consummate the sale between the parties.  The court however rejected Ms. Sirowich’s defenses and held that she had indeed violated the covenant by marketing similar products as ESI, triggering the lawful enforcement of the agreement.  “Marketing”, according to the court, included not only the actual sale of products/services but also any efforts to promote and effectuate a sale of products/services.  Facilitating a deal through arranging a meeting between prospective parties amounted to “marketing” as prohibited in the non-compete agreement.  The court held that “the entire thrust of the defendant’s [Sirowich’s] efforts was the replacement of pharmacy benefit management services and products of the plaintiff [ESI] with those of its competitor [NMHC]”.

The general purpose of a non-compete agreement is to prevent former employees from using privileged information and favored relationships with clients acquired during their time as an employee of the company to the disadvantage of the company upon termination.  This case is a prime example of legitimate reasons for the enforcement of the agreement in order to safeguard the operations of the employer from the detrimental actions of a former employee.

If you have any questions relating to your non-compete agreement or would to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Role of Consideration in Connecticut Non-Compete Agreements

Role of Consideration in Connecticut Non-Compete Agreements

J. M. Layton & Co. v. Millar, 2004 Conn. Super LEXIS 2226

Mr. Reid Millar worked at J. M. Layton & Co., a Connecticut commercial insurance brokerage firm, for close to twenty years until he voluntarily terminated his employment on December 3, 2003.  During his career at Layton, Mr. Millar developed and maintained client relationships and the company even sent him to seminars in Florida on how to engender customer loyalty.  In January 1994, the company’s ownership transferred to an ‘Employee Stock Option Plan” scheme wherein Mr. Millar and the other employees became the new owners of the brokerage firm.  Mr. Millar signed an employment agreement later that year in August in response to a memo from the company’s president stating, “The value of the stock in the company would increase when all employees/shareholders signed employment agreements”.  The employment agreement contained non-compete and non-solicitation clauses prohibiting Mr. Millar from performing any service provided by Layton for a period of two years to any entity or person that was a client of Layton in the two years prior to termination.

Four years later, in 1998, the employee-owners sold the firm to SIG Acquisition Co. for $5.59 million.  Mr. Millar terminated his employment on December 3, 2003 and began to work for a competitor, Shoff Darby, soon after this decision.  Several clients made the switch with Mr. Millar and he provided them with services they previously received from Layton.  Layton sued Mr. Millar to enforce the terms of the restrictive covenant to which Mr. Millar presented a defense that there was not adequate consideration for the agreement to be enforceable.

The court found in favor of Mr. Millar and held that the agreement between Layton and himself lacked the adequate consideration required to make the covenant legally binding on the signatory parties.  The court rejected Layton’s contentions that continued employment and increased value of stock in the firm were adequate forms of consideration for the agreement.  Consideration is a crucial contract law principle wherein each party must receive a benefit and/or a detriment from the agreement to make it legally valid and enforceable.  In the absence of consideration, an executory promise is generally unenforceable.  Courts have determined that continued employment alone is not adequate consideration for a restrictive covenant.  Past decisions have permitted it to qualify as adequate consideration when it accompanied by another defined benefit such as a change in compensation.

Likewise, the court held that the “increase in stock value” argument was without merit and did not constitute adequate consideration.  There was a timeline disconnect with the issuance of the stock, the employment agreement, and any increase in value that prevented adequate consideration in this form.  Mr. Millar received the stock seven months prior to signing the employment agreement and the increase in its value (if any) occurred four years after the agreement’s execution.  These components lacked a coherent connection that would unite them in a manner as to represent the adequate consideration needed to make the agreement enforceable.  The court concluded that the possible increase in stock value was far too “imprecise, indefinite, and self-serving, to be adequate consideration” and it denied Layton’s request for enforcement of the non-compete agreement.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Veterinary Doctor’s Non-Compete Invalidated When Terms Unreasonably Favor Employer

Veterinary Doctor’s Non-Compete Invalidated When Terms Unreasonably Favor Employer

Merryfield Animal Hospital v. MacKay, 2002 Conn. Super. LEXIS 4099

Dr. Morgan MacKay worked as a doctor of veterinary medicine at Merryfield Animal Hospital, a clinic owned by Dr. Engstrom, from May 15, 2000 to April 16, 2002.  There were two employment contracts between Dr. MacKay and Merryfield that described employment from May 15, 2000 to May 15, 2001 and a second covering May 1, 2001 to April 30, 2002.  Each contained restrictive covenants and was supported by adequate consideration, specifically the second agreement listed a substantial pay increase.  The non-compete agreement prohibited Dr. MacKay from owning or working at another veterinary facility within seven miles of Merryfield for a period of two years.  Dr. MacKay voluntarily terminated his employment in a letter to Dr. Engstrom dated April 16, 2002 stating that he “could no longer tolerate the veterinarian service practices that were occurring at Merryfield”.  Following this decision, he began to work at New Haven Central Hospital, a veterinary facility located 6.2 miles from Merryfield, clearly within the seven-mile radius prohibited area as defined in the non-compete covenant.  Merryfield sued Dr. MacKay to enforce the terms of the non-compete agreement and curtail further employment at New Haven Central Hospital.  Dr. MacKay however contended that the terms of the agreement afforded Merryfield an unnecessary and unfair amount of protection, to the degree that it rendered the covenant unreasonable and unenforceable.

The court found in favor of Dr. MacKay and held that the terms of the non-compete agreement “afforded greater protection to the plaintiff [Merryfield] than is reasonably necessary and the non-compete is unenforceable”.  The court supported its ruling with the argument that it had the obligation to ensure that the agreement should only afford a fair degree of protection to the interest of the employer while also safeguarding the interests of the employee himself.  The agreement went well beyond creating reasonable protections for Merryfield and unnecessarily restricted Mr. MacKay’s career opportunities and his ability to earn a living.  The language of the restrictive covenant was so broad and general that it prohibited several activities that Merryfield did not engage in.  For instance, the agreement prohibited Dr. MacKay from delivering veterinary care to horses, cattle, sheep, or swine even though Merryfield did not treat those types of animals.  Additionally, the wording of the agreement was so vague that it would have even prevented Dr. MacKay from working as a meat inspector.  Even the finite restriction of a seven-mile radius was deemed unreasonable given the specific circumstances of the veterinary industry in the area.  The language of the agreement would prevent Dr. MacKay from bringing in animals to New Haven Central Hospital if he was employed at a clinic that lacked surgical facilities, as was the case with the vast majority of the veterinary facilities outside the seven mile prohibited radius.

While the restriction of seven miles for two years is reasonable at face value, it becomes clear that it can easily transform into an incredibly unreasonable restriction in light of certain facts.  It was the use of vague language throughout the document and the unforeseen consequences that ultimately invalidated the restrictive covenant between Dr. MacKay and Merryfield.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Policy of Enforcing Connecticut Non-Compete Agreements to Protect Employer’s Interests

Policy of Enforcing Connecticut Non-Compete Agreements to Protect Employer’s Interests

Torrington Creamery, Inc. v. Davenport, 126 Conn. 515

This case pertains to a dispute regarding a non-compete agreement between an employer and employee in the dairy products industry in 1940.  While this case is by no means recent, it is a seminal case that lays the groundwork for the policy of enforcing non-compete agreements in Connecticut on the grounds of protecting the employer’s interest.  Specifically, this is one of the first Connecticut cases to address the enforceability of a company’s non-compete agreements when another company acquires it.

The High Brook Corporation employed Mr. Preston Davenport as a farm manager and superintendent beginning in 1932 at its Torrington, Connecticut location.  The company produced and distributed dairy products in the towns of Torrington, Litchfield, Winsted, Thomaston, New Milford, New Preston, and Greenwich, all towns in western or southwestern Connecticut.  High Brook changed its name to The Sunny Valley Corporation in March 1938 and on April 15, 1938 had Mr. Davenport sign an employment contract.  The contract specified that Mr. Davenport would receive a fixed compensation with no set duration and that he would be subject to several restrictive covenants.  A non-solicitation clause prohibited Mr. Davenport from soliciting, either directly or indirectly, Sunny Valley or its successor’s customers for a period of two years.  Meanwhile, a non-compete clause prohibited Mr. Davenport from engaging in the dairy production and distribution industry in the towns where Sunny Valley operated.  Another clause in the employment agreement stipulated that a court’s invalidation of a portion of the agreement would not affect the legally binding nature of the other provisions.  Sunny Valley sold its operations and assets to Torrington Creamery, Inc. in October 1938 and the company discharged Mr. Davenport from employment on October 18, 1938.  He proceeded to start his own dairy production and distribution business in February 1939 in the towns of Torrington and Litchfield.

Torrington Creamery sued Mr. Davenport to enforce the duration and geographical limitations of the restrictive covenant he had signed with Sunny Valley Corporation.  The Superior Court in Litchfield County found in favor of Torrington Creamery, Mr. Davenport appealed the decision, and the case went on to the Connecticut Supreme Court where it affirmed the lower court’s decision.  The Supreme Court found the terms of the non-compete agreement to be reasonable and necessary for the protection of Torrington Creamery’s business interests.  The notion of “protecting an employer’s business interests” is a driving force and major policy concern when deciding whether to enforce a non-compete agreement under Connecticut law.  Restrictive covenants become valuable assets of the employer and courts generally hold that the employer is entitled to the right to safeguard these assets.  Equally as important, the court held that the employer benefits contained in a restrictive covenant can be assigned to a purchaser in the event of the sale of the business and its assets.  Thus, when a company acquires another company, it gains the legal authority to enforce the acquired company’s valid non-compete agreements.  Courts view restrictive covenants as valuable business assets that provide for the necessary protection of the employer and any successor company.

 

Balancing Policy Concerns When Determining Enforceability of Non-Compete Agreement

Balancing Policy Concerns When Determining Enforceability of Non-Compete Agreement

Booth Waltz Enterprises, Inc. v. Pierson, 2009 Conn. Super. LEXIS 1912

Speedway Distributors, Inc. employed Mr. David Pierson as a sales representative beginning in 1998 and had him sign a non-compete agreement as a condition precedent to his employment.  The agreement, executed on January 26, 1998, prohibited Mr. Pierson from soliciting Speedway customers or divulging their contact information to other parties for a period of one year following his termination.  Speedway’s primary business operation was distributing aftermarket chemical products in Connecticut, Rhode Island, and western Massachusetts.  On October 20, 1998 Booth Waltz Enterprises, Inc. acquired certain Speedway assets, most notably its customer lists/information and its sales representatives’ non-compete agreements.  Booth Waltz offered Mr. Pierson a job under the new corporate management scheme and asked him to sign a new non-solicitation agreement but he voluntarily terminated his employment.  Following his termination, Mr. Pierson started his own business, Hometown Distributors, which engaged in the same business operations and geographical area as his former employer.  Booth Waltz alleged that Mr. Pierson was soliciting its customers in violation of the non-compete it acquired from Speedway and sued for the enforcement of the restrictive covenant.

The court found in favor of Booth Waltz, holding that the “defendant [Mr. Pierson] has engaged in conduct which is in breach of the restrictive covenant.  This conduct would dictate that the plaintiff [Booth Waltz] is entitled to enforce the agreement”.  Mr. Pierson contended that the provisions of the non-compete agreement were unreasonable, rending the agreement unenforceable, but the court rejected these assertions.  In handing down its decision, the court had to balance the necessity to protect the employer’s business interests and the employee’s right to earn a living.  The duration of one year was reasonable and was supported by the public policy principle that Booth Waltz had a right to protect the long-term relationships that Speedway maintained with its customers.  Additionally, the court concluded that the geographical limitation (Connecticut, Rhode Island, and western Massachusetts) was reasonable because it only restricted specific customers appearing on Speedway’s customer list, and not the region as a whole.  The court also addressed and stated that its holding did not interfere with public interest since it did not unreasonably deprive the public of a good/service for the sake of protecting a business’s recognized interest.  This case is a good example of how a court must balance multiple interests and policy concerns when deciding a case disputing a non-compete agreement between an employer and one of its former employees.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Enforceability of Non-Solicitation Agreement for Potential Clients of Former Employer

Enforceability of Non-Solicitation Agreement for Potential Clients of Former Employer

Webster Financial Corporation v. McDonald, 2009 Conn. Super. LEXIS 169

USI Insurance Services of Connecticut, Inc., formerly Webster Insurance, Inc., employed Mr. William McDonald as a senior vice president at its Westport, CT office.  The company had Mr. McDonald sign an employment agreement dated February 11, 2003 that contained non-compete and non-solicitation clauses in the event of his termination.  The agreement prohibited Mr. McDonald from soliciting any of USI’s contacts that had been clients or potential clients in the twelve months prior to his termination and established a geographical limit of twenty-five miles within USI’s Westport office.  As for the time limitation, the covenant was applicable for the great period of two years following Mr. McDonald’s termination or as long as he received benefits from a deferred compensation plan.  Mr. McDonald resigned on September 21, 2007 and began to work at Shoff Darby, Inc., an industry competitor well within the prohibited twenty-five radius of USI’s Westport office.  At his new firm, Mr. McDonald proceeded to solicit and sell insurance products to USI’s former and current clients.  Additionally, he contacted several USI employees and urged them to leave the company to seek employment with Shoff Darby.

USI sued Mr. McDonald and asked the court to enforce the provisions of the restrictive covenant.  Mr. McDonald presented two defenses to the court, arguing that the agreement was overly broad and therefore unenforceable.  He claimed that the prohibition of potential clients and the potential unlimited duration made the non-compete agreement unreasonable and unenforceable.  USI asserted the validity of the agreement and emphasized to the court that it contained a “blue pencil” provision that authorized the court to amend the time and/or geographical limitation in order to comply with Connecticut law.  Mr. McDonald countered this argument stating that this legal procedure would require the court to essentially rewrite the non-compete contract, an act forbidden under Connecticut law.

The court found in favor of USI with regard to the issue of the agreement’s enforceability with its holding stating, “taking the covenant as whole, nothing on the face of the contract renders the covenant unenforceable as a matter of law”.  While deliberating about the claim that the prohibition on potential clients was unreasonable, the court stated that there is no direction or precedent from the Connecticut Appellate Courts and that the Superior Courts throughout the state were divided on the issue.  This court took the approach used in Cuna Mutual Life Ins. Co. v. Butler (2007 Conn. Super. LEXIS 1623) that such limitations on potential clients are reasonable so long as they are “readily identifiable and narrowly defined”.  The court concluded that the potentially unlimited applicable duration of the agreement was not “per se unreasonable” because the agreement as a whole contained several other definitive restrictions such as the twenty-five radius from the Westport office and the limited group of clients for the anti-solicitation clause.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

 

Court Uses Connecticut Law to Supersede Massachusetts Law in Application of Non-Compete Agreement

Court Uses Connecticut Law to Supersede Massachusetts Law in Application of Non-Compete Agreement

Custard Insurance Adjusters v. Nardi, 2000 Conn. Super. LEXIS 1003

Mr. Robert Nardi worked at Allied Adjustment Services’ Orange, CT office beginning in September 1982 as the vice president of marketing, overseeing the adjustment of claims for insurance companies and self-insurers.  The company had Mr. Nardi sign non-compete and confidentiality agreements as a term of his employment.  The agreements established that he could not solicit or accept claims within a fifty-mile radius of Allied’s Orange office for a period of two years following his termination.  The agreements further specified that the names and contact information of Allied’s clients were the company’s confidential property.  The choice of law provision stated that Massachusetts law would be controlling (Allied had its headquarters in Massachusetts).  On September 1, 1997, Allied sold its business and all its assets, including its non-compete agreements, to Custard Insurance Adjusters.  Mr. Nardi became increasingly worried about future employment at Custard when the company restructured its compensation format, allegedly decreasing his annual income by 25%.  At this point Mr. Nardi began to inquire about employment at other companies and in particular contacted Mr. John Markle, the president of Mark Adjustment, with whom he had a previous professional history.  He also arranged meetings between Mr. Markle and four other current Custard employees to discuss switching companies.  While the companies are competitors in the insurance industry, Mark’s business was restricted to the New England region while Custard operated nationally.  Custard terminated Mr. Nardi and asked the court to enforce the non-compete agreement.

The court first sought to tackle the issue of the choice of law provision since it designated Massachusetts law as controlling but this lawsuit was brought in Connecticut state court.  The court asserted its authority over the issue and case because it could not ascertain any “difference between the courts of Connecticut and Massachusetts in their interpretation of the common law tort breach of fiduciary obligation brought against a former officer of a corporation”.  The court emphasized that above all else, the legal issue at hand was that of contractual obligations and a company’s business operations.  It asserted its authority in this respect by stating it believed “that the Massachusetts courts interpret the tort of tortuous interference with contractual and business relationships the same way our [Connecticut’s] courts do”.  Additionally the court cited that the application of Massachusetts law would undermine Connecticut’s policy to afford legal effect to the Connecticut Unfair Trade Practices Act (CUTPA) and Connecticut Uniform Trade Secrets Act (CUTSA), two state statutes used by Custard to sue Mr. Nardi.

Next, the court addressed the enforceability of the non-compete agreement signed by Mr. Nardi and Allied.  Mr. Nardi contended that the provisions of the agreement were only binding upon the signatory parties (himself and Allied) and that Custard lacked the authority to enforce its provisions.  He asked the court to deny Custard’s request to enforce the non-compete because it was “based on trust and confidence” between the signatory parties and “was thus not assignable”.  The court rejected this train of thought because the non-compete explicitly contained an assignability clause and it held that the non-compete covenant was properly and legally transferred to Custard under Massachusetts law.

Mr. Nardi based a substantial portion of his defense on the claim that Custard violated, and therefore invalidated, the agreement when it modified his compensation format.  He alleged that he was the victim of unjustified reductions in his professional responsibilities and compensation following Custard’s acquisition of Allied in 1997.  Mr. Nardi however was still an executive at the new company despite a reduction in rank and he himself had expressed excitement about becoming an executive at a national, instead of a regional, company.

The court ultimately found the non-compete to be valid and enforceable, therefore granting Custard’s request for injunctive relief.  It assessed the facts of the case and Mr. Nardi’s current position to amend the time restriction of the agreement however.  Taking into account that he was starting a family and had a young child in conjunction with estimates that the full restrictions could amount to a 60-70% loss of business for Mr. Nardi, the court reduced the time limitation from two years to six months.  The court concluded that while the provisions were reasonable at face value, they could have unforeseen consequences that would have severely impaired Mr. Nardi’s ability to make a living in order to provide for his family.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Excessive Geographical Restriction Invalidates Connecticut Non-Compete Between Dance Studio and Instructor

Excessive Geographical Restriction Invalidates Connecticut Non-Compete Between Dance Studio and Instructor

RKR Dance Studios, Inc. v. Makowski, 2008 Conn. Super. LEXIS 2295

This case involved the legal analysis used to determine if a non-compete agreement between a dance studio and one of its instructors is enforceable in the State of Connecticut.  Jessica Makowski worked as an at-will instructor for RKR Dance Studios from November 29, 2001 to September 28, 2007 at one of its franchised dance studios.  Maximize Your Impact, LLC became the franchisor for RKR in January 2004 and thus became the employer of Ms. Makowski.  She signed a non-compete agreement with Maximize on May 5, 2006 that contained provisions specifying a two year duration and geographical limitation of fifteen mile radius from Maximize’s dance studio and a ten mile radius from any Fred Astaire Dance Studio, whether they be corporate-owned, franchised, or otherwise established.  Ms. Makowski voluntarily left Maximize on September 28, 2007 and shortly thereafter began employment with Steps in Time, a dance studio located within ten miles of another Fred Astaire Dance Studio.  Maximize sued Ms. Makowski to enforce the provisions of the non-compete agreement.  Ms. Makowski contended that she did not violate the agreement because there was inadequate consideration and unreasonable limitations, characteristics that would make the non-compete agreement unenforceable.  The court, while finding that there was adequate consideration, ultimately found in favor of Ms. Makowski, held the non-compete covenant to be unreasonable, and denied Maximize’s request for the court to enforce the agreement.

The major issue with regard to consideration in this case revolved around the question “is continued employment adequate consideration for a non-compete agreement?”.  The court cited previous cases, both state (Roessler v. Burwell (119 Conn. 289)) and federal (MacDermid, Inc. v. Selle (535 F. Supp.2d 308)), where the courts concluded that continued employment was adequate consideration for at-will employees for restrictive covenants with their employers.  The court highlights the exchange between the parties, such that the employee receives wages and the employer receives his or her services and the protection created by the non-compete agreement.  The payment and receipt of wages was adequate consideration to legitimize a non-compete agreement and render vague terms sufficient for enforcement.  The court did discuss several dissenting cases but noted that the facts of those cases were critically different from the legal dispute between Ms. Makowski and Maximize.  The court emphasized that the pivotal fact with regard to continued employment as adequate consideration is whether it involves at-will employment.  If there is at-will employment, as was the case with Ms. Makowski, then continued employment is sufficient consideration to render the non-compete agreement enforceable.

The agreement was ultimately found to be unenforceable however due to containing unreasonable restrictions.  The court highlighted the public policy of non-compete agreement enforcement and the balance that must be struck between: 1) the employer’s need to protect legitimate business interests, 2) the employee’s need to earn a living, and 3) the public’s need to secure the employee’s presence in the labor pool.  Fair protection must be afforded to employer and employee alike, a principle that is absent in the agreement between Ms. Makowski and Maximize.  The court specifically stated that the geographical limitation was extremely unreasonable and placed a great hardship on Ms. Makowski’s efforts to earn a living and pursue her career.  Evidence pertaining to job prospects in Massachusetts, Rhode Island, Connecticut, and New York revealed that the closest permissible studio to employ Ms. Makowski was located in Natick, MA, a staggering one and a half hour drive from her house.  The court felt that a three hour daily, roundtrip commute was an excessive burden for Ms. Makowski to bear and concluded that this provision was indeed unreasonable and invalidated the agreement as a whole.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

 

Contract Principles in Connecticut Non-Compete Agreements: Consideration and the Parol Evidence Rule

Contract Principles in Connecticut Non-Compete Agreements: Consideration and the Parol Evidence Rule

United Rentals, Inc. v. Bastanzi, 2005 U.S. Dist. LEXIS 45268

This federal case involved an employee, one Mr. Jeffrey Bastanzi that started his own company in direct competition with his employer while still in its employment, allegedly in violation of a non-compete agreement signed by both parties.  Mr. Bastanzi worked for United Rentals, Inc. from July 2003 to March 30, 2005 as a salesperson in the company’s Gainesville, Florida office.  United Rentals is a Delaware corporation with principle business operations in Connecticut that rents and sells equipment and contractor supplies (including but not limited to safety equipment, hand tools, anchoring systems, hard hats, and silk fencing).  Mr. Bastanzi was provided with United Rentals’ “Business Ethics Policy” and “Conflict of Interest Policy” on the first day of employment wherein the latter contained a clause stating “no employee shall own or have an interest, directly or indirectly, in any competing enterprise or activity, which conflicts or might conflict with United Rentals’ interests, except with the written approval of the Chief Operating Officer”.  Ten months into the job, on May 10, 2004, United Rentals had Mr. Bastanzi sign a “Confidentiality and Non-Competition Agreement” containing non-compete, non-disclosure, and non-solicitation clauses.  The covenant established a duration of twelve months, a geographical limitation of seventy-five miles in any direction of United Rentals’ Gainesville office, and stipulated that the company be entitled to injunctive relief in the event Mr. Bastanzi violated the agreement.

United Rentals alleged that Mr. Bastanzi breached the agreement by operating his own competing business, B&S Industrial and Contractor Supplies, LLC, while still employed by the company and within the twelve months following his termination.  Mr. Bastanzi started B&S with his wife in 2004 and began contacting United Rentals’ vendors to inquire about becoming a distributor for their products.  B&S continued to grow at a steady pace and eventually Mr. Bastanzi’s co-workers informed management that he was operating a competing business on the side.  United Rentals terminated Mr. Bastanzi after it conducted an investigation into the matter and found the allegations to be true.  At this point Ms. Bastanzi began to work full time at his new company B&S, at that time making approximately $30,000.00 in monthly sales.  United Rentals proceeded to sue Mr. Bastanzi for breach of the non-compete agreement to which he offered three defenses to the court: 1) the agreement lacked consideration, 2) he signed the restrictive covenant under duress, and 3) the agreement was incomplete.

The court found in favor of United Rentals, ordered the enforcement of the non-compete agreement, and invalidated all of Mr. Bastanzi’s defenses.  It concluded that there was indeed adequate consideration in the non-compete agreement that would make it binding upon the parties.  Mr. Bastanzi received continued employment at United Rentals at a mutually agreed upon salary plus the added benefit of a conditional severance package, while United Rentals in return received Mr. Bastanzi’s services and the benefit(s) of the restrictive covenant.  Citing a previous federal case, Sartor v. Town of Manchester (312 F. Supp.2d 238 (D. Conn. 2004)), the court stated that, “Connecticut recognizes that continued employment is adequate consideration to support non-compete covenants with at-will employees”.

Next, the court concluded that Mr. Bastanzi did not meet the burden of proof with respect to his claim that he signed the agreement under duress.  Mr. Bastanzi failed to impress upon the court that United Rentals committed any “wrongful act or threat” in conjunction with him signing the non-compete agreement.  Courts have the authority to invalidate a contract/agreement if there is sufficient evidence that one or more of the parties engaged in fraud or wrongful acts, but in the face of insufficient evidence, the court would not invalidate the agreement between United Rentals and Mr. Bastanzi.

Thirdly, the court rejected Mr. Bastanzi’s claim that the non-compete agreement was an incomplete document and therefore not binding upon the parties.  To come to this conclusion, the court applied a very important contract principle, that of the Parol Evidence Rule.  The rule prohibits the use of evidence outside the content contained within the four corners of the contract/agreement concerning matters discussed and governed by the finalized document.  Mr. Bastanzi told the court that he received oral representations from management before he was hired stating he would not have to sign a non-compete agreement with United Rentals.  The finalized document signed by Mr. Bastanzi and United Rentals however did not reflect any of these oral representations and there was not sufficient evidence that the terms of the non-compete agreement were designed to render the alleged representations binding upon the parties.  Considering this and applying the parol evidence rule, the court ultimately concluded that the agreement was complete and Mr. Bastanzi’s claim lacked merit.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment contract, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Duration of Connecticut Non-Compete Agreement Reduced by the Court

Duration of Connecticut Non-Compete Agreement Reduced by the Court

Access America, LLC v. Mazzotta, 2005 Conn. Super. LEXIS 2597

Ms. Vassilia Mazzotta worked at Access America, LLC, a franchised office affiliated with Century 21 Real Estate, as a licensed real estate broker.  She sold single and multi-family residential real estate in conjunction wither her job at Access America until she terminated her employment on April 20, 2005.  There was an employment contract between Ms. Mazzotta and Access America that contained a non-compete clause wherein it stipulated that Ms. Mazzotta could not “engage in or carry on directly or indirectly, a business similar to or competing with any business or products carried on by [Access America] within a fifteen (15) mile radius of 136 Berlin Road, Cromwell, CT (Access America’s office)”.  Shortly after her termination with Access America, Ms. Mazzotta began to work at ERA Innovative Realty, a competing real estate broker well within the fifteen-mile radius as defined in the non-compete covenant of the employment agreement.  Access America brought suit against Ms. Mazzotta and sought injunctive relief in the form of enforcement of the non-compete covenant.  Ms. Mazzotta conversely argued that she signed the restrictive covenant under duress and that its provisions were unreasonable, therefore making it unenforceable.

The court found in favor of Access America, holding that the non-compete agreement was valid and enforceable but did amend its provisions in a way that lessened the occupational hardship placed on Ms. Mazzotta.  The court justified its holding by first discussing the public policy of the issue.  It stated, “It has long been recognized in this state [Connecticut] that a restrictive covenant is a valuable business asset which is entitled to protection”.  Access America, according to the court, had legitimate reasons for using a non-compete agreement to protect its business interest in the form of the money, time, and effort it spent to train Ms. Mazzotta.  The court found Ms. Mazzotta’s defense of signing the agreement under duress to be unpersuasive because the same agreement that contained the restrictive covenant also contained clauses that conferred considerable benefits on her in the form of a private office and a higher commission rate on real estate sales.  In addition, the court cited Ms. Mazzotta’s termination letter wherein she reaffirmed her obligations and prohibitions under the employment agreement.

The one portion of the decision that Ms. Mazzotta found favorable was the reduction in applicable duration for the non-compete agreement.  The court reduced the two-year prohibition down to only one year.  During the legal proceedings, both parties were open to the possibility that the court could reduce the duration of the restriction if in the end it found the non-compete to be valid and enforceable.  Both parties referenced an earlier case, Century 21 Access America v. Nereida Lisboa (35 Conn. L. Rptr. 272 (Conn. Super. Ct. 2003)) where a court had reduced the duration based on the specific language of the employment agreement and specifically the non-compete clause.  This portion of the decision is very valuable as it shows that certain non-compete agreements, depending on the specific language used, are enforceable but the court has the authority to amend the provisions to lessen the restrictions placed on the employee.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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