Courts Cannot Extend Expired Non-Compete Agreements Under Connecticut Law

Courts Cannot Extend Expired Non-Compete Agreements Under Connecticut Law

Aladdin Capital Holdings, LLC v. Donoyan, 2011 U.S. Dist. LEXIS 61095

Ms. Harumi Aoto Donoyan worked as a Senior Managing Director for Japan Sales and Marketing at Aladdin Capital Holdings, LLC, a boutique investment bank in Stamford, Connecticut.  The firm promoted her to this position in 2008 contingent on executing a restrictive covenant wherein she promised not to complete with the firm following termination while she continued to receive compensation and other benefits from the firm.  Aladdin terminated Ms. Donoyan in April 2010 with the agreement that she would receive her full salary and benefits through May 5, 2011.  This arrangement made prohibitions in the non-compete effective until May 5, 2011 since the restrictions were applicable while she received benefits from the firm.

Aladdin alleged that Ms. Donoyan engaged in activities that amounted to competing with the firm while she was still receiving a salary and benefits.  It filed a suit in federal court on April 25, 2011 and served Ms. Donoyan on April 28, 2011, ten and seven days respectively before the expiration of the restrictive covenant.  The case reached the federal district court in June 2011, well after the non-compete agreement had expired.  Aladdin asked the court to declare that Ms. Donoyan had breached the agreement and issue an injunction prohibiting any further violations.  The court noted that the request for injunctive relief was moot since the time restriction had already expired.

The court did however analyze its authority as a court sitting in equity to extend the duration of a restrictive covenant as a remedy for a previous breach of a non-compete agreement.  Restrictive covenants can have built-in provisions that extend the time restriction upon a breach by the former employee.  This however, was not the case with the dispute before the court and the only way for the time restriction to be extended was for the court to unilaterally amend the agreement.  While some states’ highest courts have held that the lower courts have “broad equitable power to extend even an expired restrictive covenant as a remedy for breach”, the federal court here did not see any evidence that the Connecticut Supreme Court held this legal stance.  In light of this, the federal court held that it lacked the authority under Connecticut state law to extend an expired non-compete agreement.  The federal court’s holding with regard to this issue was that “a request for injunctive relief based on a restrictive covenant becomes moot upon the expiration of the period specified in the parties’ restrictive covenant, unless the restrictive covenant contains language that expressly permits extension of the restrictive covenant”.  Aladdin could have placed an automatic extension mechanism in its non-compete agreement but chose not to do so.  Even though the court acknowledged that Ms. Donoyan had in fact breached the non-compete agreement, it ultimately denied Aladdin’s request to extend and enforce the restrictive covenant based on the fact it lacked the authority to do so under Connecticut law.

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.

Non-Compete Enforceability: Must Protect Legitimate Interest & Not Be Punitive

Non-Compete Enforceability: Must Protect Legitimate Interest & Not Be Punitive

Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water.  The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut.  Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement.  The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years.  The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage.  In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500.  He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.

HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine.  He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position.  Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA.  The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed.  The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.

According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA.  While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects.  The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage.  McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings.  The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.

Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests.  Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences.  The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.

Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case.  HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company.  The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities.  Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.

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.

Differences in the Enforcement of Non-Disclosure and Non-Compete Covenants

Differences in the Enforcement of Non-Disclosure and Non-Compete Covenants

Newinno, Inc. v. Peregrim Development, Inc., 2004 Conn. Super. LEXIS 1160

Mr. Russell Koch worked for Newinno, Inc., a consulting firm, where his employment was contingent upon several restrictive covenants contained in his employment contract.  The main agreement between the parties was a non-disclosure covenant designed to protect Newinno’s confidential information and business interests upon Mr. Koch’s termination.  The agreement had four main provisions such that Mr. Koch was: 1) prohibited from disclosing information about the company that “is not generally known in the industry which the company is or may become engaged”, 2) prohibited disclosing any information relating to actual or potential clients’ products, business plans, designs, or trade secrets, 3) prohibited disclosing information from the company’s “BrainBank”, and lastly 4) prohibited disclosing information relating to the company’s “lead/prospect and customer lists”.  The agreement did not articulate any time or geographical restrictions, which became the main issue in the case and how Mr. Koch asserted that the covenant was not binding or enforceable.  These provisions went into effect when Mr. Koch voluntarily terminated his employment at Newinno and began to work for one of its competitors, Peregrim Development, Inc..

Newinno sought to enforce the provisions and requested an injunction from the court to prevent Mr. Koch’s further employment at its direct competitor in order to prevent any breaches of the covenant by him disclosing confidential information.  The court held in favor of Newinno and stated that the company had met the burden of proof to demonstrate that the facts of the case warranted injunctive relief.  In its decision, the court explained that the issue at the heart of the case was not “whether a reasonableness standard should govern the enforceability of the parties’ confidentiality agreements, but rather concerns [regarding] the exact manner in which the test should be defined or applied”.

Connecticut courts are divided on whether to apply the same criteria and test used to assess non-compete agreements’ enforceability or resort to a more relaxed version of the reasonableness test.  Non-disclosure/confidentiality agreements have traditionally enjoyed treatment that is more favorable under Connecticut laws in the courts than non-compete agreements.  There are not any Connecticut cases, state or federal, that have held that the enforceability of confidentiality agreements hinges on the same standards and test that governs the enforceability of non-compete agreements.  Overall, the courts have concluded that time and geographical restrictions are not necessary in order to enforce a non-disclosure agreement.  This is very divergent from how the courts address the enforceability of non-compete agreements where they generally insist that those provisions are in the text of the agreement.  This trend has led Connecticut courts to apply a modified version of the non-compete enforceability test where the legal analysis takes into account the “purpose of the confidentiality covenants and the specific information sought to be protected.

It is beneficial for an employee to know the difference in the enforcement trends and policies with regard to non-disclosure and non-compete agreements under Connecticut law.  This is especially true when an employment contract contains both covenants and ensuing legal disputes question the validity of each.  A party may succeed on the merits of the case with regard to the enforcement of one covenant and then fail on the merits for the other.

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.

Educational Expenses in Divorce

Pursuant to Connecticut General Statutes § 46b-56c, an educational support order is defined as an order requiring a parent to provide support for a child or children to attend, for up to four full academic years, an institution of higher education or a private occupational school for the purpose of attaining a bachelor’s or other undergraduate degree, or other appropriate vocational instruction.  Parties may request an “educational support order” either at the time of the divorce or at some point afterwards.  If the Court does not enter an educational support order at the time of the divorce, however, the parties must specifically request that it retain jurisdiction over the matter, otherwise they will be precluded from seeking such an order at a later date.

Additionally, although C.G.S. §46b-56c defines “necessary educational expenses,” parties should cite the statute or define the phrase themselves if they enter into a separation agreement.  Indeed, if they fail to do so, the meaning may be left open to interpretation.  In Bollinger v. Feldman, Superior Court, Judicial District of Hartford, Docket No. FA020731923 (Nov. 18, 2010, Adelman, J.), the parties obtained a divorce by way of an agreement containing a provision titled “College Education of the Children.”  When one of the children took a college-level summer course for credit (while still a high school student), the father refused to contribute toward the tuition fee, claiming that it did not fall within the meaning of “college expenses” as set forth in the parties’ agreement.

The Court noted that the parties did not reference C.G.S. §46b-56c in their agreement; rather they used the phrase “all college expenses.”  However, the parties did not define the phrase, include qualifying language such as “reasonable and necessary,” or specify that such expenses would include only post-secondary education.  On that basis the Court held that since the course was given at a college, and the child earned college credits for her work, the expense must be covered under the parties’ agreement.  Given the vast array of expenses associated with sending a child to college, it is important to pay close attention to the language used in a separation agreement.  Indeed, as the case above illustrates, if parties fail to do so, they could find themselves litigating an otherwise avoidable issue.

Should you have any questions about the foregoing article, or if you would like to speak with someone about your own circumstances, feel free to contact Attorney Michael D. DeMeola.  He can be reached by email at mdemeola@mayalaw.com or by telephone at (203) 221-3100.

 

Court Considers Economy in Relocation Case

When a custodial parent would like to relocate, and that relocation would have a significant impact on an existing parenting plan, the moving party must show that the relocation is for a legitimate purpose, the proposed location is reasonable in light of that purpose, and the relocation is in the best interests of the child(ren). C.G.S. Sec. 46b-56d(a). Further, the court should consider, but is not limited to, the following factors: a) each parent’s reasons for seeking or opposing the move; b) the quality of the relationship between the child and the custodial and noncustodial parents; c) the impact of the move on the quantity and quality of the child’s future contact with the noncustodial parent; d) the degree to which the custodial parent’s and child’s life may be enhanced economically, emotionally and educationally by the move; and e) the feasibility of preserving the relationship between the noncustodial parent and child  through suitable visitation arrangements. C.G.S. Sec. 46b-56d(a).

In light of the current state of our economy, it appears as though judges may be assigning greater weight to parties’ economic circumstances, recognizing that it is becoming increasingly  necessary for parties to move considerable distances to obtain (or retain) employment.  Just recently, the Superior Court of New Haven (Gould, J.) permitted a mother to relocate with the parties’ three minor children from Connecticut to Pennsylvania on the basis that, among other things, the move would allow her to transition back into the work force, which the mother claimed would be necessary for her to adequately support her children, and herself.

After considering the statutory criteria set forth above, the Court explained,  “Our society is an increasingly mobile one.  Largely because of the instability and unpredictability of the employment market . . . repeated, separate moves by each parent are coming to represent the norm.” (internal quotations omitted)  J. Wallerstein & T. Tanke ['To Move or Not to Move: Psychological and Legal Considerations in the Relocation of Children Following Divorce,' 30 Fam. L.Q. 305, 310 (1996)].   The Court continued, “Our family law should recognize that reality. Therefore, to serve the best interests of a child in a single-parent family unit, the custodial parent should be permitted to pursue, within reasonable limits, opportunities that could lead to a better life for the parent as well as the child.” (internal citations omitted).

Should you have any questions regarding this posting, please feel free to contact Attorney Michael D. DeMeola at mdemeola@mayalaw.com or by telephone at (203) 221-3100.

Test for Granting a Temporary Injunction for Breach of Connecticut Non-Compete

Test for Granting a Temporary Injunction for Breach of Connecticut Non-Compete

Group Concepts, Inc. v. Barberino, 2004 Conn. Super. LEXIS 1036

Group Concepts, Inc. is a Connecticut corporation that is in the business of condominium association management and has its office in Hamden.  The company entered into a stock purchase agreement on September 11, 2002 to purchase Barberino Real Estate, Inc., a company that managed condominiums and other properties.  Group Concepts had Ms. Tina Barberino sign a non-compete agreement as part of the acquisition transaction.  In exchange for $84,500, Ms. Barberino agreed not to compete with Group Concepts “within the state of Connecticut until September 2004 and from soliciting any of the clients listed on schedule B of the stock purchase agreement for a period of three years”.

Ms. Barberino began to work at Ennis Property Management, Inc. on October 5, 2003 and competed directly with Group Concepts within the state of Connecticut.  She contacted clients enumerated on schedule B of the stock purchase agreement and Group Concepts lost several accounts because of Ms. Barberino’s actions.  Group Concepts sued Ms. Barberino in Connecticut state court for breach of the non-compete agreement and requested an injunction to prevent further violations of the restrictive covenant.  The court granted Group Concepts’ request for an injunction and ordered the enforcement of the non-compete clause through September 30, 2004 and the non-solicitation clause through September 11, 2005, the respective dates as stated in the restrictive covenant.

In order for a court to grant a temporary injunction, the moving party must submit evidence that demonstrates: 1) it does not have an adequate legal remedy, 2) it would suffer irreparable injury absent the injunction, 3) it would likely prevail on the merits of the case, and 4) the injunction would balance the equities of the parties involved in the dispute.  The court said it need not apply the entire test in this case and only analyzed the third and fourth components to hold that the agreement was enforceable and an injunction was warranted.

The court concluded that a preponderance of the evidence submitted by the parties indicated that Group Concepts would most likely prevail on the merits of its suit.  The provisions of the non-compete agreement were reasonable and the facts of the case clearly pointed to a cognizant breach of the non-compete agreement.  The court concluded that the overall fact pattern of the case demonstrated that Group Concepts would likely prevail on the merits and held that the company met this requirement for the granting of the injunction request.

The court also held that an injunction would balance the equities of the parties.  The court felt that an injunction and enforcement of the non-compete was necessary to protect Group Concepts from experiencing a significant business hardship in connection to Ms. Barberino’s breach of the covenant.  Group Concepts paid substantial consideration ($84,500) for its acquisition of Ms. Barberino’s company and relied on it to prevent Ms. Barberino from breaching the non-compete and non-solicitation provisions.  An injunction would prevent Group Concepts from experiencing adverse business trends because of Ms. Barberino’s undeniably unlawful breach 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.

Imminent Risk of Irreparable Harm is Requisite for Enforcing Non-Compete Agreements

Imminent Risk of Irreparable Harm is Requisite for Enforcing Non-Compete Agreements

Minnesota Mining and Manufacturing Co. v. Francavilla, 191 F.Supp.2d 270

The Minnesota Mining and Manufacturing Company (3M) is an international conglomerate that maintains its Optical Component business operations in St. Paul, Minnesota and West Haven, Connecticut.  3M sues the St. Paul facility primarily for research and development while the West Haven office focuses on the manufacturing of optical fibers, one of only a few such facilities in the world.  Mr. Sergio Francavilla worked at the West Haven facility as a Senior Manufacturing Specialist from December 13, 1999 to November 21, 2001.  He oversaw the production of specialty optical fibers and designed a new “Modified Chemical Vapor Deposition Laboratory”.  Additionally, he designed and implemented an improvement project to update the facility’s process that launched in July 2001.

The parties signed an employment agreement on December 13, 1999 that contained a non-compete clause that he could not work for a company that produced competing products with 3M for a period of two years following termination.  The one exception to this provision was that he could work for a competing company so long as it was a “large conflicting organization whose business is diversified” and he accepted employment in a division that was not in direct competition with 3M.  The employment agreement also contains a non-disclosure clause that prohibits any disclosure of 3M’s confidential information that Mr. Francavilla was privy to during his employment with the company.  A final clause stipulated that any product developed by Mr. Francavilla while a 3M employee was 3M’s exclusive property.

Mr. Francavilla submitted a resume to StockerYale, a Massachusetts company that manufactures specialty optical fiber products.  StockerYale extended a job offer to him on October 31, 2001 for the position of Director of Manufacturing/Specialty Optical Fiber.  He tendered his resignation and informed his superiors that his last day would be November 23, 2001 and that his new employer was not a direct competitor.  3M sued Mr. Francavilla in federal court however when it learned the identity of his new employer and asked the court to enforce the non-compete agreement.  The court found that Mr. Francavilla had breached the restrictive covenant and granted 3M’s request for an injunction to prevent Mr. Francavilla’s continued employment at StockerYale.

Mr. Francavilla argued that 3M failed to show that his actions would likely cause irreparable harm to the company.  The court rejected this contention and held that there was a good chance of disclosing former employer’s confidential information when there is “a high degree of similarity between an employee’s former and current employment”.  The imminent risk of irreparable harm is requisite for a court to grant a request for an injunction in connection with a non-compete agreement.  The court felt that there was indeed immediate risk of 3M’s confidential information being disclosed by Mr. Francavilla at his new employer and held that enforcement of the restrictive covenant was necessary to protect that information.  Mr. Francavilla had access to very valuable information during his employment at 3M, specifically in the field of research and development.  The specialty optical fibers industry is quite small and any disclosure of confidential information could prove to be extremely damaging to a company.

The court also addressed the reasonableness of the time and geographical restrictions, concluding that both were reasonable and enforceable.  Two years is not an overly restrictive limitation and only restricts his employment is a very niche industry, leaving him with many options to pursue a career.  The covenant does restrict Mr. Francavilla’s future employment opportunities but “does not force the defendant [Mr. Francavilla] to sacrifice his livelihood”.

While the enforceability of a non-compete agreement hinges on the reasonableness of its provisions, the court focused on the requisite imminent risk of irreparable harm to justify granting an injunction.  The court spent a great deal of time discussing this requisite factor in non-compete legal disputes and stated that it is a crucial component when determining whether to grant a request for an injunction.

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 of Appeals Affirms Validity of Non-Compete Agreement in Breach by Title Insurance Executive

Court of Appeals Affirms Validity of Non-Compete Agreement in Breach by Title Insurance Executive

Ticor Title Insurance Co. v. Cohen, 173 F.3d 63

Mr. Kenneth Cohen worked for Ticor Title Insurance Company for seventeen years beginning in 1981 and ending with his resignation on May 5, 1998.  He was a title insurance salesman that worked his way up in the company, starting as a sales account manager in 1981 and was promoted in 1987 to a senior vice president.  His clients were almost exclusively real estate attorneys in large New York City law firms and he was exclusively responsible for key accounts for the majority of his career with the company.  Ticor and Mr. Cohen signed an Employment Contract on October 1, 1995 that specified an employment term until December 31, 1999 but authorized Mr. Cohen to terminate employment without cause on thirty days’ notice.  A non-compete clause prohibited Mr. Cohen from working for a business entity engaged in the sales or marketing of title insurance in the state of New York for a period of six months.  The agreement contained consideration in the form of a pay raise with a guaranteed annual compensation of $600,000 ($200,000 base salary plus commissions), expense account privileges, and a personal six-person staff.  These were outstanding job privileges and made Mr. Cohen uniquely situated within the company.

TitleServ, a direct competitor of Ticor, offered Mr. Cohen on job on April 20, 1998 and the next day he sent a resignation letter to his superiors at Ticor with an effective date of May 21, 1998.  TitleServ agreed to pay him a $2 million signing bonus and a salary during the six-month period should a court enforce the non-compete agreement.  Before penning his letter of resignation, Mr. Cohen mentioned his possible move to TitleServ to approximately twenty of his clients at Ticor.  Mr. Cohen began work at TitleServ the same week his termination became effective at Ticor.  Ticor sued Mr. Cohen in federal court, requesting the enforcement of the non-compete agreement and enjoining Mr. Cohen from working at TitleServ during the prohibited six-month period.  The federal district court found in favor of Ticor and ordered the non-compete agreement to be enforced.  Mr. Cohen promptly appealed the decision to the Court of Appeals for the Second Circuit that has jurisdiction over Connecticut, New York, and Vermont.  The Court of Appeals affirmed the district court’s decision and held that the non-compete agreement was valid and enforceable.

The court held that equitable relief (in the form of enforcing the non-compete agreement) is necessary when damages would simply prove to be inadequate.  Enforcement of the non-compete in this case is justified according to the court in order to protect Ticor’s confidential information and because Mr. Cohen breached his fiduciary duty when he asked a client to follow him to TitleServ.  The restrictions of the covenant were reasonable in scope so as not to disproportionately or severely hinder Mr. Cohen’s livelihood.  Finding that the agreement did not run contrary to the public’s interest, the court affirmed the lower court’s decision and ordered the non-compete agreement enforced.

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.

“Inevitable Disclosure Doctrine” Fails to Demonstrate Breach of Non-Disclosure and Non-Compete Agreements

“Inevitable Disclosure Doctrine” Fails to Demonstrate Breach of Non-Disclosure and Non-Compete Agreements

EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299

EarthWeb, Inc. v. Schlack, 2000 U.S. App. LEXIS 11446

Mr. Mark Schlack worked for EarthWeb, Inc. from October 19, 1998 to September 22, 1999 as the company’s Vice President of Worldwide Content where he had overall editorial responsibilities for the company’s website.  EarthWeb was started in 2004 and had 230 employees nationwide that provided online products and services to business professionals in the information technology (IT) industry.  The company and Mr. Schlack signed an employment agreement on October 13, 1998 that contained non-disclosure and non-compete clauses.  The restrictions prohibited Mr. Schlack from being an employee of a business entity that directly competed with EarthWeb for a period of twelve months after his termination.  The agreement provided consideration in the form of Mr. Schlack’s salary, performance-based bonus, and stock options.  Mr. Schlack tendered his resignation in September 1999 and informed his superiors at EarthWeb that he had accepted a position with ITworld.com, a subsidiary of IDG, another business connected to the IT industry.

EarthWeb sued Mr. Schlack in federal court and asked it to grant a preliminary injunction to prevent him from working for ITworld.com.  EarthWeb sued in order to protect its confidential information and trade secrets related to several components of its business operations: 1) strategic content planning, 2) licensing agreements and acquisitions, 3) advertising, and 4) technical knowledge.  The company argued that an injunction and the enforcement of the non-compete agreement were necessary to prevent disclosure of its trade secrets and confidential business information.  The federal court denied EarthWeb’s request and the company appealed to the Second Circuit Court of Appeals (jurisdiction over Connecticut, New York, and Vermont).  At the appellate level, the court affirmed the district court’s decision and held that the denial of the injunction and enforcement was proper given the facts of the case.

The Second Circuit had previously held that a demonstration of irreparable harm is the “single most important prerequisite for the issuance of a preliminary injunction”.  Mamiya Co. v. Masel Supply Co., 719 F.2d 42, (1983).  Disclosure of trade secrets and confidential information has traditionally been sufficient to show irreparable harm so long as the harm is imminent.  The mere possibility of harm is insufficient and motions should be denied when the harm described in the complaint is remote and speculative.  This case did not involve actual theft or misappropriation of confidential information, only the possibility of future disclosure.  Mr. Schlack defended himself by asserting that the position awaiting him at ITworld.com was very different from his job at EarthWeb and that he would not have an occasion to divulge any of EarthWeb’s confidential information.  Additionally, he claimed that EarthWeb’s complaint overstated his responsibilities and he was nowhere close to being a senior executive with access to vast amounts of confidential information.

EarthWeb had the burden to show that Mr. Schlack’s breach of the non-compete agreement would create irreparable harm.  The appellate court held that the company had failed to establish that an injunction was reasonably necessary to protect its business interests.  The company failed to produce any evidence that there was an imminent risk that Mr. Schlack would disclose EarthWeb’s confidential information while being employed at ITworld.com.  The court stated that EarthWeb had relied on the “Inevitable Disclosure Doctrine”; a theory the court rejected and commented should only be applied in the rarest of circumstances.  The doctrine heavily relies on speculation and “what ifs” to advance a request for injunctive relief for breach of a non-compete agreement.  This doctrine employed insufficient concrete evidence that there would be a disclosure of confidential information and both the district and appellate courts denied EarthWeb’s request for injunctive relief in the form of enforcing the restrictive covenant.

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.

Constructive Discharge Does Not Invalidate Connecticut Non-Compete Agreements

Constructive Discharge Does Not Invalidate Connecticut Non-Compete Agreements

Drummond American LLC v. Share Corporation, 2009 U.S. Dist. LEXIS 105965

Ms. Martha Mahoney worked for Drummond American LLC, a company that sold commercial grade chemicals and hardware to governmental and industrial customers, as its Connecticut Sales Agent until August 2008.  She was in charge of facilitating contact between the company and its customers.  Drummond had her sign a covenant not to compete as a condition of her employment with the company.  The non-compete agreement prohibited Ms. Mahoney from soliciting orders from or selling competitive products to any customers she solicited or sold to on Drummond’s behalf in the twelve months prior to termination.  The agreement detailed that the restrictions applied for two years following Ms. Mahoney’s termination.  Ms. Mahoney began to work for Share Corporation in August 2008.  The company was a direct competitor with Drummond and had Ms. Mahoney sign an agreement stating that she would honor her non-compete with Drummond during her employment with Share.  She contacted her previous Drummond customers however and sold Share’s products to twelve such customers.

Drummond sued Ms. Mahoney for breach of the restrictive covenant and asked the court to enforce the non-compete clauses.  Ms. Mahoney did not deny that she breached the non-compete agreement but argued that she should not be held liable for her breach because the agreement was invalid.  Her main contentions were that the agreement was unenforceable under the five-prong test as stated  by the Connecticut Supreme Court in Scott v. Gen. Iron & Welding Co., 171 Conn. 132 (1976), and that her constructive discharge invalidated the agreement.  The court ultimately rejected these defenses, found in favor of Drummond, and ordered the non-compete agreement enforced.

In Scott, the court held that a non-compete agreement’s reasonableness is evaluated based on five factors: 1) duration of the restrictions, 2) geographic area of the restrictions, 3) degree of protection afforded to the employer, 4) restrictions on employee’s ability to pursue a career, and 5) any interference with the public’s interests.  Here, the court held that the agreement between Drummond and Ms. Mahoney did not violate any of these factors.  An employer possesses a proprietary right to its customers and is entitled to protect this right for a reasonable period.  The court held that a two-year period was reasonable and enforceable.  Furthermore, the court found that the provisions of the agreement were not overly broad and did not unnecessarily restrict her ability to earn a living.  The covenant only prevents her from soliciting and transacting with twenty-six customers, meaning that there were still thousands of potential clients not excluded under the agreement’s provisions.

The court likewise rejected Ms. Mahoney’s argument that Drummond constructively discharged her and this action invalidated the non-compete agreement.  A constructive discharge is when the employer creates an intolerable work atmosphere that forces the employee to quit involuntarily instead of the employer directly terminating the individual’s employment.  The court held that the nature of an employee’s termination is irrelevant in this respect and does not affect the validity of the agreement and its legally binding nature upon the parties.

All of Ms. Mahoney’s defenses failed under the court’s scrutiny and analysis of the case, rending her liable for her breach 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.

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