H & R Block Eastern Tax Services, Inc. v. Brooks, 2000 U.S. Dist. LEXIS 19369
The Employment Agreement
Mr. Donald Brooks worked for H & R Block Eastern Tax Services, Inc. as an Accounting Service Manager from December 30, 1996, when he sold his business assets to H & R Block until the company terminated his employment on May 31, 2000. The closing of the Asset Purchase Agreement was contingent on the execution of an employment agreement.
Under the agreement, H & R Block employed Mr. Brooks on a year-to-year basis but had the authority to terminate him at any time without notice. The employment agreement contained a covenant not to compete that prohibited Mr. Brooks for two years after termination from soliciting H & R Block’s clients and offering competing business services within a twenty-five mile radius of the company’s offices in the sales district where he worked. The non-compete agreement also stated that Missouri law would govern the contract and any legal disputes.
Mr. Brook’s termination became effective on May 31, 2000 and he began providing accounting/tax services to former H & R Block clients. The company sued him for breach of the covenant not to compete and requested that the court enforce the provisions of the agreement. He claimed that the covenant was unenforceable and therefore his actions did not constitute a breach that entitled the company to any type of relief. The federal district court found in favor of H & R Block and granted the company’s request for injunctive relief by enforcing the non-compete agreement executed by the parties at the beginning of Mr. Brooks’s employment.
The Court’s Analysis
In its legal analysis, the court evaluated whether to apply the choice of law provision and examined the reasonableness of the agreement. The covenant designated Missouri law as the choice of law because that was the location of the company’s corporate headquarters. The agreement stipulated that Missouri law would apply to disputes except when Missouri had no connection to the contract or when its law contradicted public policy of a state with a materially greater interest in the issue. The court concluded that Missouri had similar laws and public policy with regard to contract, employment, and non-compete principles.
Both states (Connecticut and Missouri) enforce covenants that “impose reasonable restrictions” in order to safeguard the “protectable interests” of a former employer. Furthermore, both states stress that enforcement of a restrictive covenant must balance the need to protect the employer from unfair competition without unnecessarily restricting the employee’s ability to secure future employment. The court approved the use of Missouri law due to its similarities with Connecticut state law and the application of very similar tests to ascertain an agreement’s enforceability.
The Agreement’s Restrictions
Next, the court analyzed whether the provisions in the agreement were reasonable limitations and did not excessively restrict Mr. Brooks’s ability to pursue his occupation following his termination from H & R Block. The court found that the restrictions were temporary and spatially limited. The agreement specifically prohibited “soliciting, diverting, or taking” business away from H & R Block and the restrictions inserted into the employment contract reflect this objective.
The language and provisions of the covenant restricted competing activities in the Greater Hartford Area but left Mr. Brooks free to practice in the majority of the state of Connecticut and the rest of the country. These restrictions thus protected H & R Block’s legitimate business interests and did not create excessive hardships for Mr. Brooks. The court found that the covenant not to compete was enforceable under the laws of both Missouri and Connecticut.
The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. 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.