Posts tagged with "at-will employment"

Employee Handbook Alert: Seemingly Neutral Work Rule May Violate NLRA

Leave a reply

The National Labor Relations Act (“NLRA”) gives private-sector employees the unqualified right to engage in “protected concerted activity” which includes discussing among themselves such things as wages, hours and other terms and conditions of employment.  An employer cannot promulgate a work rule that tends reasonably to chill employees’ exercise of that statutory right.

Karl Knauz Motors, Inc. owned and operated a BMW dealership.  Its employee handbook contained the following (apparently common sense) rule:

(b) Courtesy: Courtesy is the responsibility of every employee.  Everyone is expected to be courteous, polite, and friendly to our customers, vendors and suppliers, as well as to their fellow employees.  No one should be disrespectful or use profanity or any other language which injures the image or reputation of the Dealership.

The Board’s Decision

In a September 28, 2012 decision, the National Labor Relations Board for two reasons found the rule unlawful “because employees would reasonably construe its broad prohibition against ‘disrespectful’ conduct and ‘language which injures the image or the reputation of the Dealership’” as including employees’ protected statements objecting to and seeking improvement of terms and conditions of employment.

First, there was nothing in the rule that would reasonably suggest to employees that such protected communications were beyond the rule’s broad reach.  Second, an employee would reasonably assume that the employer would “regard statements of protest or criticism as ‘disrespectful’ or ‘injur[ious] [to] the image or reputation of the Dealership.’”

The Board took particular offense to the second section of the rule as specifically proscribing certain types of conduct and statements.  The Board construed these as workplace “lines” that a Karl Knauz Motors’ employee may not safely cross.  In the Board’s estimation, the second section of the rule prohibits not merely a manner of speaking, but rather the actual content of employee speech—content that would damage the employer’s reputation.

Consequently, a reasonable employee would conclude that protected communications about the employer’s allegedly unlawful terms and conditions of employment would expose the employee to employer sanctions for violation of its handbook rule.  Stated differently, the Board felt that compliance with the first section of the rule offered no assurance against sanctions under the second section of the rule.

Final Takeaway

Historically, NLRB decisions have ebbed and flowed depending upon the current occupant of the White House, who appoints the Board’s members.  Lately, the pendulum has continued to swing in the direction of further limiting employer rights to regulate threatening or offensive employee speech, leading one commentator to question whether at-will employment will be relegated to a historical artifact.

The takeaway from the Board’s decision vector is for employers to examine employee handbooks to compare and contrast their language with that found by the NLRB to be unlawful.  The cost of an amendment pales in comparison with the cost of an NLRB investigation and proceeding.  Remember that the NLRA protects  all private sector employees, irrespective of whether or not they belong to a union.

–

The employment and labor law attorneys in the Westport, Connecticut office of Maya Murphy, P.C. have extensive experience in the counseling, negotiation and litigation of all sorts of employment-related issues and assist employers from Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport and Fairfield in ensuring compliance with the applicable law. Contact Joseph Maya and the other experienced employment law attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation.

Three-Year Restriction Found Unreasonable in CPA Non-Compete Agreement

Leave a reply
Haims, Buzzeo & Co. v. Wikstrom, 2003 Conn. Super. LEXIS 2539
Case Background

Ms. Nancy Wikstrom owned a certified public accounting firm, Wikstrom & Company, which she sold to Haims, Buzzeo & Co. (HBC) on January 1, 2001.  The purchase agreement outlined the obligations of the respective parties and contained a non-compete covenant.  Ms. Wikstrom was to stay on as an employee of HBC, continuing to work as a certified public accountant (CPA) and she agreed to bring her clients’ business to the firm.

The non-compete agreement prohibited her, for a period of three years following termination, from soliciting clients and engaging in competing business activities within the city of Stamford, Connecticut.  In exchange for these covenants, Ms. Wikstrom was to receive employment, $30,000 monthly payments to begin on January 1, 2010, and compensation for the sale of her former company’s good will and stock.

The merger of the two accounting firms did not go very well and Ms. Wikstrom left HBC in March 2002 due to dramatic differences in business personality and management style.  She proceeded to start her own accounting firm, the Wikstrom Group, located in Stamford that provided the same accounting services as HBC.  HBC interpreted these actions as clear violations of the non-compete agreement and sued Ms. Wikstrom in Connecticut state court for breach of the restrictive covenant.

The company specifically claimed that she had “actively and purposefully tried to induce her former clients to come with her to the new accounting practice she created, and otherwise attempted to hinder and damage the plaintiffs in their practice”.  Ms. Wikstrom however claimed that the agreement was unenforceable and that she did not violate any legally binding clauses contained in the purchase and employment agreements.

The Court’s Decision

The court ultimately denied HBC’s request for an injunction preventing further violations of the non-compete agreement and concluded that the agreement was in fact unenforceable.  It reached this decision based on several factors: 1) HBS had failed to demonstrate it was likely to succeed on the merits of the case and 2) the company failed to prove that it had incurred irreparable harm because of Ms. Wikstrom’s actions.  After examining the facts of the case and the provisions of the non-compete agreement, the court held that injunctive relief was inappropriate and HBC was not entitled to an injunction restraining Ms. Wikstrom’s business actions.

Reasonability and Enforceability of the Restrictions

The company was not able to meet the burden of proof required to demonstrate to the court that it was likely to succeed on the merits of the case.  Most notably, the court addressed the reasonability and enforceability of the restrictions contained in the restrictive covenant.  The geographical limitation was reasonable in scope but this was not true for the three-year time restriction.

This, according to the court, was unreasonable because Ms. Wikstrom had been practicing as a CPA for over thirty years, had many long-standing loyal clients, and needed income from her chosen profession to sustain herself.  The three-year period was too long, in the opinion of the court, and unnecessarily restricted her business actions and ability to pursue her occupation.

Furthermore, HBC did not demonstrate that it had incurred irreparable harm or that it was likely to do so in the future.  The only clients that left HBC were those that were clients of Wikstrom & Company prior to the merger of the two accounting firms.  The court noted that those clients would actually be harmed if an injunction was granted and held that its denial was the only way to maintain the status quo between the parties.

By denying the request for an injunction, the court permitted HBC and Ms. Wikstrom’s new company to carry on their business activities as they had been doing the previous eighteen months (since Ms. Wikstrom voluntarily terminated her employment with HBC).

–

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.

When an Employee Refuses to Sign a Restrictive Covenant

Leave a reply
Restrictive Covenants

The concept behind restrictive covenants is simple – employees agree that for a reasonable period of time following the termination of employment with their employer, they will refrain from competing with that employer.  So long as the temporal and geographic restrictions are reasonable and so long as the restriction is not harmful to the employer or against public policy, restrictive covenants are generally enforceable.  But what happens when an employee refuses to sign a restrictive covenant? Can an employee be fired for failing to do so?

Courts, including Connecticut, are split as to this particular issue. One position taken by courts is that because the essence of at-will employment is the ability of an employer to fire an employee at any time, for any reason, an employer has the right to terminate an employee for refusal to sign a non-compete.  Conversely, some jurisdictions have held that employees who are terminated for refusing to sign a non-compete may maintain a wrongful termination cause of action against their employers.

–

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.

How to Test a Non-Compete for Reasonableness and it’s Overall Enforceability

Leave a reply
The Test for Reasonableness/Enforceability of a Non-Compete

The application of basic contract principles is just one step in the process of enforcement of a covenant not to compete. Once the court has determined that the parties properly executed a non-compete agreement, it must analyze the enforceability of the agreement’s provisions. Connecticut has developed a five-prong test to assess the enforceability of a restrictive covenant. It examines the reasonableness of the restrictions to determine how enforcement would impact the relevant parties: the employer, the employee, and the public at large. When determining the enforceability of a Connecticut non-compete agreement, the court will look to:

  1. The reasonableness of the time restriction,
  2. The reasonableness of the geographical restriction,
  3. The degree of protection afforded to the employer,
  4. Whether it unnecessarily restricts the employee’s ability to pursue his career, and lastly
  5. The degree to which it interferes with the interests of the public.
Applying the Five-Prong Reasonableness Test

This five-prong test used by Connecticut courts is disjunctive rather than conjunctive, meaning that a non-compete agreement can be deemed unenforceable and invalidated if it negatively impacts even a single factor. A non-compete agreement is analyzed in its entirety when a court is determining its enforceability, but a single unreasonable provision can be sufficient to invalidate the entire agreement and preclude enforcement. While certain factors may assume greater importance, the legal analysis of non-compete agreements in Connecticut shows that each factor is essentially on equal footing and of equal weight when deciding the enforceability of a restrictive covenant.

The factors used in the application of the five-prong reasonableness test can be divided into two categories: enumerated restrictions and subsequent consequences of the express restrictions. Time and geographical restrictions (factors #1 and #2) generally constitute crucial provisions in the non-compete and establish the parameters for what post-termination activities are and are not permissible for the employee. Analysis of the remaining factors involves an assessment of the consequences of the enumerated restrictions and how they impact the parties and the public.

A. Temporal Limitation

The pertinent time/duration will prohibit an employee from engaging in certain enumerated activities for a specific period of time. The reasonableness of a particular time restriction will vary from case to case and will depend heavily on the particular facts of the case and the specific characteristics of the position and industry. A fifteen-year restriction may be appropriate and enforceable in one case while it would be excessive and unreasonable in another.

The nature of the industry/profession that is the subject of a non-compete agreement is critical to determining whether a contractual time restriction is reasonable and enforceable. For example, restrictive covenants in the funeral services industry can be longer due to the familial return rate and referral characteristics while courts have held that restrictive covenants in the software industry must be shorter because of the constant and “rapid changes in the software industry.”

Reasonableness of Restrictions

The reasonableness and enforceability of the time restriction can also be a function of the enumerated geographical restriction. The interrelationship between these two aspects of a covenant not to compete can be very important in determining its overall enforceability. A time restriction that on its face seems unreasonable may in fact be completely reasonable when you take into account the geographical restriction.

A lengthy time restriction on competing activities can be reasonable under circumstances where it is paired with a narrow geographical restriction. A seemingly unreasonable time restriction may be deemed reasonable under the circumstances when “read in conjunction [with] the narrow geographic restriction” contained in the agreement.

B. Geographic Limitation

For many employees, the geographical restriction can be more problematic and of greater concern than the time restriction. The courts in this state have repeatedly asserted that “the general rule is that the application of a restrictive covenant will be confined to a geographic area which is reasonable in view of the particular situation.”

The court analyzes the geographic restriction in the same manner as it evaluates the time restriction- the geographic terms are analyzed in the context of the specific facts of the situation and the particular industry in which the employer and employee are engaged. Non-compete agreements executed under Connecticut law can be invalidated when a geographic restriction is so broad that it severely limits or prevents a former employee “from carrying on his usual vocation and earning a livelihood, thus working undue hardship.”

Valid vs. Invalid Restrictions

A valid restrictive covenant will clearly define the geographic restriction prohibiting the employee upon termination from engaging in competing business activities within a specific area. The total lack of specified geographical restriction creates an unintended consequence in the form of a global restriction on competition, an effect that the courts consider “patently and grossly unreasonable.”

Courts are likely to invalidate a non-compete agreement for lack of a defined geographic restriction regardless of whether that characteristic of the agreement was intentional or purely by mistake. If intentional, a global restriction on competition is unconscionable and unenforceable under Connecticut law. Courts will also refuse enforcement of such a non-compete if the lack of geographical restriction was a mistake or error in drafting and execution. Employers should not be allowed the benefit of enforcing the agreement merely because of an unintended, ambiguous clause that was the product of sloppy drafting of the agreement.

Weighing Respective Consequences

A crucial component in analyzing the enforceability of a geographical restriction is the potential consequences for the employer and the employee. Employers have the right to protect themselves but not by seeking to impose excessive and unreasonable restrictions that needlessly harm or unduly restrict former employees. A court may deny enforcement when the restrictive covenant goes beyond protecting the employer’s legitimate interest in existing customer relationships and seeks to exclude all competition in a very large territory where the employer conducts or could possibly conduct business.

Geographical restrictions, regardless of duration, that go beyond what is required for fair protection of the employer are unenforceable on the grounds that they are unreasonable restraints of trade in direct contravention of Connecticut law. The availability of future employment for the former employee is a major factor in a court’s determination of the enforceability of a geographical restriction. A restriction will be upheld when the circumstances demonstrate that there is ample opportunity for the employee to obtain new employment outside of the contractually prohibited area without causing undue hardship(s).

Enforcing Small vs. Large Geographical Restrictions

Smaller geographical restrictions are generally easier to assess and enforce but this is not to say that a court will automatically deny enforcement of a restriction that on its face establishes a large prohibited area. Courts have enforced non-compete agreements containing a large geographical restriction clause when there are other clauses that narrow the actual prohibited area. One such case involved a restrictive covenant that prohibited competing activities for one year following termination within the area described as the “Standard Metropolitan Statistical Areas of [the] Eastern Seabord,” an area that includes metropolitan areas from Portland, Maine to Miami, Florida, and home to roughly 36% of the country’s population.

This area, at face value, is excessive and would normally be unconscionable to enforce, but the court ultimately held that the geographical restriction clause was valid and enforceable because subsequent clauses placed restrictions on the area and severely limited its impact on the employee by stating that the restriction pertained only to the employer’s clients within the six months prior to termination and on who’s account the former employee had personally worked. This was sufficient to limit the effect of the stated geographical restriction and render it enforceable in light of the peculiar circumstances surrounding the case.

Challenging the Enforceability of Geographical or Time Restrictions

When contesting the enforceability of geographical or time restrictions, the employee ultimately bears the burden of proving that a restriction is “too broad”, “unreasonable,” or “excessive.” Under Connecticut law, the challenging party bears the burden of demonstrating that the non-compete is unenforceable. The employer generally has the benefit of a rebuttable presumption that the employee must overcome to show that a restriction is unreasonable and therefore unenforceable.

C. Fair Protection to the Employer

The third prong in the test for reasonableness and enforceability of a non-compete agreement is an analysis of the fair degree of protection afforded to the employer. The courts in Connecticut have a long-standing policy of enforcing non-competes in order to protect an employer’s interests and have long recognized that a restrictive covenant is a valuable business asset that is entitled to protection.

While the employer’s interests are a valid concern, their protection cannot come at a cost of occupational ruin of former employees. The general rule with regard to analyzing the fair degree of protection for the employer is that contracts in restraint of trade “should afford only a fair protection to the interest of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public [and the former employee].”

The court balances the equities for the parties involved in the legal action. Only after a court has identified and weighed the competing equities of the parties can it conclude that “although some hardship would result to the individual defendants [former employees] as a consequence of this injunction, it would not be greatly disproportionate to the plaintiff’s [employer’s] injury.” A court’s ruling will inevitably favor one party over the other, but this prong ensures that the unsuccessful party does not experience extreme and unduly harsh consequences.

D. The Ability to Secure Future Employment

The fourth prong in the test to ascertain the enforceability of a non-compete agreement is ensuring that the contractual provisions do not unnecessarily restrict the employee’s ability to pursue his or her career through securing appropriate employment upon termination. The general rule is that employers are legally permitted to protect themselves in a reasonably limited market area but may not overreach to the degree that the restriction prevents the former employee from practicing his or her trade in order to make a living.

Connecticut courts believe the interests of the employee should also be protected and that terms of a restrictive covenant become unenforceable when they block him from “pursuing his occupation and [is] thus prevented from supporting himself and his family.” This restraint of trade is a clear violation of Connecticut law and public policy that militates against unreasonable restrictive covenants.

Courts should narrowly read and interpret non-compete agreements and the clauses contained therein because “sound public policy considerations strongly militate against sanctioning the loss of a person’s livelihood.” Despite this general policy, employees remain free to covenant to refrain from competing activities in exchange for an employment benefit, a promise that is enforceable if the courts conclude that the agreement is reasonable.

E. The Public Interest

The final prong of the enforceability test is determining whether the agreement and its provisions interfere with the interests of the public. In order to be valid and enforceable, a non-compete agreement must not have a widespread detrimental effect on the public, particularly with respect to consumers. It is a fundamental tenant of Connecticut public and legal policy that agreements and specific contractual clauses cannot deny the public access to important goods or services. Therefore, the extent of the agreement’s effect on the public must be taken into account when determining whether to enforce a restrictive covenant.

Courts will examine the provisions of the agreement, keeping in mind that “the determinant is not whether the public’s freedom to trade has been restricted in any sense, but rather whether that freedom has been restricted unreasonably.” Thus, a non-compete agreement may be invalidated and enforcement denied on the grounds of the public’s interests only if interference with those interests is so significant as to be classified by the adjudicating court as “unreasonable.”

One of the chief concerns with this prong of the enforceability test is preventing monopolistic activities within certain public segments of the economy. The courts have the authority to examine the scope and severity of a non-compete agreement’s effect(s) on the public as well as the “probability of the restrictions creating a monopoly in the [relevant] area of trade.” Upon examination of the facts and the possible consequences of the restrictive covenant, Connecticut courts may deny enforcement where the agreement runs contrary to public policy and the contractual restraints are unreasonable.

The Purpose of this Enforceability Test

This enforceability test, as articulated in and enforced under Connecticut case law, is designed to protect the legitimate interests of both the employee and the employer. It is utilized in a manner that ensures that the consequences of a restrictive covenant are reasonable, appropriate for the specific circumstances, and not punitive. The enforceability test attempts to control and limit the detriments incurred by a party to the action and protect it from oppressive restrictions. In establishing enforceability, the core principle is the notion that a party should not be subject to excessive and unreasonable restrictions that were “not [designed] to protect legitimate business interests, but rather to prevent [the employee] from working for competitors.”

–

Our employment law firm in Westport Connecticut serves clients with discrimination, non-compete, and general labor law issues from all over the state including the towns of Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best employment and labor law attorneys in CT on staff that can help with your Connecticut or New York education issues today.

If you have questions regarding non-compete agreements or any employment matter, contact Attorney Joseph Maya at 203-221-3100 or by email at JMaya@MayaLaw.com.

Can I Be Fired After Working Only 40 Hours at a Connecticut Restaurant?

Leave a reply

Generally, employment at a restaurant is considered “at-will.”  At-will employment means that the employee can be fired at any time and for any reason, due to the lack of a formal employment agreement.  This is sometimes beneficial for an employee because they may choose to quit their job at any time and for any reason, and are free from any legal repercussions.  This also means that an employer can terminate employment for any reason (or no reason at all) free from any legal repercussions.

If an employee was hired for a position, and then terminated after working only 40 hours, the employer may simply have decided that they no longer need the employee.  In this situation, the employer does not need a reason for terminating an at-will employment.  Although an employee may be terminated at any time, the employee is still entitled to payment for the hours worked.  The Connecticut Department of Labor may provide assistance for retrieving any due payment.  An employment attorney may also provide assistance, and guide an employee through the process.

If you have any further questions related to employment law in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at JMaya@Mayalaw.com.

Continued Employment is Inadequate Consideration in Absence of At-Will Employment

Leave a reply
Cost Management Incentives, Inc. v. London-Osborne, 2002 Conn. Super. LEXIS 3967

Cost Management Incentives, Inc. was a company that specialized in the placement of employees in the pharmaceutical industry.  This case addressed covenants signed by the company and two former employees, Ms. Yolanda London-Osborne and Ms. Kristen Herman.  The company presented the two employees with non-compete agreements in May 1996 after several years of employment.  The restrictive covenant contained a one-year non-compete clause and a two-year non-solicitation clause.

Neither woman was afforded the opportunity to consult with a lawyer to go over the agreement and both felt they were in jeopardy of termination should they refuse to sign.  The agreement did not offer anything in addition to their current salary and benefits.  Mr. David Hallen, the president and Chief Executive Officer of the company, gave them approximately five minutes to skim and sign the agreements, preventing the women from gaining a firm grasp on what their obligations were under the agreement.  The employees continued in their employment in same manner and with the same benefits until the company terminated them.

Inadequate Consideration

Cost Management sued the two former employees and asked the court to issue an order preventing any violations of the covenant.  Ms. London-Osborne and Ms. Herman both sought an order declaring that the agreement was unenforceable on the grounds of inadequate consideration and the inappropriate and egregious conduct of the company’s management.  Both former employees further contended that they did not breach the agreement and there was no indication that they were likely to do so.  The court found in favor of the former employees and held that the restrictive covenants were unenforceable because they lacked consideration and their provisions were so broad that they unnecessarily restricted their ability to procure future employment.

The restrictions in the agreement prohibited employment with any business enterprise engaged in facilitating temporary and/or permanent placement in the pharmaceutical industry for one year after termination.  The court found this specific nation-wide restriction to be reasonable since the company maintained national operations.

The court however found that the two-year non-solicitation clause was unreasonable and rendered the covenant unenforceable.  This was overly broad and restrictive since 70-75% of Cost Management’s business came from a mere six pharmaceutical companies.  The court commented that Cost Management should have tailored this clause to protect its legitimate business interests without placing such an extensive hardship on former employees.  Analysis of the covenants also led the court to hold that the provisions provided the employer with much more protection than was deemed necessary or permissible.

The Court’s Decision

While the finding of unreasonable provisions is sufficient to invalidate a restrictive covenant, the court went on to discuss the lack of consideration, a factor that also renders a non-compete agreement unenforceable.  Connecticut law indicates that continued employment is not adequate consideration for a non-compete agreement for employees that are not working on an at-will basis.  Continued employment is sufficient for employees working on an at-will basis but this was not the case with Ms. London-Osborne and Ms. Herman.

For these reasons, the court denied Cost Management’s request for injunctive relief and declared that the agreements were unenforceable and void under Connecticut law.

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.

Enforcement of a Non-Compete

Leave a reply

The trip-wire for the enforcement of a restrictive covenant is a breach by a former employee of contractual provisions contained in the agreement. An employer is entitled to relief if a former employee is engaging, or threatening to engage, in activities expressly prohibited by a non-compete agreement, that would cause harm to the employer. A former employee’s violation of a non-compete agreement constitutes a breach and “dictate[s] that the plaintiff is entitled to enforce the agreement.”

An employer may also be entitled to relief where the former employee has not yet breached the agreement but is threatening to do so. Under these circumstances, the former employer may be entitled to injunctive relief from the court restraining any breach irrespective of the potential damage.

Injunctive Relief

For an employer to obtain an injunction against a former employee seeking the enforcement of the non-compete agreement, it must demonstrate both breach and incurred or imminent irreparable harm. Breach alone is insufficient to warrant the issuance of an injunction and the courts have held that “a party seeking a temporary injunction must first establish irreparable harm.”

The Supreme Court of the United States has rarely commented on the subject of non-competes but in Doran v. Salem Inn, Inc., the court reiterated the traditional standard for granting injunctive relief, stating that it “requires the plaintiff to show that in the absence of its issuance he will suffer irreparable injury and also that he is likely to prevail on the merits.” Thus, a successful plaintiff must show that it has incurred or is likely to incur irreparable harm from the actual or proposed activities of a former employee constituting a contractual breach.

When determining whether a party has violated the terms of a non-compete agreement courts are sometimes faced with very peculiar circumstances that necessitate further legal analysis. Such situations include those where a party’s actions hover between the permissible and impermissible, questions regarding the similarities between old and new employment, and the permissibility of working for a former client upon termination from the plaintiff employer.

Questions of Degree

Two typical situations that require the court to determine what constitutes prohibited conduct and therefore a breach of a non-compete agreement are (a) defining the parameters of “competing business activity” and (b) discerning the permissible engagement within the restricted geographical area. Some defendants assert the defense that they were merely “marketing” and that this does not amount to a “competing business activity” that would violate a restrictive covenant.

Marketing is in fact a “competing business activity” in violation of non-compete agreements and marketing includes not only the actual sale of products or services, but also any efforts to promote and effectuate a sale of those products or services. Furthermore, the courts have stated that activities that are not competitive on their face may in fact be competitive and therefore constitute a breach of a non-compete agreement if they produce a competing activity.

A second issue is addressing a party’s actions when he engages in activities within the prohibited geographic area, even though the new employer’s place of business does not, itself, violate the terms of the agreement. Courts have consistently held that this situation involves competing business activities and breach of the restrictive covenant.

The specific location of new employment may not violate a non-compete agreement but conducting business operations and acting in furtherance of the new employment within the prohibited area does constitute a breach. Contracts that restrict employment activities focus on competing activities of former employees rather than the particular location of the employee’s new office.

Employment Similarities

Whether, or to what extent, prior and current employment is similar may also impact a court’s determination of whether a breach occurred. Employment, even with a direct competitor, will not create a breach of a non-compete agreement if the details of the case demonstrate starkly contrasting differences between the old and new positions.

A plaintiff employer has the burden of proving that it is likely to succeed on the merits of the case and that the former employee will render “similar services” to the new employer and thereby facilitate unfair economic activities. In order to receive injunctive relief from the court, the plaintiff must submit evidence demonstrating the occupational similarities and how the new employment has or is likely to result in a breach of a non-compete agreement.

Former Clients

A further bone of contention is whether covenants not to compete prohibit an employee from working for a former client that had a relationship with his or her prior employer. Courts have rejected the theory that the prohibition on competing business activities extends to former clients and have concluded that employers are not thereby entitled to enforcement of a non-compete agreement.

Injunctive relief for breach of a non-compete agreement is designed to prevent a former employee from working for a competing company rather than a former client. Connecticut courts will deny injunctive relief when “such relief appears to be more logically directed to an employee engaged in a competing business than to an employee accepting employment not with a competing business, but a former client.” The general rule in Connecticut is that working for a former client, unless specifically prohibited in the non-compete agreement, does not create a breach of the contract.

The Parol Evidence Rule

A final principle of contract law that applies to the enforcement of covenants not to compete is the application of the Parol Evidence Rule, a rule that may prohibit the use of evidence outside the four corners of the non-compete contract concerning matters included within the finalized document. The Parol Evidence Rule essentially prohibits the use of evidence not contained in a finalized agreement that vary or contradict the terms of the contract.

When litigating a case regarding the enforcement of a non-compete agreement, in most cases, parties may not present collateral evidence (written articles, oral representations, etc.) that contradict the finalized written restrictive covenant. A finalized restrictive covenant document will cause most courts to refuse admission of conflicting evidence and to admit some supplemental evidence only to clarify ambiguous provisions of the contract. The courts will consider a contract as the “final agreement” when “there is no evidence to contradict a finding that the parties intended the writing to be the final expression of the parties.”

–

Our employment law firm in Westport Connecticut serves clients with discrimination, non-compete, and general labor law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best employment and labor law attorneys in CT on staff that can help with your Connecticut or New York education issues today.

If you have any questions or would like to speak to an employment and labor law attorney about a pressing matter, please do not hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com. We offer free consultations to all new clients.

Does Termination of Employment Effect My Non-Compete?

Leave a reply
Termination

The enforcement of a non-compete agreement is not dependent upon the circumstances surrounding the termination of the employee. A restrictive covenant can be legally binding whether the employee voluntarily terminates his employment or the employer releases the employee from its employ. Termination does not invalidate a non-compete agreement. A non-compete agreement is legally binding and enforceable post-termination and Connecticut courts have routinely held that “termination of employment at [the] initiative of [the] employer does not itself render [a] non-competition provision invalid.” Furthermore, the enforceability of a restrictive covenant will not turn on whether an employee experienced a voluntary or involuntary termination.

Constructive Discharge

Similarly, constructive discharge does not invalidate a non-compete agreement executed under Connecticut law. A claim of constructive discharge is usually a defense offered by a former employee to argue that although he or she terminated the employment it was only as a result of employer bad faith and impropriety that rendered continued employment virtually impossible.

Constructive discharge occurs “when an employer, rather than directly discharging an individual, intentionally creates an intolerable work atmosphere that forces an employee to quit involuntarily.” The nature of termination is irrelevant to an agreement’s validity and enforceability and “under Connecticut law, there is no reason to believe that a constructive discharge invalidates a covenant not to compete when a straightforward termination otherwise would not.”

Our employment law firm in Westport Connecticut serves clients with discrimination, non-compete, and general labor law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best employment and labor law attorneys in CT on staff that can help with your Connecticut or New York education issues today.

If you have any questions or would like to speak to an employment and labor law attorney about a pressing matter, please do not hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com. We offer free consultations to all new clients.

Relief For a Non-Compete Breach

Leave a reply
Legal vs. Equitable Relief

When a party commences an action against another, it can request from the court two types of relief: legal and equitable. Legal relief typically manifests itself in the form of damages, a judgment that uses money to try to right the wrong. Equitable relief usually involves an order from the court instructing a party to perform or refrain from performing a specified activity. In cases of non-compete/restrictive covenants, the employer will typically request a court order (equitable relief) seeking to enforce the provisions of the agreement and order the former employee to cease engaging in activities that violate the agreement.

In cases involving an alleged breach of a non-compete agreement, equitable relief is the preferred and most common form of relief because the plaintiff employer claims that it has experienced irreparable harm that cannot be measured in monetary terms. Additionally, equitable relief enjoins the other party from further violations of the agreement. Thus, the court order addresses both past and possible future breaches.

Legal and Equitable Relief Awards in Court

Equitable relief is the standard for non-compete agreement cases, but Connecticut courts have, on rare occasion, awarded money damages to plaintiffs as a supplement to equitable relief. For example, in National Truck Emergency Road Service, Inc. v. Peloquin, the court ordered a former employee to return documents that were used in illegal competition, and then awarded damages to the employer for losses directly connected to breach of the non-compete agreement.

In a different case the court awarded only damages, since equitable relief was not a viable option because the non-compete agreement expired by the time the plaintiff commenced the litigation. The court held that the “plaintiff’s request for injunctive relief [had] become moot” due to the expiration, but it allowed the plaintiff to proceed with the action for money damages.

The enforcing party was permitted to introduce evidence and facts that enabled the court to calculate the lost profits directly associated with the breach of the non-compete agreement. The court ultimately concluded that the plaintiff was “entitled to recover damages from the defendant in that amount as to the proven breach of the covenant not to compete.” The court, unable to grant injunctive relief, awarded damages for the breach of a restrictive covenant to compensate for the loss suffered by the enforcing party.

Contract Modification

Under Connecticut law, in cases involving an alleged breach of a non-compete agreement, it may be possible to modify the terms of the contract so as to make an otherwise unenforceable agreement reasonable and enforceable. This results when the parties specifically state in the contract that the court has the express authority to alter its terms in order to enforce it. As another possibility, the court can apply the “blue pencil doctrine,” under which the court, without the express permission of the parties, amends the terms of the agreement to render them reasonable.

The “Blue Pencil Doctrine”

Connecticut recognizes the “blue pencil doctrine” but requires parties to submit evidence from which the court can conduct an informed analysis and establish appropriate geographic and/or time boundaries. If the parties are open to court modification of unreasonable terms to facilitate a valid and enforceable agreement, the more straightforward approach is to include contractual language and clauses in the restrictive covenant itself permitting such court action. An example of such a contractual clause is:

In the event that any provision of this Agreement is held, by a court of competent jurisdiction, to be invalid or unenforceable due to the scope, duration, subject matter or any other aspect of such provision, the court making such determination shall have power to modify or reduce the scope, duration, subject matter or other aspect of such provision to make such provision enforceable to the fullest extent permitted by law and the balance of this Agreement shall be unaffected by such validity or unenforceability.

Under this scenario, both parties consent to giving the adjudicating court the express power to modify terms of the restrictive covenant in order to make the contract, as a whole, reasonable and fully enforceable under Connecticut law.

The “Blue Pencil Rule” vs. the “Massachusetts Rule”

When determining whether to modify a geographical restriction, courts will generally subscribe to and apply either the “blue pencil rule” or the “Massachusetts rule.” These rules are divergent with respect to a court’s ability to modify geographical terms based on whether the area is divisible according to the language of the contract.

The “blue pencil doctrine” permits courts to modify geographical restrictions only when the contractual language creates several distinct areas; the “Massachusetts rule” is much more lenient and allows a court to modify the terms “even though the territory is not divisible in the wording of the contract.” Connecticut courts are more receptive to the application of the “blue pencil doctrine” and feel that the “Massachusetts rule” gives the court expansive, broad powers that, when exercised, result in courts crafting new contracts between the parties.

Connecticut follows the “line of authority which states that if the territory specified in the contract is by the phraseology of the contract so described as to be divisible, the contract is separable and may be enforced as to such portions of the territory so described as are reasonable.” One such case where the court applied the “blue pencil rule” was EastCoast Guitar Center, Inc. v. Tedesco, where the court held that the original “geographic area in the agreement [was] too broad and [was] not reasonable or necessary to protect the plaintiff’s business.”

The court dissected the contractual language pertaining to the geographical restriction and reduced it to certain enumerated counties (Fairfield, Litchfield, and New Haven) in order to make the agreement reasonable and enforceable.

Modifying Time Restrictions

Modifications to contractual time restrictions can also occur based on a contractual provision or a court’s application of the “blue pencil rule.” Connecticut courts have asserted that they may “reduce the time limitation because of the ‘blue-pencil rule’ which states that under certain circumstances, a court may enforce parts of an agreement and not others.”

In the absence of a contractual provision consenting to modifications, parties can demonstrate to the court that they are open to the possibility of the court modifying the restrictions during the litigation process. This provides the court with a certain degree of freedom to assess the current time restriction and reduce its length if the court finds it excessive and unreasonable.

Courts can simply reduce the duration of the time restriction, and may instruct the parties to submit arguments regarding a potential extension to the full contractual period of time prior to expiration of the new restriction. In the latter situation, the court will consider the specific facts of the case in determining whether it is necessary to enforce the original provision of the agreement.

–

Our employment law firm in Westport Connecticut serves clients with discrimination, non-compete, and general labor law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best employment and labor law attorneys in CT on staff that can help with your Connecticut or New York education issues today.

If you have any questions or would like to speak to an education law attorney about a pressing matter, please don’t hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation.

Violations of a Restrictive Covenant

Leave a reply

There are various circumstances under which an individual can be found in violation of a restrictive covenant. The two most common types of activity that result in litigation are (a) the solicitation of prohibited parties in violation of the time and/or geographical restrictions and (b) the unauthorized dissemination of confidential and proprietary information belonging to the plaintiff employer.

A. Solicitation

Solicitation activities can generally be divided into two categories: direct solicitation and indirect solicitation.

Direct Solicitation

Under a theory of direct solicitation, the employer alleges that the former employee personally solicited business in violation of the covenant not to compete. The employer bears the burden of proof and must submit sufficient evidence to the court showing that the former employee knowingly took action to solicit business from prohibited parties.

Indirect Solicitation

On the other hand, cases involving the theory of indirect solicitation have a plaintiff employer that “support[s] its position that one who is not a party to a non-compete contract can be enjoined from activity prohibited by the contract where the person or entity is operating indirectly for the party to the contract.” Under this scenario, the employer alleges that a former employee induced a third party to engage in activities the employee personally was contractually prohibited from doing, using knowledge or information that the employee acquired during his or her employment with the plaintiff employer.

In order to be successful in an “indirect solicitation” claim, the employer must demonstrate that the actions the nonaffiliated parties evince “conscious disregard” of the non-compete agreement by the former employee. A court may find breach even though the employee did not personally violate its terms but instead used information to induce a third party to perform activities that would otherwise be considered a contractual breach.

Allegations of impermissible solicitation are only valid and successful if the target of the solicitation is actually a prohibited party within the purview of the terms of the non-compete agreement. There are many categories of clients or customers that may or may not be protected, a characteristic that is determined by the nature of the client or customer.

Current and Past Clients

The business sources that an employer seeks to protect with a restrictive covenant are its current and past clients. A restriction limited to the plaintiff’s current and past customers is not overly broad, unreasonable, or unenforceable under the laws of Connecticut. Current clients are easily and readily identifiable, giving courts relatively few issues with determining who falls into this class of clients. On the other hand, past customers can be a bit trickier in the sense that certain companies have very long histories, a sizable client base, extensive geographical presence, and diversified subsidiaries.

Many employers place limitations in their non-compete agreements with regard to who is protected as a “past client.” Common restrictions for defining “past clients” include establishing a period of time the client has been affiliated with the company, as well as specifying that the employee is only prohibited from soliciting those clients that he or she had a professional relationship with and on whose account the employee worked. Such restrictions make the provisions themselves more reasonable, and courts look favorably on limitations that reduce the scope of the restraint on trade and appropriately define the client class.

Potential Clients

A more difficult classification of clients to identify is “potential clients.” This class is much more amorphous and, in theory, every participant in the economy could be a potential client. A restrictive covenant encompassing potential clients creates a virtually limitless prohibition on solicitation for the employee upon termination. Enforceability under this scenario greatly depends on the agreement’s definition of “potential clients.”

Restrictions on potential clients are reasonable and enforceable so long as the clients classified as such are “readily identifiable and narrowly defined.” Therefore, a clause that prohibits the solicitation of potential clients is permissible and enforceable so long as the agreement narrowly and specifically construes this class of clients.

Personal or Private Clients

Companies that engage in service-based industries – professions including but not limited to lawyers, doctors, accountants, financial advisors, hair stylists, and personal trainers – potentially have an additional class of clients to consider when drafting a restrictive covenant and suing for its enforcement. Many professionals in a service-based industry have “personal or private clients” that are not affiliated with their employer but to whom the professional provides services on the side and off the company’s clock.

Even upon executing a non-compete agreement, employees are generally not enjoined from continuing to provide services to personal or private clients. Because these clients did not have an official relationship with the employer, courts have held it would be unfair to include them on lists of prohibited clients. These personal clients are not receiving services from the employee as a result of a business connection to the employer, and as such they fall outside the protections and restrictions enumerated in any restrictive covenants.

B. Use of Confidential/Proprietary Information

The second common activity alleged to constitute breach of a non-compete agreement is the employee’s dissemination of confidential or proprietary information that gives his new employer an economic advantage, thus creating unlawful competition. Former employees cannot “use trade secrets, or other confidential information he [or she] has acquired in the course of his employment [with the plaintiff employer], for his [or her] own benefit or that of a competitor to the detriment of his [or her] former employer.”

To qualify as confidential information or a trade secret in Connecticut, the information must reflect a substantial degree of secrecy. Employers typically seek injunctive relief when the alleged breach of a restrictive covenant takes the form of the misappropriation of confidential information. Legal remedies are inadequate in most, if not all, of these cases because the “loss of trade secrets [and/or confidential information] cannot be measured in money damages…[because a] trade secret, once lost is, of course, lost forever.”

Trade Secrets

Connecticut has developed several statutes pertaining to “trade secrets” and their unlawful misappropriation that clearly contravenes non-compete agreements. A category of confidential information, trade secrets are “the property of the employer and cannot be used by the employee for his own benefit [or the benefit of another].”

Connecticut courts use the term “trade secret” to mean any “formula, pattern, device, or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” The content of a trade secret must be undisclosed, and courts will not enforce a non-compete agreement to protect knowledge that is generally and widely known in the respective industry or that is publicly disclosed.

What information qualifies as a trade secret?

When determining whether certain information qualifies as a trade secret and entitles the owner to protection under a non-compete agreement, the court examines the following factors:

(a) the extent to which the information is known outside the business,

(b) the extent to which the information is known by employees and others involved in the business,

(c) the extent of measures taken by the company to guard the secrecy of the information,

(d) the value of the information to the company and its competitors,

(e) the amount of effort and money expended by the company in developing the information, and

(f)  the ease or difficulty with which the information could be properly acquired or duplicated by others.

Misappropriating Trade Secrets and Confidential Knowledge

The elements of breach of a restrictive covenant by misappropriating trade secrets and confidential knowledge hinge on the defendant acquiring, disclosing, or using the knowledge via “improper means.” Under Connecticut law, “improper means” includes theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means, including but not limited to searching through trash.

Furthermore, Connecticut has a statute of limitations with regard to actions against a party for the misappropriation of trade secrets and confidential knowledge in contravention of a covenant not to compete. Parties are barred from commencing an action beyond three years “from the date the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” The statute further states that a continuing misappropriation constitutes a single claim for the purposes of the statute of limitations.

Implied Duty of Non-Disclosure

Connecticut law espouses the principle of an implied duty to not disclose confidential information to other parties, even in the absence of a non-compete agreement. Courts routinely uphold this implied duty related to employment law and the Supreme Court of Connecticut has stated that “even after employment has ceased, a former ‘employee’ remains subject to a duty not to use trade secrets, or other confidential information, which he has acquired in the course of his employment for his own benefit or that of a competitor, to the detriment of his former employer.”

As with most rules, however, there are some limited exceptions. Business-client relationships and corresponding information that predate employment with the employer are not protected by the implied duty not to disclose. “[I]n the absence of a covenant not to compete, an employee who possessed the relevant customer information prior to the former employment is free to use the information in competition with the employer after termination of the employment relationship.”

Retaining Confidential Information

In some cases, the act of merely retaining confidential information can constitute a breach of a non-compete agreement, and the employee need not actually exploit the knowledge for the court to grant injunctive relief. In one such case, TyMetrix, Inc. v. Szymonik, an employee retained physical possession of confidential information, claiming he kept it in order to assist in the litigation with his former employer.

This act, regardless of the employee’s reasons, nonetheless violated the non-compete agreement between the employer and employee . The court specifically held that “whether Szymonik [the former employee of plaintiff employer] has used the information on the DVDs is not, at this point in the proceedings, the relevant consideration. His possession and retention of the DVDs [that contained confidential information] is in violation of the terms of the employment agreement.”

Non-compete agreements often contain a clause regarding non-disclosure of confidential information acquired or to which the employee is exposed during the employment relationship. However, some employee-employer contracts separate these restrictions into two separate agreements.

Historically, Connecticut courts have favored the enforcement of non-disclosure/confidentiality agreements compared to covenants not to compete, since the protection of a company’s proprietary and confidential information is far more clear-cut than granting an injunction that results in the restraint of trade or potential employment. Time and geographical restrictions are not necessary for the enforcement of a non-disclosure agreement, and courts have the discretion to apply the “reasonableness” test or a relaxed version of the test.

–

Our employment law firm in Westport Connecticut serves clients with discrimination, non-compete, and general labor law issues from all over the state including the towns of: Bethel, Bridgeport, Brookfield, Danbury, Darien, Easton, Fairfield, Greenwich, Monroe, New Canaan, New Fairfield, Newton, Norwalk, Redding, Ridgefield, Shelton, Sherman, Stamford, Stratford, Trumbull, Weston, Westport, and Wilton. We have the best employment and labor law attorneys in CT on staff that can help with your Connecticut or New York education issues today.

If you have any questions or would like to speak to an employment and labor law attorney about a pressing matter, please don’t hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at (203) 221-3100 or JMaya@Mayalaw.com to schedule a free initial consultation.