Posts tagged with "breach"

Connecticut Federal Court Applies Louisiana Law to Enforce Non-Compete to Protect Confidential Information

In United Rentals, Inc. v. Myers, 2003 U.S. Dist. LEXIS 25287, United Rental, Inc. was a Delaware corporation with principal business operations in Connecticut that employed Ms. Charlotte Myers in its Shreveport, Louisiana office from May 20, 2002, to March 7, 2003.  She signed an employment agreement with United Rentals on her first day of work that contained non-compete and confidentiality clauses that prohibited employment for a period of twelve months at any competing company located within one hundred miles of a United Rentals location where she worked.

The restrictive covenants further stated that the state and federal courts in Fairfield County, Connecticut would have jurisdiction in the event that legal proceedings ensued.  Upon her voluntary termination from United Rentals, Ms. Myers began to work at Head & Enquist Equipment, Inc., a competitor, at an office located approximately ten miles away from the United Rentals’ Shreveport office.  United Rentals contacted her to remind her of the restrictive covenants and her obligations under them but she continued her employment with Head & Enquist.

The Lawsuit

United Rentals sued Ms. Myers in Connecticut federal court for breach of the non-compete and confidentiality agreements and sought a court injunction to enforce their provisions.  The court found in favor of United Rentals and granted its request to enforce the non-compete agreement.

Ms. Myers presented various arguments to the court to persuade it to deny enforcement of the agreement, but the court ultimately found in favor of United Rentals.  She argued that Louisiana law should be controlling in the legal dispute, and further asserted that Louisiana law does not permit “choice of law” clauses in employment agreements.

The court investigated Ms. Myers’ contention and explained that the proper procedure to determine if a “choice of law” clause is permissible is to consult the law of the state being selected, in this case, that of Connecticut.  Connecticut law however cannot be the “choice of law” state when there is another state with a “materially greater interest…in the determination of the particular issue”.  The court held that Louisiana did in fact have a greater interest in the dispute and thus Louisiana law was applicable and controlling for the case.

The Court’s Decision

Although Louisiana law is less than favorable to United Rentals with regard to “choice of law” clauses, it still recognizes that parties are entitled to a remedy in connection with a violation of a confidentiality agreement “if the material sought to be protected is in fact confidential”.  Courts generally view the disclosure of confidential information as sufficient evidence for a company to establish that it would suffer irreparable harm if an injunction were not granted.

During her employment with the company, Ms. Myers was exposed to and had access to United Rentals’ trade secrets, contract details, customer data, financial information, and marketing plans/strategies.  The court held that this was clearly sensitive and confidential information, the content of which entitled United Rentals to protection in the form of a court-ordered injunction.

The court held for United Rentals despite applying Louisiana law in response to Ms. Myers’ justified assertion that this specific “choice of law” provision was not valid.  Although Louisiana law shuns “choice of law” provisions in non-compete agreements, it does support injunctions when it is necessary and proper for a company to protect its confidential business information.

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

Connecticut Court Uses Oral Agreement to Substantiate Consideration for Non-Compete Agreement

In Command Systems, Inc. v. Wilson, 1995 Conn. Super. LEXIS 406, Mr. Steven Wilson worked for Command Systems, Inc. where he received a promotion to the position of Vice President and Secretary of the company on June 26, 1990.  In September of that year, management informed Mr. Wilson that he would receive a bonus contingent on the company achieving certain sales goals.  The company did achieve the specified goals in December 1990 but the company informed Mr. Wilson that he needed to sign an agreement containing a contractual non-compete clause before he could receive the bonus.  The parties signed an agreement on December 21, 1990, that contained several restrictive covenants.

Mr. Wilson voluntarily terminated his employment with Command Systems a few years later and formed a new company, the Vertex Company.  The creation of the new company and Mr. Wilson’s actions are the basis of Command’s complaint regarding the breach of the December 1990 non-compete agreement.  Mr. Wilson requested summary judgment on the matter because the agreement lacked consideration and was therefore not legally binding on the parties.

The court had to answer the basic question of whether the 1990 agreement with the contractual restrictions was a valid and enforceable contract.  The court ultimately denied Mr. Wilson’s request for summary judgment and found that the agreement between the parties had adequate consideration and constituted an enforceable contract.  The agreement stated that the consideration for the agreement was “Wilson’s appointment as Secretary of Command”, but he had held this title for several months prior to the non-compete agreement.  The court recognized this but looked beyond this clause of the agreement to identify adequate consideration in relation to Mr. Wilson’s promotion.

The Court’s Decision

The court looked to affidavits provided by Mr. Caputo, Command’s president, to find adequate consideration for the agreement.  The court did not find any factual holes in Mr. Caputo’s statements and had no reason to believe that they contained any misrepresentations, omissions, or lies.  The affidavits repeatedly referenced several conversations between Mr. Caputo and Mr. Wilson, especially an oral agreement wherein Mr. Wilson agreed to sign a non-competition restriction in exchange for being promoted to Secretary of the company.  Mr. Caputo stated, “The decision to make Wilson Secretary of the plaintiff corporation was based on his agreement to sign the contract of employment” in December 1990 that contained the restrictive covenants.

Command provided Mr. Wilson with the non-compete contract when he received the paperwork that officially named him Secretary, although the parties did not sign the agreement until several months later in December.  The contract contained language and clauses that highlighted that Mr. Wilson was being made Secretary of the company in exchange for the execution of an employment agreement restricting future employment activities.

The court used the information from Mr. Caputo’s affidavits to hold that there was an understanding between the parties at the time of Mr. Wilson’s promotion that it was contingent upon the execution of a non-compete agreement.  The court interpreted the oral agreement and the contract presented at the time of promotion as contemporaneous evidence that the non-compete agreement was in fact supported by adequate consideration.  Mr. Wilson failed to meet the requisite burden of proof in demonstrating that the agreement lacked consideration and the court denied his request for summary judgment.

If you have questions regarding non-compete agreements or any employment matter, contact Joseph Maya at 203-221-3100 or by email at

Court Grants Combination of Equitable & Legal Relief for Breach of Non-Compete Agreement

In Party Time Deli, Inc. v. Neylan, 2001 Conn. Super. LEXIS 2411, Mr. Michael Neylan and Mr. Robert Goldkopf entered into an agreement on November 29, 1996, wherein Mr. Neylan agreed to purchase Party Time Deli, Inc. for $110,000.00 in addition to executing a promissory note on December 1, 1996, for the amount of $35,000.00 as consideration for Mr. Goldkopf consenting to a non-compete agreement.

The Non-Compete Agreement

The restrictive covenant identified Mr. Goldkopf as the party “primarily responsible for the day-to-day operation of the business known as Party Time Deli, Inc.” and prohibited him from directly or indirectly engaging in a delicatessen-type business within the City of Stamford for three (3) years following the date of closing for Mr. Neylan’s purchase of the company.  The $35,000.00 promissory note served as consideration for the covenant not to compete and was to be paid over a period of four (4) years.

Mr. Neylan failed to deliver the full amount of the promissory note to Mr. Goldkopf because he asserted that Mr. Goldkopf violated the terms of the non-compete agreement by operating the concession stand at the Stamford Yacht Club during the summer months of 1998.  Mr. Goldkopf contended that his actions did not violate the agreements between the parties because they did not specifically state whether the Stamford Yacht Club concession was covered by the covenant’s prohibitions.

He further argued that he was owed the balance of the promissory note, valued at $18,903.94 at the time of trial.  Mr. Goldkopf sued Mr. Neylan to recover the balance of the promissory note and Mr. Neyland submitted a counterclaim for lost profits associated with Mr. Goldkopf’s alleged breach of the non-compete agreement.

The Court’s Decision

The court concluded that Mr. Goldkopf had indeed violated the terms of the covenant not to compete when he operated the Stamford Yacht Club concession stand during the summer of 1998 and that Mr. Neylan was entitled to the enforcement of the agreement’s terms.  While the court decided that Mr. Neylan was required to pay the balance of the promissory note that served as consideration for the non-compete agreement, that amount could be offset by the amount of profits from Mr. Goldkopf’s activities from the summer of 1998.

The court determined that Mr. Goldkopf’s unlawful activities resulted in a $25,000.00 lost profit suffered by Mr. Neylan, the amount that offset the balance of the promissory notes.  Based on the claim and counterclaim of the dispute, the court concluded that Mr. Goldkopf owed Mr. Neylan $6,096.06, an amount calculated by putting the $18,903.94 balance on the promissory note against the $25,000.00 lost profits associated with unlawful activities.

While the typical relief for a case involving an alleged breach of a non-compete agreement is an injunction (equitable relief), this case is an example where the court exercised its authority to grant both legal and equitable relief.  The court ordered the enforcement of the non-compete agreement’s provisions and also awarded damages due to moneys associated with the agreement’s consideration and profits generated from activities that violated the agreement’s terms.

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

Non-Compete Invalidated Due to Unnecessary Restrictions on Future Employment

Connecticut Bathworks Corp. v. Palmer, 2003 Conn. Super. LEXIS 2193

Connecticut Bathworks Corporation was a company servicing New Haven, Fairfield, and Litchfield counties that remodeled bathrooms via the installation of prefabricated acrylic bathtub liners and wall systems.  The company employed Mr. Palmer from approximately the beginning of April 2001 to February 28, 2003 at which point Mr. Palmer voluntarily terminated his employment.  He began to work for Re-Bath of Connecticut, a company in direct competition with Bathworks, the next day.

The issue in this case is that Mr. Palmer signed a “Company Confidentiality Agreement” when he began to work for Bathworks that contained a covenant not to compete that prohibited him from “being employed by any business in competition with the plaintiff [Bathworks] within any county in which the plaintiff is doing business for a period of three years from the termination of his employment with the plaintiff”.  This created a three-year prohibition on working for a competitor with the tri-county area of New Haven, Fairfield, and Litchfield.

Bathworks sued Mr. Palmer in Connecticut state court and requested an injunction to enjoin him from further violations of the non-compete agreement.  The court analyzed the facts of the case, held in favor of Mr. Palmer, and denied Bathworks’s request for injunctive relief.  The court’s decision ultimately came down to the issue of whether Mr. Palmer’s employment with Re-Bath would negatively affect Bathworks’s interests and business operations.  Bathworks carried the burden of establishing the probability of success on the merits of the case and the court held that it failed to present sufficient evidence to indicate it would be directly and immediately harmed due to breach of the restrictive covenant.

The Court’s Decision

Bathworks argued that Mr. Palmer acquired valuable trade secrets and information during his employment with the company and that his continued employment with Re-Bath would harm its operations.  The court however found that Mr. Palmer, as an installer, did not have access to Bathworks’s confidential information or any trade secrets that would put the company at a competitive disadvantage.  The court further noted that while Mr. Palmer was a skilled laborer, he was not a high-level executive, nor did he provide “special, extraordinary, or unique” services.  Bathworks also failed to present any evidence to show that Mr. Palmer knew of or took part in the company’s sales/marketing activities or the development of a business strategy.

The court stated that its role in deciding the case was to balance the parties’ interest to fairly protect Bathworks’s business while not unreasonably restricting Mr. Palmer’s right to seek employment elsewhere.  This agreement however, according to court, unnecessarily restricted Mr. Palmer’s right to work at another company because there was nothing about that employment which would disadvantage Bathworks in the industry.  The non-compete agreement went beyond what was reasonably necessary to protect the company’s interests and as such, the court denied Bathworks’s request for an injunction.

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

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”.

The Non-Compete Agreement

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.

The Court’s Decision 

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’”.

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

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

Lawrence R. Gilmore v. Scott T. Brandt, 2011 WL 5240421 (D. Colo. Oct. 31, 2011).

In a case before the United States District Court for the District of Colorado, Lawrence Gilmore (“Gilmore”) filed a motion to confirm the Financial Industry Regulatory Authority (“FINRA”) arbitration award in his favor, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Scott Brandt (“Brandt”) responded by filing a motion to vacate the FINRA award pursuant to the FAA, 9 U.S.C. § 10.  The court granted Gilmore’s motion to confirm the award, entered judgment for the award, and denied Brandt’s motion to vacate the award.

Case Details

The dispute underlying the FINRA arbitration began when Brandt, a representative of Lighthouse Capital Corporation, suggested that Gilmore invest $92,000 in Diversified Lending Group, Inc. (“DLG”).  Gilmore made the investment, which was quickly decimated.  Gilmore alleged that DLG was a Ponzi scheme and filed a Statement of Claim with FINRA.  Rather than seek a stay of arbitration, Brandt contested the issue of arbitrability by appending a statement of jurisdictional objection to his FINRA Arbitration Submission Agreement and raising jurisdictional objections throughout the arbitration proceedings.

FINRA appointed a panel of arbitrators to hear the matter; however, the arbitration panel did not directly address Brandt’s jurisdictional challenge.  In December 2010, the panel issued an arbitration award in Gilmore’s favor for compensatory damages of $106,024.68, post-judgment interest, and attorneys’ fees.

Arbitrability of a Dispute

In his motion for vacatur, Brandt argued that he never entered into an arbitration agreement with Gilmore; therefore, their dispute should not have been subjected to arbitration. The district court found that Brandt had sufficiently preserved his objection to arbitrability, and that it fell to the court to decide whether the dispute was in fact arbitrable.

Because arbitration is entirely a matter of contract, a party cannot be required to arbitrate a dispute that it has not agreed to submit to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995).  When Brandt first sought to be licensed to sell securities, he executed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”), which contained a section agreeing “to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA].”

The court determined that the agreement embodied in Brandt’s Form U-4 would constitute an agreement to arbitrate the dispute with Gilmore only if FINRA rules required this dispute to be arbitrated.

FINRA Rule 12200

FINRA Rule 12200 is a broad provision that generally applies to any customer dispute arising in connection with the business activities of a FINRA member.  Specifically, FINRA Rule 12200 requires that a dispute must be arbitrated under the FINRA Code of Arbitration Procedure if: (1) arbitration is required by written agreement or requested by a customer; (2) the dispute is between a customer and a FINRA member or associated person; and (3) the dispute arises in connection with the business activities of the FINRA member or associated person.

By submitting his Statement of Claim to FINRA for arbitration, Gilmore was clearly requesting arbitration of the dispute.  The district court found that Gilmore was in a customer relationship with Brandt because Brandt had induced him to invest in DLG.

The Court’s Decision

Additionally, the district court found that Gilmore’s claims related to Brandt’s recommendation of an investment in particular securities fell within the class of disputes reasonably regulated by FINRA.  Therefore, the district court determined that FINRA Rule 12200 required the dispute between Gilmore and Brandt be submitted to arbitration.  Because of this result, Brandt’s U-4 Form was determined to be his agreement to submit to arbitration of the dispute.

Because the arbitration panel had jurisdiction to decide the dispute, the award decision is entitled to deference by the federal court.  9 U.S.C. § 9-11.  Because Brandt provided no argument that satisfied the statutory grounds for vacatur of an arbitration award, 9 U.S.C. § 10(a), the court granted Gilmore’s motion for confirmation of the arbitration award of compensatory damages of $106,024.68, with interest, and attorneys’ fees.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at

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.

The Lawsuit

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.

Evaluating Non-Compete Reasonableness

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.

Constructive Discharge

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.

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

Effects on a Non-Compete Agreement When a Company Splits and Grants a License to the New Entity

Multicare Physicians & Rehabilitation Group, P.C. v. Wong, 2006 Conn. Super. LEXIS 1351

Multicare Physicians & Rehabilitation Group, P.C. was a Connecticut company that provided healthcare services and maintained offices in Milford, Ansonia, Wallingford, and Cheshire.  Dr. Wong began to work for the company and executed an employment agreement on January 21, 2004, pursuant to the company’s employment regulations and standards.  There was a restrictive covenant in paragraph nine of the agreement that prohibited Dr. Wong from practicing within fifteen miles of “the corporation’s offices” within the four towns previously mentioned for a period of two years following termination.  The agreement stated that Physicians would be entitled to equitable and legal damages (a court ordered injunction and monetary relief respectively) in the event of a breach.

The company split up in the summer of 2004 into Physicians and a new company, Multicare Medical Center, P.C. (“Medical”), that practiced out of the Milford and Ansonia offices previously occupied by Physicians.  Physicians licensed “the Name” to Medical in exchange for consideration for $10, and this license gave Medical the right to brand and advertise itself as Physicians.  Medical officially became “independently owned company” on August 6, 2004.

In August 2005, Dr. Wong gave Physicians notice that he would not be renewing his employment contract with them and then proceeded to accept a part-time position at Medical beginning in December 2005.  Physicians learned of Dr. Wong’s new employment and interpreted this as in direct violation of the non-compete clause contained in the employment agreement.  Physicians sued Dr. Wong in Connecticut state court and requested enforcement of the restrictive covenant.

The Court’s Decision

The court had to decide whether Dr. Wong had violated the non-compete agreement by working as an employee of Medical, for which it concluded that he had not breached the employment contract with Physicians and denied the company’s request for an injunction restraining Dr. Wong’s further employment at Medical.  The main factor that the court analyzed to reach this conclusion was the existence and terms of the license granted to Medical by Physicians on June 30, 2004.

The court made it clear that since the company split in 2004, Physicians did not have any offices in Milford or Ansonia and as such, Dr. Wong was free to practice medicine in these towns without violating the non-compete clause.  Medical was permitted to operate as Physicians by using its name pursuant to the license but the offices in Milford and Ansonia were not by any means components of Physicians’ business structure or operations.  Those offices, while under the trade name of Physicians, were wholly owned and operated Medical business offices.

This decision highlights the special relationship between companies when they split and one party grants the other a license to continue to operate under the same trade name.  The court emphasized that while the companies were the same with respect to their trade name, for all other intents and purposes they were completely separate companies with different business structures and operations.

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

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..

The Court’s Decision

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”.

Enforcing Confidentiality Agreements

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.

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

FINRA Arbitration Awards Employer Over $500,000 for Promissory Notes Accelerated by Employee’s Termination

In the Matter of the Arbitration between Claimants Morgan Stanley Smith Barney and Morgan Stanley Smith Barney FA Notes Holdings, LLC v. Respondent Robert W. Hathaway (2012 WL 2675417)

In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a sole FINRA arbitrator held that an employee is liable to satisfy his indebtedness on promissory notes, including interest, to his employer upon termination of employment.

Case Details

In this case, Morgan Stanley Smith Barney (“MSSB”) and Morgan Stanley Smith Barney FA Notes Holdings, LLC, alleged that Robert W. Hathaway (“Hathaway”) was in breach of two promissory notes executed while he was employed by MSSB.  In its arbitration filing, MSSB claimed the principal balances due under both notes, per diem interest for both notes, and costs of collection and arbitration.  This matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure because Hathaway neither filed a Statement of Answer nor appeared at the hearing.

On or about March 8, 2008, Hathaway executed the first promissory note with MSSB for $729,560, at an interest rate of three-percent per annum, to be repaid in nine consecutive annual installments beginning on March 19, 2009.  The terms of the note included an agreement to pay all costs and expenses of collection, including reasonable attorneys’ fees.  On or about June 9, 2009, Hathaway executed the second promissory note for $75,257.83 at an interest rate of 2.25-percent per annum, to be repaid in eight consecutive annual installments beginning on June 9, 2010.

The Decision

On or about September 19, 2011, Hathaway’s employment at MSSB ended.  MSSB alleged that termination of employment triggered acceleration of the promissory notes and made a demand for immediate re-payment.   Hathaway failed and refused to satisfy the indebtedness.

After considering the pleadings and the submissions, the sole arbitrator decided that Hathaway was liable for the principal balance due under each promissory note.  Hathaway was also liable for per diem interest accruing from the date employment was terminated through the date of payment on each note.  Finally, Hathaway was to reimburse MSSB for the non-refundable portion of its initial claim filing fee.  The final award to MSSB totaled $542,816.00.

Should you have any questions relating to FINRA, arbitration or employment issues generally, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at