Posts tagged with "business operations"

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.  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.

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 JMaya@Mayalaw.com.

Non-Compete Invalidated Due to Unnecessary Restrictions on Future Employment

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

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

Non-Compete Enforceability: Must Protect Legitimate & Not Be Punitive
Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water. The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut. Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement. The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years. The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage. In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500. He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.
HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine. He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position. Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA. The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed. The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.
According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA. While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects. The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage. McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings. The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.
Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests. Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences. The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.
Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case. HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company. The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities. Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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

Non-Compete Enforceability: Must Protect Legitimate & Not Be Punitive
Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water. The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut. Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement. The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years. The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage. In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500. He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.
HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine. He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position. Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA. The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed. The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.
According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA. While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects. The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage. McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings. The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.
Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests. Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences. The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.
Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case. HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company. The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities. Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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Sufficient Consideration for At-Will Employees

Sufficient Consideration for At-Will Employees
Home Funding Group, LLC v. Kochmann, 2007 U.S. Dist. LEXIS 41376

Home Funding Group, LLC was a New York corporation with primary business operations in Connecticut that engaged in the residential mortgage brokerage business. The company employed Mr. Nicholas Kochmann and Mr. Patrick Dougherty in its New Jersey office. They worked for the company from January 2004 to May 1, 2006 and July 18, 2006 respectively. The company had both employees sign an Employment Agreement that contained non-compete and non-solicitation clauses to protect Home Funding’s business interests. The employees later signed an “Invention Assignment Agreement” stating that Home Funding was the sole owner of any invention connected to their employment and that it would maintain full intellectual property rights. The agreement stated that Connecticut law would govern any legal disputes and litigation in state and/or federal court. Both employees signed a new restrictive covenant in March 2006 that amended and superseded the 2004 Employment Agreement.
Misters Kochmann and Dougherty both voluntarily terminated their employment with Home Funding and Hamilton Financial, a direct competitor in the mortgage broker industry, hired them shortly thereafter. Home Funding sued its two former employees for breach of the non-compete agreements and requested they be enjoined from further employment with Hamilton Financial. Misters Kochmann and Dougherty asserted that the agreements were not legally binding on them because they lacked valid consideration, claiming that continued employment is inadequate consideration for a covenant executed after the start of employment. The federal court sitting in Bridgeport, Connecticut rejected this argument and held that the agreements were properly executed, contained adequate consideration, and were binding upon the parties.
The former employees argued that Connecticut law requires an employer to promise to something different from what it is already obligated to do when it wants to modify/amend a restrictive covenant with one or more of its employees. The court however applied Home Funding’s legal assertion that at-will employees may be terminated at any time at the employer’s discretion and thus continued employment amounted to adequate consideration to support a valid non-compete agreement. The court noted that in this case, Home Funding had the burden of proof at trial to demonstrate that the agreement was correctly executed and enforceable. Home Funding was able to provide such proof and the federal court held in its favor. Had Misters Kochmann and Dougherty not been at-will employees however, the court would have likely held that the agreement did not have the requisite consideration and could have invalidated the agreement in its entirety.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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Application of FINRA Rules & Regulations for Bank’s Non-Compete Agreement

Application of FINRA Rules & Regulations for Bank’s Non-Compete Agreement
Webster Bank, N.A. v. Cahill, 2009 Conn. Super. LEXIS 1672

Webster Bank is a regional commercial bank with business operations in lower New England that employed Mr. Daniel Cahill from April 11, 2995 to February 12, 2009. He was hired as a teller in the bank’s Bristol, CT office and was promoted to a financial consultant in 2001 to work for Webster Investment Services, the securities division of Webster Bank. The bank entered into a corporate arrangement with UVEST in 2007 and Mr. Cahill (and similar employees) had to sign a dual employment agreement. The contract detailed the terms of his employment and contained multiple restrictive covenants. Mr. Cahill was prohibited from engaging in competing business activities within twenty-five miles of his base of operations for one year following his termination and was subject to an indefinite non-disclosure clause for Webster and UVEST’s confidential and proprietary information.

Mr. Cahill faxed in a letter of resignation to Webster on February 12, 2009 and the next day began working for RBC Bank in its Hartford, CT office where he essentially performed the same duties as he done during his employment with Webster. Webster sued Mr. Cahill in Connecticut state court for the enforcement of the restrictive covenants contained in the dual employment agreement. Mr. Cahill admitted that RBC was a direct competitor of Webster, that his new office is within the twenty-five mile radius prohibited area, that he had taken with him a list of 2,900-3,000 Webster customers, and had send solicitation letter on RBC’s stationary to all of those customers. Of these solicitations, 350-400 accounts transferred their assets to RBC, amounting to a loss of approximately $5 million in assets under management for Webster.

Mr. Cahill admitted that he violated the terms of the dual employment contract but argued that the court should not enforce the non-compete agreement because he was a “licensed and registered securities dealer and a financial representative”, and therefore the rules and regulations of Financial Industry Regulatory Authority (FINRA) governed and he had done nothing wrong. He contended that under FINRA regulations, in an agreement referred to as the “Protocol”, he was permitted to take a copy of the customer list when he moved from Webster to RBC. These regulations permit taking a copy of names, addresses, phone numbers, and email addresses but not account numbers. The court found the assertion that it lacked jurisdiction unpersuasive and noted that FINRA was not controlling since neither Webster Bank nor UVEST were signatory members of the “Protocol”.

The court concluded that it did have jurisdiction over the case and next looked to whether the non-compete agreement was valid and enforceable under Connecticut law. Webster had a legitimate business interest that the court held warranted protection in the form of an injunction to restrict Mr. Cahill’s activities. An injunction, according to the court, was necessary to maintain the status quo and protect the interests of the parties involved in the legal dispute. The court held that the restrictions were reasonable in scope and did not overtly favor one party over the other. After establishing a need for an injunction and the reasonableness of the restrictions, the court ordered the enforcement of the non-compete agreement.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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Court Invalidates Non-Compete Agreement for Excessive Restraint of Trade

Court Invalidates Non-Compete Agreement for Excessive Restraint of Trade
CT Cellar Doors, LLC v. Palamar, 2010 Conn. Super. LEXIS 3247

CT Cellar Doors was a Connecticut company owned by Mr. Claude Raffin that designed and installed custom metal basement entry doors, windows, and other accessories. Mr. Raffin hired Mr. Stephen Palamar in January 2006 as an installer and later promoted him to operations foreman on August 21, 2007. The promotion involved a substantial pay raise conditioned on Mr. Palamar signing a “noncompetition-nondisclosure agreement”. The parties executed the restrictive covenant wherein Mr. Palamar agreed to not compete with CT Cellar Doors anywhere within the state of Connecticut for three years following his termination from the company. Mr. Palamar voluntarily terminated his employment on May 24, 2010, registered himself as a home improvement contractor with the Connecticut Department of Consumer Affairs, and began doing business as Custom Cellar Doors. His new company advertised and performed the same services he performed while in CT Cellar Door’s employ.
CT Cellar Doors sued Mr. Palamar in Connecticut court for “irreparable harm to its goodwill, reputation, and name” and requested injunctive relief because there was no adequate remedy at law. Both parties agreed that the central issue of the case was “whether the agreement was enforceable under Connecticut law”. The court and parties likewise recognized that CT Cellar Doors had the burden to show that both parties signed the agreement and that Mr. Palamar had violated its provisions. Once/if those were established, then Mr. Palamar bore the burden to show that the agreement was unenforceable. The parties did not dispute, as a matter of fact, that the agreement was signed and that Mr. Palamar violated its terms. The dispute is over whether, as a matter of law, the agreement is valid and enforceable. The court ultimately found in favor of Mr. Palamar and held that the agreement executed by the parties was unreasonable and unenforceable.
Mr. Palamar presented two arguments to address whether the agreement was reasonable under Connecticut law: 1) the agreement had inadequate consideration and 2) it was an unreasonable restraint of trade. The court rejected the first argument, noted the substantial pay raise Mr. Palamar received, and held that it constituted adequate consideration. Although that defense failed, the court agreed with Mr. Palamar that the agreement was an excessive restraint of trade and the agreement was unreasonable because it denied him the right to earn a living in his chosen profession that he had had for twenty-five years. The court also noted that CT Cellar Doors did not present adequate evidence to demonstrate that they had experienced or were likely to experience irreparable harm. At the time that litigation began, CT Cellar Doors had fifty clients while Mr. Palamar only had two. CT Cellar Doors was not able to articulate a claim and present evidence that Mr. Palamar’s actions had damaged its business operations.
While CT Cellar Doors had a legitimate business interest to protect, the provisions of the non-compete went too far and placed oppressive occupational restraints on Mr. Palamar and excessively restricted his ability to secure future employment in his chose profession. This lack of balance between the interests of the parties ultimately led the court to find the restrictions unreasonable and for it to invalidate the non-compete agreement.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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Breach and Irreparable Harm Required for Enforcement of Non-Compete Agreement

Breach and Irreparable Harm Required for Enforcement of Non-Compete Agreement
Opticare, P.C. v. Zimmerman, 2008 Conn. Super. LEXIS 759

Opticare, P.C. was a company engaged in the business of offering optometry and ophthalmology services to patients. A sister company, Opticare Eye Health Centers, Inc. was created in 1995 to provide management services to Opticare, operate an ambulatory surgical center, and own/operate retail eye-wear stores. Opticare employed Dr. Neal Zimmerman as an ophthalmologist specializing in vitreoretinal surgery from April 1984 to November 10, 2006. He signed several employment agreements with Opticare during his time as an employee with the company and each one contained a non-compete clause that would become effective upon Dr. Zimmerman’s termination. The restrictive covenant stated that Dr. Zimmerman was prohibited for eighteen months after his termination from offering medical services at a competing company located with a restricted area that was a hexagon ranging from fifteen to thirty miles from where he practice his profession. The non-compete agreements also specified that Dr. Zimmerman was required to provide one year notice of voluntary termination if he intended to continue to practice medicine in the state of Connecticut.
On September 6, 2006, Dr. Zimmerman provided a sixty-day notice of voluntary termination to Opticare’s management and shortly thereafter, five other physicians tendered their resignation from the company. He began providing ophthalmological services on January 2, 2007 at a new office located in Prospect, Connecticut, a mere four miles from Opticare’s office in Waterbury and clearly within the prohibited area according to the non-compete agreement. He testified that approximately 50% of his current patients were former patients of Opticare, his former employer. Opticare sued Dr. Zimmerman for breach of the non-compete agreement and asked the court to grant injunctive relief by enforcing the restrictions enumerated in the agreement.
After weighing the evidence presented by the parties, the court held in favor of Dr. Zimmerman and concluded that the non-compete agreement was not enforceable. Dr. Zimmerman admitted he violated the agreement based on the face value of its terms but raised questions regarding the legality of the covenant and argued that he was not obligated to refrain from further activities at his new practice. The court weighed the evidence to evaluate whether Dr. Zimmerman’s breach of the agreement had any negative impact on Opticare’s business operations or that the company had incurred irreparable harm. It ultimately found that Opticare failed to present sufficient evidence to prove that it experienced either of these detriments and the court noted that Opticare was “still in business and there was no showing that the business is close to ruination or has been permanently harmed in any way”. Breach alone, according to the court, is insufficient to demonstrate that an injunction is necessary. A moving party must demonstrate breach and incurred or imminent irreparable harm in order to be successful with a request for injunctive relief.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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Enforcing a Non-Compete Agreement in a Medical Partnership

Enforcing a Non-Compete Agreement in a Medical Partnership

Fairfield County Bariatrics and Surgical Associates, P.C. v. Ehrlich, 2010 Conn. Super. LEXIS 568

Doctors Neil and Craig Floch created Floch Surgical Associates in 1999 in Norwalk, Connecticut to provide medical and surgical services to patients. They decided to gear their practice towards bariatric surgery and hired Dr. Timothy Ehrlich, a board certified general surgeon and graduate of Louisiana State University School of Medicine, in 2002. He was granted surgical privileges at Norwalk Hospital and St. Vincent’s Hospital (in Bridgeport, CT) and operated as the only member of the medical group to perform bariatric surgeries exclusively. On January 1, 2006, the two Floch doctors and Dr. Ehrlich formed Fairfield Bariatrics and Surgical Associates, P.C. (FCB). Each doctor became a third shareholder in the professional corporation and signed identical employment agreements that outlined the compensation schedule, termination protocols, and included a non-compete agreement. The non-compete prohibited each doctor, for two years after termination, from practicing general medicine/surgery within fifteen miles of FCB’s main office in Norwalk and barred performing bariatric procedures at hospitals located in Stamford, Norwalk, Greenwich, Danbury, and Bridgeport.
Doctors Neil and Craig Floch voted to terminate Dr. Ehrlich in July 2009 and notified him of the decision in a letter dated July 30, 1999. They justified his termination by claiming that he repeatedly “misrepresented the group” and had lost his surgical privileges at Norwalk Hospital due to non-compliance with the hospital’s Trauma Service requirements. Dr. Ehrlich proceeded to form his own limited liability company, Ehrlich Bariatrics LLC, on October 22, 2009 and opened offices in Waterford and Trumbull. Both of these municipalities are located outside of the prohibited area created by the non-compete agreement but he also continued to perform operations at St. Vincent’s Hospital in Bridgeport, an activity expressly prohibited by the restrictive covenant.
FCB sued Dr. Ehrlich in Connecticut court and requested that the court enforce the provisions outlined in the non-compete agreement dated January 1, 2006. The court found in favor of FCB, determined that Dr. Ehrlich had violated a valid non-compete agreement, and enforced the provisions of the covenant not to compete. The court stated that the challenging party (Dr. Ehrlich for this case) bore the burden of proof to demonstrate that the agreement was unenforceable. He asserted that he had not been properly terminated and that the agreement itself was unreasonable, and therefore unenforceable. The court rejected both of these arguments and concluded that the agreement was valid and enforceable.
Dr. Ehrlich advanced the unconvincing argument that he was the victim of improper termination because the shareholders meeting at which the vote was taken to terminate his employment was not properly noticed pursuant to the corporation’s by-laws. He essentially contended that the “lack of notice renders his termination a nullity”. The court however disagreed with Dr. Ehrlich because a physician whose termination is being voted on is not entitled to cast a vote. The lack of voting power for this matter meant that his presence was not required and he was not entitled to notice of the special shareholders meeting where the vote was taken. The court ultimately concluded that Doctors Neil and Craig Floch had taken the proper and necessary steps in accordance with the corporation’s by-laws to terminate Dr. Ehrlich’s employment with FCB.
Next, Dr. Ehrlich unsuccessfully contended that the agreement contained unreasonable provisions and therefore the court was not obligated or permitted to order its enforcement. Discerning the reasonableness of a non-compete agreement required the court to balance the competing needs of the parties as well as the needs of the public. Furthermore, the challenging party must show that the provisions are unreasonable in scope. First, the court established that FCB did in fact have a legitimate business interest that necessitated protection. The company was entitled to protect potential new patients within a reasonably limited market area. FCB was only concerned with future patients and did not seek to prevent Dr. Ehrlich from providing follow-up services to current or past patients.
Next, the court addressed and cited a variety of case law that showed Connecticut courts’ history of enforcing non-compete agreements when they protect against “something other than mere competition”, including the use of customer lists, impaired of purchased good will, confidential data/trade secrets, use of information concerning potential clients in a limited area, or some other advantage the former employee acquired while working for the plaintiff company. The court found that Dr. Ehrlich had greatly benefitted from his association with FCB and that his continued actions would negatively affect the reputation and business operations of his former employer.
Lastly, the court took time to address the differences between non-compete agreements for an employer-employee relationship and those for partnerships. It held that since there was not unequal bargaining power or impaired ability to earn a living, the provisions were not unreasonable in scope. The court noted that Dr. Ehrlich’s offices in Trumbull and Waterford did not violate the agreement and there were numerous hospitals located outside the prohibited area where he could find employment as a board certified surgeon specializing in bariatrics. He had actually received encouragement from several doctors to apply for privileges at permissible hospitals, including the Hospital of St. Raphael in New Haven.
In light of Dr. Ehrlich violating a legally binding non-compete agreement that protected a legitimate business interest, the court ordered the enforcement of the restrictive covenant.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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Retention of Confidential Information is a Clear Breach of Non-Compete According to Connecticut Court

Retention of Confidential Information is a Clear Breach of Non-Compete According to Connecticut Court
TyMetrix, Inc. v. Szymonik, 2006 Conn. Super. LEXIS 3865

Mr. Peter Szymonik worked for TyMetrix, Inc. from July 2002 to March 10, 2005 as the Director of Client Services and then as Vice President of Technical Operations beginning in January 2004. TyMetrix was a technology company that provided web-based systems for its clients in order to implement electronic invoicing, performance management metrics, matter & document management, budgeting, forecasting, and generating other business reports. The company’s typical clients included the legal departments of Fortune 500 companies, law firms, and insurance companies. The company operated within the United States but at the time had potential clients in the United Kingdom and Australia. Mr. Szymonik signed an employment agreement in July 2002 and the document contained several post-employment restrictive covenants. The non-compete agreement prohibited him from: 1) retaining, using, or disclosing any confidential information, 2) working for a competing enterprise for two years following termination, 3) soliciting TyMetrix’s clients (current or prospective) during those two years, and 4) soliciting or hiring any TyMetrix employee during those two years.
TyMetrix terminated Mr. Szymonik on March 10, 2005 and he proceeded to form a new company, SpectoWise, Inc., on July 5, 2005 where he served as its president. In his capacity as the president of the new company, he solicited several TyMetrix clients and employees to join his firm and even hired at least one former TyMetrix employee. TyMetrix also asserted that Mr. Szymonik retained copies of some of the company’s confidential information. He claimed that he was only retaining the information to assist in litigation with TyMetrix and had not used its content in connection with the business operations of his new company or for any other personal gain. TyMetrix sued Mr. Szymonik in Connecticut state court and asked the court to grant injunctive relief by enforcing the provisions of the July 2002 non-compete agreement.
The court found in favor of TyMetrix, concluded that Mr. Szymonik had indeed breached a valid non-compete agreement, and ordered the covenant enforced. Mr. Szymonik presented several defenses that the court ultimately rejected in its legal analysis. He asserted that his new company, SpectoWise, offered very different services from TyMetrix and further argued that the non-compete was unenforceable because the company wrongfully terminated his employment. As for the claim that the companies were vastly different, the court analyzed SpectoWise’s marketing material and discerned that it was abundantly clear the companies essentially offered the same services to their clients. Furthermore, the court held that Mr. Szymonik’s termination was not in bad faith and did not go against public policy. He failed to present any evidence to demonstrate that TyMetrix had violated any “expressed statutory or constitutional provision or judicially derived public policy” when it terminated his employment. The court also held that Mr. Szymonik’s retention of TyMetrix documents was unlawful on its face and was a clear breach of the non-compete agreement. It was irrelevant why Mr. Szymonik retained the documents because the mere fact that he still possessed the confidential information was a violation of the employment agreement.
The court’s legal analysis of the dispute indicated that there was in fact a breach of the non-compete agreement and that TyMetrix was likely to succeed on the merits of its claim. These two factors led the court to find in favor of the employer (TyMetrix) and ordered the enforcement of the restrictive covenant that the parties had executed in July 2002.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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