A covenant not to compete may be unenforceable even if it is reasonable in terms of geographic designation and time limitation. In Creative Dimensions, Inc. v. Laberge, 2012 Conn. Super. LEXIS 1464 (Conn. Super. May 31, 2012), two individuals sold their business and became “at will” employees of the purchaser. At issue was a nation-wide agreement not to compete for a period of 18 months following termination of their employment. The court found the covenant reasonable in time and space but unenforceable nevertheless because of certain other factors, including attributes of the underlying industry.
The employer offered goods and services in the area of trade show signs, services, and exhibits. The former employees joined a sign company that, as a result, expanded into the portable and custom exhibits market. In deciding the case, the Court focused on two of the five factors relevant to determining the enforceability of a restrictive covenant: the extent to which it (a) protects legitimate business interests, and (b) unreasonably restricts an individual’s ability to engage in an occupation or profession.
Significantly, the defendants were the only employees of the plaintiff subject to a covenant not to compete. The employer argued that it had invested time, energy, and money in the defendants as at will employees. To this contention, the Court responded: “. . . an employer’s desire to stop competition from an employee in whom the employer has invested time, energy, and money is not sufficient, alone, to support the validity of a Covenant not to Compete or not to Solicit. Equitably, the Covenant must protect against something more, and must be bargained for in exchange for more.” Stated differently, a covenant not to compete must seek to protect against something more than mere competition, i.e., some advantage the employee acquired that would render unfair his immediate competition.
In this case, there was no evidence that the employer had trade secrets or confidential data that defendants accessed prior to their departure. By the same token, the employer’s customers were either already public knowledge or readily accessible through its own website. The relationship between the employer and its customers was not markedly different than those of other portable display businesses. In fact, the employer’s customers often used the services of the employer’s competitors, and the employer on occasion even outsourced business to its competitors. Significantly, the employer did not require other employees to sign a covenant not to compete even though employees had been lost to competitors in the past. As a result, the Court concluded that the employer did not truly believe that such covenants were necessary to protect itself within the portable display market.
The Court also found that the covenant seriously impeded defendants’ ability to pursue their chosen careers. “The test for reasonableness is not whether the defendants would be able to make a living in other ways, or in other occupations, but whether or not the [covenant] as drafted and applied would unfairly restrain their “opportunity” to pursue their occupation.”
Finally, the Court emphasized that the portable display market “does not involve a fixed and unchanging clientele.” The market is highly competitive, customer loyalty is fleeting, and sales staff are fairly transient. In sum, while the defendants may have learned aspects of the trade show business while in the plaintiff’s employ, they were not provided with specialized or protected knowledge not readily available to others in the field. Consequently, by virtue of their employ, defendants were not possessed of an unfair advantage in the market.
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.
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