Posts tagged with "covenant not to compete"

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 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 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 JMaya@Mayalaw.com.

Enforcing a Non-Compete in Connecticut

If you signed a valid non compete agreement, try not to just forget about it. Former employers are using non competes for more than just show now in days, they are enforcing them aggressively. If you are thinking about working for your former employer’s competitor, or in another area that may be covered by a non compete you previously signed, here are two ways your former employer may try to enforce the previous agreement against you.

First, attempted enforcement of a non compete agreement in Connecticut will likely begin with a Cease and Desist Letter. Once the employer has determined (or has a good faith belief) that a former employee is breaching a noncompete, typically the next step will be to engage legal counsel to send a demand or “cease and desist” letter to the employee. A well-drafted demand letter contains an accurate summary of the contractual, statutory and common law restrictions that bind the former employee, a summary of the facts showing that the former employee is in breach of his or her noncompete (or statutory or common law), a description of the harm suffered or potential harm the employer may suffer as a result of the former employee’s breach of duties, and a demand for specific actions and written assurances.

In many noncompete situations, it is also appropriate at this stage to send a separate demand letter to the former employee’s new employer setting forth the facts and arguments as to why the new employer’s engagement of the former employee will unlawfully interfere with the noncompete between the former employee and old employer. Cease and desist letters must convey the message that the former employer takes the former employee’s continuing obligations seriously and will not allow its goodwill, trade secrets or confidential information to be unlawfully misappropriated. These letters are a critical tool because many noncompete situations are resolved by settlement following the exchange of the cease and desist letter and response.

Second, and more drastically, you may be taken to court. A former employer may file suit for a temporary restraining order, an injunction, and damages. If the noncompete situation is not resolved by the sending of cease and desist letters, then the employer must assess whether it will file a lawsuit to enforce the noncompete. Unlike most lawsuits, where the goal typically is to win a judgment awarding money damages after what is usually a lengthy process leading to trial, the goal in most noncompete situations is to obtain an immediate order from the court. This order is called a preliminary injunction (or in certain emergency situations a temporary restraining order). A preliminary injunction will order the former employee (and new employer) to stop taking certain actions, such as working for a competitor altogether, calling on certain customers for the new employer, or using or disclosing confidential and proprietary information. If the former employee or new employer violates the preliminary injunction, they are in contempt of court. The idea is that the preliminary injunction will stop the conduct, preserve the status quo between the parties, and prevent further harm to the former employer. A permanent injunction is issued after trial.

Obviously, the decision to file suit and seek a preliminary injunction must be evaluated carefully given the expense and uncertainty of litigation. This is particularly so in noncompete situations where the outcome of litigation is often influenced to a large degree by particular judges’ views on noncompetes generally. In order to obtain a preliminary injunction, the employer must establish that it is entitled to such relief by showing that: the employer is likely to prevail on the merits of the case at trial; the employer faces irreparable harm; the balance of harm (that facing the employer as compared with the harm the former employee could suffer by, for example, not being able to work for a particular new employer) favors the issuance of an injunction; and the public interest is not adversely affected by the issuance of a preliminary injunction.

In addition to assessing whether this standard can be met, the employer should pause to consider whether it will come to court with “clean hands” (that is, whether it has acted fairly). The issuance of a preliminary injunction is a matter squarely in the judge’s discretion and is a matter of equity (fairness), so it is important that the employer not overreach but rather only seek the protection necessary to prevent the misappropriation of goodwill, trade secrets, and confidential information. Similarly, before embarking on litigation, the employer should evaluate whether it has breached any obligation to the former employee (such as the obligation to pay salary or commissions). Such facts will influence whether the court will grant an injunction, and also will likely result in the assertion of counterclaims against the employer in the lawsuit.

The assessment of whether to file a lawsuit must be made quickly. Delay undermines the argument that the former employee’s current actions are actively harming the employer’s business, and may in rare cases result in the former employee filing suit to obtain a declaration from the court that the noncompete is unenforceable.

If an employer is trying to enforce a non compete against you, or if you are an employer looking to enforce a non compete against a former employee, let the experience Employment Law Group of Maya Murphy, P.C. in Westport, CT help you with this process. With decades of employment law experience in the courts of both Connecticut and New York, the employment law attorneys of Maya Murphy can surely meet your non compete needs. Call 203-222-MAYA or email Ask@mayalaw.com today to schedule a consultation!

Keywords: non compete agreement Connecticut, enforcing a non compete in connecticut, non compete westport, employment law attorney westport

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Enforcing a Non-Compete in Connecticut

If you signed a valid non compete agreement, try not to just forget about it. Former employers are using non competes for more than just show now in days, they are enforcing them aggressively. If you are thinking about working for your former employer’s competitor, or in another area that may be covered by a non compete you previously signed, here are two ways your former employer may try to enforce the previous agreement against you.

First, attempted enforcement of a non compete agreement in Connecticut will likely begin with a Cease and Desist Letter. Once the employer has determined (or has a good faith belief) that a former employee is breaching a noncompete, typically the next step will be to engage legal counsel to send a demand or “cease and desist” letter to the employee. A well-drafted demand letter contains an accurate summary of the contractual, statutory and common law restrictions that bind the former employee, a summary of the facts showing that the former employee is in breach of his or her noncompete (or statutory or common law), a description of the harm suffered or potential harm the employer may suffer as a result of the former employee’s breach of duties, and a demand for specific actions and written assurances.

In many noncompete situations, it is also appropriate at this stage to send a separate demand letter to the former employee’s new employer setting forth the facts and arguments as to why the new employer’s engagement of the former employee will unlawfully interfere with the noncompete between the former employee and old employer. Cease and desist letters must convey the message that the former employer takes the former employee’s continuing obligations seriously and will not allow its goodwill, trade secrets or confidential information to be unlawfully misappropriated. These letters are a critical tool because many noncompete situations are resolved by settlement following the exchange of the cease and desist letter and response.

Second, and more drastically, you may be taken to court. A former employer may file suit for a temporary restraining order, an injunction, and damages. If the noncompete situation is not resolved by the sending of cease and desist letters, then the employer must assess whether it will file a lawsuit to enforce the noncompete. Unlike most lawsuits, where the goal typically is to win a judgment awarding money damages after what is usually a lengthy process leading to trial, the goal in most noncompete situations is to obtain an immediate order from the court. This order is called a preliminary injunction (or in certain emergency situations a temporary restraining order). A preliminary injunction will order the former employee (and new employer) to stop taking certain actions, such as working for a competitor altogether, calling on certain customers for the new employer, or using or disclosing confidential and proprietary information. If the former employee or new employer violates the preliminary injunction, they are in contempt of court. The idea is that the preliminary injunction will stop the conduct, preserve the status quo between the parties, and prevent further harm to the former employer. A permanent injunction is issued after trial.

Obviously, the decision to file suit and seek a preliminary injunction must be evaluated carefully given the expense and uncertainty of litigation. This is particularly so in noncompete situations where the outcome of litigation is often influenced to a large degree by particular judges’ views on noncompetes generally. In order to obtain a preliminary injunction, the employer must establish that it is entitled to such relief by showing that: the employer is likely to prevail on the merits of the case at trial; the employer faces irreparable harm; the balance of harm (that facing the employer as compared with the harm the former employee could suffer by, for example, not being able to work for a particular new employer) favors the issuance of an injunction; and the public interest is not adversely affected by the issuance of a preliminary injunction.

In addition to assessing whether this standard can be met, the employer should pause to consider whether it will come to court with “clean hands” (that is, whether it has acted fairly). The issuance of a preliminary injunction is a matter squarely in the judge’s discretion and is a matter of equity (fairness), so it is important that the employer not overreach but rather only seek the protection necessary to prevent the misappropriation of goodwill, trade secrets, and confidential information. Similarly, before embarking on litigation, the employer should evaluate whether it has breached any obligation to the former employee (such as the obligation to pay salary or commissions). Such facts will influence whether the court will grant an injunction, and also will likely result in the assertion of counterclaims against the employer in the lawsuit.

The assessment of whether to file a lawsuit must be made quickly. Delay undermines the argument that the former employee’s current actions are actively harming the employer’s business, and may in rare cases result in the former employee filing suit to obtain a declaration from the court that the noncompete is unenforceable.

If an employer is trying to enforce a non compete against you, or if you are an employer looking to enforce a non compete against a former employee, let the experience Employment Law Group of Maya Murphy, P.C. in Westport, CT help you with this process. With decades of employment law experience in the courts of both Connecticut and New York, the employment law attorneys of Maya Murphy can surely meet your non compete needs. Call 203-222-MAYA or email Ask@mayalaw.com today to schedule a consultation!

Keywords: non compete agreement Connecticut, enforcing a non compete in connecticut, non compete westport, employment law attorney westport

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Termination Does Not Invalidate a Non-Compete Agreement

Termination Does Not Invalidate a Non-Compete Agreement

Built In America, Inc. v. Morris, 2001 Conn. Super. LEXIS 2953

Mr. Michael Morris was the owner of Built In America, Inc. until he sold his entire stock in the company to Mr. Marc Costa in October 2000. The parties executed a Purchase and Sale Agreement that legally transferred the stock and ownership of the company. The transaction included an employment contract for an initial period of two years and a non-compete clause that became effective upon Mr. Morris’s termination from the company. The company terminated Mr. Morris in April 2001 and he proceeded to work in direct competition with his former employer. Mr. Costa and Built In America sued Mr. Morris for violation of the non-compete agreement and asked the court to enforce the agreement’s provisions. Mr. Morris argued that the restrictive covenant was null and void because the company had breached the employment agreement when it unlawfully terminated his employment.
The court found in favor of Built In America, ordered the enforcement of the covenant not to compete, and issued an injunction. There was no dispute over the reasonableness of the covenant, only a dispute over whether it became void when the company allegedly improperly terminated Mr. Morris. Built In America cited previous Connecticut cases, most notably Robert S. Weiss & Associates, Inc. v. Wiederlight (208 Conn. 525 (1988)), where the court held that termination did not invalidate a non-compete agreement. Furthermore, the court concluded that the company was justified with respect to its decision to terminate Mr. Morris’s employment, stating that his “behavior was so outrageous that one is left to believe he was inviting his discharge”. The court ultimately concluded that the covenant was legally binding and ordered its enforcement.
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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What’s In a Separation Agreement?

With the economy where it is, the employment lawyers in the Westport, Connecticut office of Maya Murphy, P.C. are frequently asked to review and negotiate separation agreements for terminated employees.  These agreements often appear similar in form and content but must be carefully scrutinized, as they can contain hidden “trip wires” that can have a profound and long-lasting effect on the former employee’s job prospects.  Here are some of the things to look out for.

Most separation agreements contain restrictive covenants—confidentiality, non-solicitation, or non-competition clauses.  The first two—confidentiality and non-solicitation—are typically non-controversial, as they often confirm pre-existing obligations owed an employer by a former employee.  The last—non-competition—is usually a point of contention, as it impacts directly the employee’s ability to find a new position.  We have blogged extensively on non-competes, their interpretation and enforceability, etc. and readers are invited to review those prior posts.  But other terms and conditions of a separation agreement deserve your attention, as well.

First of all, do not be surprised by the length of a separation agreement.  A federal statute called the Older Worker’s Benefit and Protection Act requires the inclusion of extensive release language, and such things as a 21 day review and seven day revocation period.  Here are some of the other things you should be on the lookout for:

  • Consideration:  Make sure all of the severance benefits are correct and clearly stated.  This includes severance pay, COBRA coverage, etc.  Do not leave anything to inference or implication.
  • Confirmation that No Claims Exist/Covenant Not to Sue: Notwithstanding the comprehensive release language, some separation agreements will also require the employee to state that he/she is not aware of any factual basis to support any charge or complaint and that the employee will forego suit, even if such a claim exists.
  • Non-disparagement: Both sides often agree that neither will say anything to disparage the other.  Sometimes (particularly in the financial industry), a separation agreement will contain a “carve out” for employer reporting to FINRA or the SEC.  In such a case, it is important to have the agreement state that as of the employee’s separation date, the employer was not aware of any reportable event or information that would warrant comment or notation on a Form U-5.
  • Governing Law:  Employment law does not travel well across state lines.  For example, California law is much different than Connecticut’s.  Large companies will sometimes have their separation agreements governed by the law of the state where it has its headquarters, irrespective of the actual place of work of the departing employee.
  • Acknowledgement of Non-Revocation: An employee has seven days within which to revoke acceptance of a separation agreement.  Some companies adopt a “belt and suspenders” approach and require the employee to acknowledge in writing a negative—that they have not revoked such acceptance.

The employment law attorneys in the Westport, Connecticut office of Maya Murphy, P.C. have extensive experience in the negotiation and litigation of all sorts of employment-related disputes and assist clients from Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport and Fairfield in resolving such issues.  203-221-3100.

 

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Constructive Discharge Does Not Invalidate Connecticut Non-Compete Agreements

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.
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.
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.
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.
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 Enforces Non-Compete Agreement to Protect Employer’s Business Interests

Court Enforces Non-Compete Agreement to Protect Employer’s Business Interests
Webster Bank v. Ludwin, 2011 Conn. Super. LEXIS 127

Webster Bank is regional commercial bank with headquarters in Waterbury, Connecticut that provides financial services to customers in Connecticut, New York Rhode Island, and Massachusetts. The company employed Mr. Michael Ludwin as a dual employee with UVEST Financial Services from January 2007 until the company terminated his employment in June 2010. Mr. Ludwin signed a new employment agreement with Webster when he became a dual employee wherein the agreement contained a covenant not to compete. The agreement, executed on February 7, 2009, prohibited Mr. Ludwin, for a period of one year following termination, from engaging in competing business activities within twenty-five miles of Webster Bank’s “base of operation”. Additionally, he was obligated to refrain from soliciting Webster’s customers and to “treat as confidential the names and addresses of customers” (non-disclosure clause).
Webster terminated Mr. Ludwin in June 2010 and on July 9, 2010 he began to work for Harvest Capital, LLC, a Wethersfield, CT based financial consulting firm. Webster’s counsel sent Mr. Ludwin a letter reminding him of his obligations under the non-compete agreement contained in his employment contract and demanded that he observe the enumerated restrictions. The bank sued Mr. Ludwin in Connecticut state court for violation of the covenant not to compete when Mr. Ludwin failed to curtail his activities and requested that the court issue an injunction preventing any further breaches of the agreement. The court granted Webster’s request and ordered that Mr. Ludwin “cease and desist from competing with the plaintiffs within a twenty-five mile radius of Hamden and Milford, Connecticut for a period to end on June 30, 2011” and further ordered him to return any and all customer lists that he removed from Webster’s premises.
The court held that injunctive relief was necessary if it was to maintain the status quo between the parties. Webster presented sufficient evidence to demonstrate that it would experience irreparable harm from Mr. Ludwin’s actions in the absence of an injunction. Its customer lists and relationships are valuable business interests that are integral to the success of the company and as such the court identified that Webster had a legitimate business interest that was afforded protection under Connecticut law. Furthermore, the court concluded that the agreement had reasonable provisions that did not excessively favor one party over the other or unnecessarily stifle their future business activities.
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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Covenants Not To Compete in Franchise Agreements

Covenants Not To Compete in Franchise Agreements
Pirtek USA, LLC v. Zaetz, 408 F.Supp.2d 81

Pirtek USA, LLC was a franchise company that operated as a business system “consisting of the sale, assembly and installation of industrial and hydraulic hoses, fixed tube assemblies and related components and services”. Pirtek entered into a Franchise Agreement with Mr. Irwin Zaetz in September 1999 to license him to operate a Pirtek business. The agreement contained a non-compete clause that prohibited Mr. Zaetz from operating or working for a competing business within a limited geographical area for a two-year period after the termination of the franchise agreement. Pirtek and Mr. Zaetz terminated their franchise agreement on April 22, 2005 and the parties went their separate ways. Pirtek was able to sell that particular franchise to another party, Ms. Ashely Geddes, while Mr. Zaetz and his son proceeded to operate their own business, Hose Medic. This new company provided many of the same services as Pirtek franchises and covered the same general geographical area. Additionally, the registered address for Hose Medic was the same one Mr. Zaetz used to register his franchise with Pirtek.
Pirtek alleged that Mr. Zaetz used his son’s company as a front to avoid the enforcement of the covenant not to compete. More specifically, the company alleged that Mr. Zaetz used Pirtek’s proprietary information to help his son base the new company on the Pirtek business model. Pirtek sued Mr. Zaetz in federal court and requested that the court issue a temporary injunction to prevent further contractual violations while the court tried the case. The court denied its request and refused to issue a temporary injunction.
Pirtek sued on three accounts, claiming that Mr. Zaetz breached the non-compete by 1) operating a competing hose installation and repair business, 2) infringing on its intellectual property rights, and 3) violating several post-termination provisions of the franchise agreement. The court found that Pirtek did not meet the burden of proof necessary to show that Mr. Zaetz was in breach of the non-compete. Pirtek asserted that their business interests were threatened by Mr. Zaetz’s use of the words “hose”, “assembly”, and a graphic of a cog when advertising and discussing the new company. This, according to this court, was an unfounded assertion because the words were too general to create confusion among consumers and negatively affect Pirtek’s business operations. Pirtek was not able to establish that it had suffered any hardship or was likely to do so in the future if an injunction was not issued. Imminent harm, according to the courts, is a requisite factor for granting a temporary injunction, and a court is not obligated to grant one if this crucial factor is missing.
The court pointed out however that the denial of the temporary injunction did not necessary mean that Pirtek would not be able to obtain a permanent injunction later. It counseled Pirtek that later stages of litigation could result in the enforcement of the covenant. It noted that Pirtek had some strong evidence to present and use in subsequent stages of the case but that its current request must be denied because it “failed to demonstrate irreparable harm”.
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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Covenants Not To Compete in Franchise Agreements

Covenants Not To Compete in Franchise Agreements
Pirtek USA, LLC v. Zaetz, 408 F.Supp.2d 81

Pirtek USA, LLC was a franchise company that operated as a business system “consisting of the sale, assembly and installation of industrial and hydraulic hoses, fixed tube assemblies and related components and services”. Pirtek entered into a Franchise Agreement with Mr. Irwin Zaetz in September 1999 to license him to operate a Pirtek business. The agreement contained a non-compete clause that prohibited Mr. Zaetz from operating or working for a competing business within a limited geographical area for a two-year period after the termination of the franchise agreement. Pirtek and Mr. Zaetz terminated their franchise agreement on April 22, 2005 and the parties went their separate ways. Pirtek was able to sell that particular franchise to another party, Ms. Ashely Geddes, while Mr. Zaetz and his son proceeded to operate their own business, Hose Medic. This new company provided many of the same services as Pirtek franchises and covered the same general geographical area. Additionally, the registered address for Hose Medic was the same one Mr. Zaetz used to register his franchise with Pirtek.
Pirtek alleged that Mr. Zaetz used his son’s company as a front to avoid the enforcement of the covenant not to compete. More specifically, the company alleged that Mr. Zaetz used Pirtek’s proprietary information to help his son base the new company on the Pirtek business model. Pirtek sued Mr. Zaetz in federal court and requested that the court issue a temporary injunction to prevent further contractual violations while the court tried the case. The court denied its request and refused to issue a temporary injunction.
Pirtek sued on three accounts, claiming that Mr. Zaetz breached the non-compete by 1) operating a competing hose installation and repair business, 2) infringing on its intellectual property rights, and 3) violating several post-termination provisions of the franchise agreement. The court found that Pirtek did not meet the burden of proof necessary to show that Mr. Zaetz was in breach of the non-compete. Pirtek asserted that their business interests were threatened by Mr. Zaetz’s use of the words “hose”, “assembly”, and a graphic of a cog when advertising and discussing the new company. This, according to this court, was an unfounded assertion because the words were too general to create confusion among consumers and negatively affect Pirtek’s business operations. Pirtek was not able to establish that it had suffered any hardship or was likely to do so in the future if an injunction was not issued. Imminent harm, according to the courts, is a requisite factor for granting a temporary injunction, and a court is not obligated to grant one if this crucial factor is missing.
The court pointed out however that the denial of the temporary injunction did not necessary mean that Pirtek would not be able to obtain a permanent injunction later. It counseled Pirtek that later stages of litigation could result in the enforcement of the covenant. It noted that Pirtek had some strong evidence to present and use in subsequent stages of the case but that its current request must be denied because it “failed to demonstrate irreparable harm”.
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 Awards Damages for Breach of Non-Compete Agreement

Court Awards Damages for Breach of Non-Compete Agreement
Van Dyck Printing Co. v. DiNicola, 43 Conn. Supp. 191

Mr. Anthony DiNicola worked for Van Dyck Printing Company as a sales representative from March 11, 1969 to April 1987. Mr. Leonard Drabkin, Van Dyck’s president, who had known Mr. DiNicola from Columbia Printing Company where Mr. DiNicola had worked for thirteen years, hired him. Mr. DiNicola received as wages a car allowance, $150.00 per week draw on his commissions pay, and commissions for sales such that he received at least 7% on the first $100,000 of sales and a higher percentage on sales beyond $100,000. It was not until a month into working that Van Dyck presented Mr. DiNicola with an employment agreement that the parties both signed. The employment agreement contained the finalized commission rate schedule that would apply to Mr. DiNicola’s employment with Van Dyck. The agreement also contained a covenant not to compete that prohibited him from providing services to Van Dyck’s customers while working for a company that provided services in “any way similar to the type of business conducted by Employer [Van Dyck] at the time of termination of this agreement” for a period of twelve months. The restrictive covenant further stipulated that the agreement would become enforceable by injunction for an addition twelve months (extending the total duration to twenty-four months) if there was evidence of a breach.
Mr. DiNicola voluntarily terminated his employment with Van Dyck in April 1987 and immediately began to work for Image Development, Inc., a new company he formed with a second former Van Dyck employee. He owned 50% of the shares in the company until he sold them in 1989 to his partner. Van Dyck sued Mr. DiNicola for breach of the non-compete agreement and sought damages since injunctive relief was moot due to the expiration of the time period for enforcement by injunction. Mr. DiNicola argued that the agreement was not enforceable and that Van Dyck was not entitled to any damages because the agreement lacked consideration. He further argued that Van Dyck breached the employment contract during his employment by “unilaterally changing the terms to suit itself”. The Superior Court in New Haven held that the non-compete agreement was enforceable and granted Van Dyck’s request for relief in the form of damages.
As a general contract principle, past consideration cannot be used to legitimate an agreement between an employer and employee once the employee has already commenced employment. Mr. DiNicola asserted that there was not any new form of consideration when he signed the non-compete agreement that would make its provisions binding on him. The court rejected this contention and found that there was indeed new consideration for the non-compete agreement in the form of the finalized commission rate schedule that had previously not existed. When Mr. DiNicola began with employment with Van Dyck not all of the precise employment provisions were finalized between the parties. It was the employment contract and non-compete agreement that contained the finalized employment details and resolved any existing questions or issues.
The court likewise rejected Mr. DiNicola’s claim that Van Dyck had invalidated the non-compete agreement when it unilaterally changed its provisions to overwhelmingly favor its interests over those of him. He argued that the company had repeatedly changed the method used to calculate his commission payments. The employment agreement did not specify a method to be used to calculate Mr. DiNicola’s payments under the commission rate schedule and as such, any change in method would not constitute a breach of Van Dyck’s obligations under the agreement.
The court recognized that the period allowing injunctive relief had expired but granted Van Dyck’s request for damages. Damages, according to the court, were calculated and awarded to reflect the loss suffered by the enforcing party (Van Dyck) in relation to Mr. DiNicola’s breach of the non-compete agreement. The court calculated that Van Dyck lost $169,000.69 in sales in direct connection to Mr. DiNicola’s breach and applied a 35% company profitability rate, a statistic presented during Mr. DiNicola’s testimony. This meant a total damages award of $59,151.29 for Van Dyck Printing Company.
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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