Posts tagged with "covenant not to compete"

Court Grants Legal and Equitable Relief in Breach of Non-Compete Agreement

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National Truck Emergency Road Service, Inc. v. Peloquin, 2011 Conn. Super. LEXIS 2393

National Truck Emergency Road Service, Inc. (National Truck) was a Massachusetts corporation that engaged in interstate commerce by providing emergency road service to heavy and medium duty trucks and vans for local and national fleets.  The company hired Mr. Barry Peloquin on August 25, 2008, to work as a customer service representative.  The next day, the parties executed a non-compete agreement that prohibited Mr. Peloquin, for five years following termination, from working at a competing company within five hundred miles of the company’s headquarters located at 320 Main Street, Southbridge, MA.

The agreement also stated that Mr. Peloquin was obligated to return any company property upon termination and contained a non-disclosure provision.  Most importantly however, the covenant not to compete stipulated that in the event of a breach, National Truck would be entitled to “remedies allowed by law and equity”, therefore permitting National Truck to receive monetary damages and injunctive relief.

National Truck terminated Mr. Peloquin on October 20, 2009 and he soon found employment with a competing company in Connecticut and began servicing National Truck’s customer YRC.  The company sued Mr. Peloquin for illegally appropriating company lists and other protected intellectual property in conjunction with violating the non-compete agreement executed by the parties.

The company asked the court to enforce the provisions of the non-compete and to order Mr. Peloquin to return all proprietary documents he took home during his employment with National Truck.  The court found in favor of National Truck and granted both equitable and legal relief, although the injunction only addressed returning.

The Court’s Decision 

The court heard expert witness testimony and concluded that National Truck had $32,493.00 in damages directly attributable to illegal competition from Mr. Peloquin.  The company experienced an unusual and dramatic drop off in business from YRC commencing shortly after Mr. Peloquin’s termination.  Mr. Peloquin’s action created adverse financial consequences for National Truck, visible in the company’s lost profits and incurred expenses.

While damages are not generally awarded in cases involving breach of a non-compete agreement, the agreement itself specifically stipulated that the employer (National Truck) would be entitled to them should the employee (Mr. Peloquin) violate the covenant.  The court awarded National Truck the $32,493.00 in damages plus attorney’s fees and court costs.

The court was only willing to grant a portion of the injunctive relief sought by National Truck.  It ordered that Mr. Peloquin return all National Truck documents within thirty days and abide by the non-disclosure clause.  The court’s ruling however did not prevent his further employment with his current company because the court concluded that National Truck did not present adequate evidence to show that Mr. Peloquin violated the non-compete since litigation began or that he was likely to do so in the future.  Without demonstrating the imminent threat of irreparable harm, National Truck was not entitled to injunctive relief with this specific matter.

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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.

Form U5 – Employment Termination in the Securities Industry

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Broker-dealers, investment advisors, and issuers of securities routinely use Form U5 to terminate the registration of an individual whose employment has ended and to notify the appropriate jurisdiction or self-regulatory organization.  Employees are still subject to the jurisdiction of regulators for at least two years after the registration has been terminated and may have to provide information about the association with their former employer.  The section of Form U5 that may be the most problematic concerns the reason for the termination that must be provided by the employer.

Reason for Termination

If the employer elects to describe a full termination as “permitted to resign,” “discharged,” or “other,”, then an explanation must be provided.  No such explanation is necessary if the full termination is deemed “voluntary.”  Disclosure of the employee’s involvement in investigations, internal reviews, regulatory actions, criminal matters and customer complaints must also be made by the employer.

In many cases, an employer and employee may disagree on what led to an employment termination and on the circumstances of the departure.  A disparaging remark, untrue statement or misleading explanation on Form U5 can jeopardize the ability of an individual to continue working in the securities industry.  A prospective employer may pass over a job candidate who has what has come to be known as a “Dirty U5” from a previous employer.

Dirty U5s

The Financial Industry Regulatory Authority (“FINRA”) does provide a forum for an employee to pursue arbitration against a former employer to contest a “Dirty U5.”  However, the best course of action is to avoid the problem from ever arising.  Registered employees in the securities industry are well advised to seek legal advice and counsel once it becomes apparent that their employment may be coming to an end.  In many cases, the disclosures made in the Form U5 by the employer may be mutually agreed upon before the employment termination ever occurs.

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Should you have any questions relating to the Form U5, or employment issues generally, please feel free to contact Joseph Maya or the other experienced education attorneys at Maya Murphy, P.C. today at (203) 221-3100 or by email at JMaya@Mayalaw.com.

Assignability of Non-Compete Agreements Under Connecticut Law in the Event of a Merger

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Neopost USA, Inc. v. McCabe, 2011 U.S. Dist. LEXIS 105850

Neopost USA, Inc. and Pitney Bowes, Inc. are two companies that essentially hold a duopoly on the national “mailing equipment” market, an industry that includes postage meters, mailing machines, addressing machines, folders, inserters, and relevant software.  Neopost, Inc. employed Mr. John McCabe from 2002 to August 1, 2011 but did not have him sign a non-compete agreement until February 2005, at which time he received a pay raise in connection with a corporate reorganization.

The parties executed a subsequent restrictive covenant in March 2006.  The agreements prohibited Mr. McCabe from engaging in competitive business activities for one year following termination within fifty miles of any Neopost office where he had worked during his employment with the company.  Additionally, he could not solicit Neopost’s customers or employees during the specified one-year period.  Neopost, Inc. merged with Hasler, Inc. and the transaction became official in November 2009 with the creation of a new company, Neopost USA, that assumed title to Neopost, Inc.’s assets and liabilities.

The Dispute

Mr. McCabe’s last day with Neopost was August 1, 2011 and he began to work for Pitney Bowes, its direct and main competitor, only a few days later.  There was a dispute between the parties regarding whether Mr. McCabe voluntarily terminated (resigned) his employment with Neopost or the company fired him.

Neopost sued Mr. McCabe in federal court for violation of the non-compete agreement and requested that the court enforce the provisions of the covenant in order to prevent further breaches of the agreements executed by the parties.  Mr. McCabe argued that his non-compete agreement with Neopost, Inc. were not assignable to Neopost USA, Inc. after the merger with Hasler, Inc. and thus, he was not bound by the provisions contained therein.

The Court’s Decision

The court rejected Mr. McCabe’s defense and granted Neopost’s request for injunctive relief and the enforcement of the non-compete agreements.  The court did not bother deciding the question of fact regarding the classification of Mr. McCabe’s termination.  Provisions of a non-compete are automatically triggered upon termination, regardless of whether it is voluntary or involuntary in nature.  The issue at hand and the focus of the court was the validity and enforceability of the non-compete agreements between Neopost and Mr. McCabe.

The court held that the non-compete agreements were assignable to Neopost USA following the merger, citing Connecticut law that “all property owned by, and every contract right possessed by, each corporation or other entity that merges into the survivor is vested in the survivor without reversion or impairment”.  Conn. Gen. Stat. § 33-820(a)(4).  In the event of a corporate merger, the surviving company holds title to all contracts and employment agreements of the predecessor companies and their provisions are valid and enforceable under Connecticut law.

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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.

Court Invalidates Non-Compete Agreement for Unreasonable Restrictions

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Trans-Clean Corp. v. Terrell, 1998 Conn. Super. LEXIS 717

Trans-Clean Corp. was a company engaged in the business of restoring exteriors and interiors of commercial buildings.  The company began to employ Mr. Alton Terrell as a salesman and manager in December 1990 in connection with the company’s acquisition of Travel Washer, Inc..  The parties executed an employment agreement that created a one-year term of employment, specified the compensation schedule, and contained a non-competition covenant.  The non-compete agreement stated that Mr. Terrell was prohibited for two years following the completion of his employment contract or any renewal thereof from competing with Trans-Clean within sixty miles of the company’s main office in Stratford, CT.

The parties negotiated a pay increase in 1993 and a new compensation schedule was created.  Trans-Clean considered this a renewal of the original employment contract and held the belief that the non-compete agreement was still valid and in effect.  Mr. Terrell however did not share the same view and did not treat the pay increase and new compensation schedule as a renewal of the original contract.  While the parties had different interpretations of the pay increase, there were no direct discussions to clarify its characteristics.

The Dispute

Mr. Terrell suddenly resigned from Trans-Clean in September 1997 and proceeded to create his own commercial restoration company and solicited business from individuals/businesses on Trans-Clean’s customer list.  Trans-Clean sued Mr. Terrell and asked the court to issue an injunction to enforce the non-compete agreement and prevent any further violations.  The court had to tackle two central issues to decide the dispute: 1) whether customer lists are protected trade secrets and 2) the nature and reasonableness of the employment contract and non-compete agreement.  It held that the lists were not trade secrets that entitled Trans-Clean to an injunction and further concluded that the non-compete agreement was unreasonable and unenforceable.

The court held that the customer lists were not trade secrets or confidential information that required protection.  There was never a company policy to designate the lists as confidential information or maintain a degree of secrecy of customers or contact persons.  Furthermore, each salesperson maintained his or her own personal contact lists and did not have any direct access to other sales representatives’ lists.  Each salesperson had the responsibility of developing his or her list, maintaining business relationships, and collecting accounts.  These lists did not amount to a business interest for which Trans-Clean was entitled to protection and injunctive relief.

Reasonableness of the Covenant

Next, the court assessed the reasonableness of the covenant not to compete and found that its provisions, specifically the geographical restriction, were unreasonable and unenforceable.  The sixty-mile radius restriction covered 75% of Connecticut, including the state’s six major metropolitan areas (Bridgeport, New Haven, Hartford, Waterbury, Stamford, and Danbury), and extended into parts of New York (including four out the five boroughs) and New Jersey.  The restriction, according to the court, was overreaching and unnecessarily infringed on Mr. Terrell’s ability to purse his occupation and obtain future employment.  He had twenty years of experience in the commercial restoration industry and it was the only field in which he had ever worked.

Renewal of the Original Agreement

Lastly, the court analyzed whether the pay increase and modification of the compensation schedule amounted to a renewal of the original agreement.  The court stated there was a “question of fact” that it needed to answer in order to decide the case.  It noted that the writing drawn up by the company regarding the pay increase did not make any reference to the original employment contract and there was no apparent connection between the two writings.

In the absence of any reference or connection, the court concluded that the pay increase was not a renewal or extension of the original employment contract.  The court noted however that Mr. Terrell “should be bound by the non-compete agreement if that agreement is found to be reasonable”.  The court’s earlier analysis revealed that the covenant was in fact unreasonable, thereby overriding Mr. Terrell’s obligation to abide by its provisions.

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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.

Implied Duty to Not Disclose Accounts and Trade Secrets and Exceptions to the Rule

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Booth Waltz Enterprises v. Kimlingen, 2004 Conn. Super. LEXIS 2682

Booth Waltz Enterprises was an automotive and industrial lubricant distributor based in Hartford, Connecticut that transacted with auto dealers, fleet owners, and public entities.  Mr. Kevin Kimlingen worked for Booth Waltz as a sale representative from April 2000 to October 2003.  Booth Waltz’s management was impressed by Mr. Kimlingen’s practice of “rolling”, the art of convincing his customers to follow him to a new employer.  He “rolled” forty-five accounts to Booth Waltz within his first month at the company.

Booth Waltz took advantage of Mr. Kimlingen’s talents to acquire many new clients when the company hired him but it was very cognizant that it would have to take measures to protect its interests given his history of mobility and “rolling” within the industry.  In the summer of 2003, Booth Waltz prepared a non-solicitation agreement for its employees to better regulate the activities of its sales staff.  Mr. Kimlingen expressed great reluctance to sign the restrictive covenant when he received it in October 2003 and Booth Waltz assumed he resigned from its employ when he failed sign the agreement or attend a mandatory staff meeting.

Customer Solicitation 

Mr. Kimlingen began to work for U.S. Lubes, a direct industry competitor, and he began “rolling” his Booth Waltz accounts to his new employer.  Booth Waltz sued Mr. Kimlingen in Connecticut state court and sought injunctive relief to prevent any further solicitations of its customers.  Booth Waltz argued that although Mr. Kimlingen may not have breached an actual restrictive covenant, his actions violated the Connecticut Uniform Trade Secrets Act, which by default prohibited certain competitive activities.

The company argued that the customer lists Mr. Kimlingen took with him to his new employer was Booth Waltz’s sensitive and proprietary information.  Former employees may compete with a former employer in the absence of a non-compete agreement, but he or she is still bound by a duty to not disclose trade secrets or confidential information acquired during his or her employment to the detriment of the former employer.

The Court’s Decision

The court ultimately held that Mr. Kimlingen did not violate a covenant or implied duty by “rolling” clients from Booth Waltz to U.S. Lube.  A vast majority of these accounts had long-standing relationships with Mr. Kimlingen that pre-dated his employment with Booth Waltz.  The court concluded that these customer relationships were not property of Booth Waltz and the company had no authority or legal right to label the contact information as its proprietary information.

The court noted, “in the absence of a covenant not to compete, an employee who possessed the relevant customer information prior to the former employment is free to use the information in competition with the employer after termination of the employment relationship” (Restatement (Third), Unfair Competition § 42, comment f), and denied Booth Waltz’s request for an injunctive in light of no legally binding restrictive covenant or an implied duty.

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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.

Court Denies Enforcement Due to Inconsistencies & Absence of Valid Contract

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Luongo Construction & Development, LLC v. Keim, 2008 Conn. Super. LEXIS 1182

Luongo Construction & Development was a limited liability corporation organized under Connecticut law with headquarters in Wallingford, CT that was engaged in the modular home industry.  The company employed Mr. Melvin Keim at its office and allegedly executed a “Non-Compete Agreement” with him on March 15, 2006.

The agreement prohibited Mr. Keim from competing with Luongo by engaging in the modular home industry within fifty miles of Wallingford, CT for a period of five years following his termination.  Luongo brought an action against Mr. Keim to enforce the provisions of the non-compete agreement when he began to work for another company in the same industry.

The Employment Agreement

The court rejected Luongo’s request for injunctive relief and enforcement of the agreement because it concluded that there was no valid or enforceable contract executed by the parties.  Luongo submitted the non-compete agreement to the court in two forms: first as an attachment to its application for preliminary injunctive relief (hereafter referred to as “Attachment”) and then as “Exhibit A” for evidence during the hearings regarding its application for an injunction (hereafter referred to as “Exhibit”).

The court noted that while the documents had similarities, there were many significant differences.  Firstly, the court identified that the documents were both photocopies since the originals could not be located, they were generic agreements that did not specifically mention Mr. Keim’s name, were dated March 15, 2006, and bore the same three signatures (Mr. Michael Luongo, Mr. Keim, and Mr. Robert G. Wetmore, the witness and Commissioner of the Superior Court).

The court went on to identify the numerous differences between the two documents and concluded that they were material differences that substantially affected the nature of the agreement’s obligations and validity.  The following differences were cited as damaging to the agreements’ integrity and enforceability: Attachment contained a different provision concerning working for a competing business, Attachment prohibited engagement in the “financial planning business” while Exhibit prohibited engagement in the “modular home business”, and the documents had significant drafting differences with respect to their provisions and formatting.  Furthermore, the court noted that the parties were never in each other’s presence to actually witness the other party sign the agreements.

The Court’s Analysis and Decision

After an in-depth analysis of the agreements and taking testimony from both side, the court held that there was not a valid and legally enforceable contract executed by the parties.  The court specifically stated that “The inconsistency of these two agreement also militates toward the court’s finding that there is insufficient evidence to support a probable cause finding of a bona fide agreement signed by the parties”.

In order for parties to create a valid contract, there has be an offer and acceptance between the parties based on a mutual understanding of the terms and obligations.  Courts have long held that mutual assent or a meeting of minds is required for a valid and legally binding contract.  In this case, the court concluded that there was not an enforceable employment contract between the parties and subsequently denied Luongo’s request for injunctive relief to enforce the provisions of the non-compete agreement.

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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.

Court Amends Time Restriction for Engineering Firm Non-Compete Agreement

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Maintenance Technologies International, LLC v. Vega, 2006 Conn. Super. LEXIS 136

Maintenance Technologies International, LLC (MTI) was a Milford, Connecticut-based company that offered highly specialized engineering maintenance services to clients.  The company employed Mr. Daniel Vega as an engineer from February 25, 2002, to October 7, 2005.  His responsibilities for this position included conducting vibration analysis, infrared thermography, motor testing, and laser alignment.  He signed a covenant not to compete as part of his employment agreement with the company.

The restrictive covenant prohibited Mr. Vega, for a period of two years following termination, from engaging in competing business activities within one hundred fifty miles of MTI’s current principal place of business.  The agreement further stated that he could not own any stock in a competing business located within one hundred fifty miles of MTI’s principal place of business.

Breach of the Employment Agreement 

Mr. Vega informed his superiors that he would be voluntarily terminating his employment with the company due to family related issues and his personal ambition to finish his master’s degree in theology.  Once he quit MTI however, he began to work for Schultz Electric Co., a competing company with major offices in Connecticut, Maine, Massachusetts, and New Jersey.

MTI’s management interpreted this move as a violation of the non-compete agreement executed when Mr. Vega’s employment with the company started and sued him in Connecticut state court.  The company requested that the court enforce the provisions of the restrictive covenant in order to prevent any further violations of the agreement.  The court found in favor of MTI, granted the company’s request for an injunction, but amended the time restriction to be only one year, instead of the two-year period as stipulated in the agreement.

The Court’s Decision

In reaching its decision, the court assessed whether MTI had a legitimate interest that needed protection and whether the restrictions in the non-compete agreement were reasonable in scope.  The court recognized that the company spent a great deal of resources on training its employees and this created a valid interest according to the court.

Furthermore, the employees were on the front lines with regard to the business relationships with MTI’s customers and had direct access to proprietary and confidential information.  The court held that a company’s employees and customer relationships are its most valuable assets and are worthy of protection under Connecticut law.  Injunctive relief, therefore, was reasonably necessary for the fair protection of the employer’s business interests.

Next, the court examined whether the specific restriction contained in the agreement were reasonable in scope.  The court held that they amounted to a reasonable and legitimate restriction of Mr. Vega’s ability to work.  They provided an adequate amount of protection to MTI while not overreaching and unnecessarily restricting Mr. Vega’s ability to secure future employment.  The limitations still allowed many viable career options for Mr. Vega.

The court did however slightly amend the time restriction.  It was concerned that the full two years could prove to be “somewhat inequitable” and reduced the restriction to one year, instructing the parties that they could submit arguments prior to the expiration of the one year regarding a potential extension to the full two years as stipulated in the covenant not to compete.

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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.

A Quick Guide to Separation Agreements and Severance Packages

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Separation Agreements

Today’s report on the lagging unemployment numbers serves as a stark reminder that the state of the economy, though on the upturn, continues to move at a slow pace and that unemployment is a very real problem facing too many people.  Attorneys in our Westport office continue to see a high number of Separation Agreements and severance packages by employees who have been laid off.  What those employees should know is that experienced employment law attorneys, such as those at Maya Murphy, P.C., can review those agreements to negotiate an enhancement or increase of the benefits received.

Because there is no such thing as a standardized severance package, each and every term is crucial and should be carefully scrutinized.  As such, no employee should feel obligated to sign a Separation Agreement and return it to his or her employer without subjecting it to further review and negotiation by employment attorneys with a wide breadth of knowledge in the field.

Severance Packages 

Severance pay refers to a voluntary offer of payment from an employer to an employee who has recently been laid off.  No law requires an employer to offer a terminated employee a severance package.  However, employers offer severance packages, among other reasons, to maintain goodwill with past and future employees, to prevent employees from appropriating trade secrets, customer lists, and other proprietary information, and to ensure that employees refrain from engaging in professional associations with competing companies or businesses, or “non-competition agreements,” a separate issue on which Maya Murphy attorneys are well-versed.

It is crucial to remember that the time in which to respond to and agree to a severance agreement can be very limited, often to no more than one or two weeks, meaning it is in a terminated employee’s best interest to consult with an attorney as soon as possible after receipt of an agreement.

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It is vital to have an attorney experienced in employment law take the lead on reviewing your Separation Agreement, negotiating with your company or business, and vigorously advocating on your behalf.  Should you be confronted with a Separation Agreement, contact Joseph Maya and the other experienced attorneys at our Westport,CT office at 203-221-3100 or JMaya@Mayalaw.com.

Enforcing a Non-Compete Agreement in a Medical Partnership

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

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 toward 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.

Violating the Restrictive Covenant

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.

Improper Termination Argument

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.

Unreasonable Provisions Argument

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.

Enforcing the Non-Compete Agreement

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.

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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.

Four-Prong Test Applied to Enforce Non-Compete Provision in a Franchise Agreement

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Money Mailer Franchise Corporation v. Wheeler, 2008 Conn. Super. LEXIS 2260
Case Details

Mr. Douglas Wheeler entered into a Franchise Agreement with Money Mailer Franchise Corporation on February 28, 2003, wherein he was assigned a mailing territory comprised of thirteen zip codes in Fairfield and New Haven counties.  Money Mailer was a business that franchised a system of providing direct mail order advertising and related services.  The Franchise Agreement contained a non-compete covenant.

The non-compete prohibited Mr. Wheeler from engaging “in any Competitive Activities with the Territory [his thirteen zip codes] or within the territory of any other “Money Mailer” franchise then in operation” for a period of two years following termination.  This essentially obligated Mr. Wheeler to not engage in any competing business enterprise within fifty miles of any Money Mailer franchise.

Mr. Wheeler sold his franchise to Mr. Javier Ferrer on October 31, 2007 for $130,000.  He executed an additional non-compete agreement in connection with this transaction wherein he promised not to compete for three years following the closing of the deal.  In February 2008, he began to work as an Independent Contractor for Direct Advantage, a direct competitor engaged in the same business(es) as Money Mailer.

Money Mailer sued Mr. Wheeler for breach of the Franchise Agreement and requested that the court enforce the provisions contained in the non-compete agreement.  Mr. Wheeler acknowledged that he was involved in the exact same business addressed and prohibited in the non-compete agreement and admitted to soliciting several of Money mailer’s previous and current customers.

The Court’s Decision

The Connecticut state court granted Money Mailer’s request for injunctive relief and ordered the enforcement of the restrictive covenant.  The court stated that the purpose of injunctive relief was to preserve the status quo of the parties until the case was definitively decided.

It further noted the relevant standard of review for granting a request for an injunction and specified four factors: 1) no adequate remedy at law, 2) plaintiff would experience irreparable harm if the request was not granted, 3) plaintiff was likely to prevail on the merits of the case, and 4) an injunction would sustain the balance of the parties’ equities.  The court concluded that Money Mailer’s case met all of these requisite factors and its complaint warranted relief in the form of a temporary injunction.

The court concluded that an injunctive order was necessary to balance the parties’ interests during the legal proceedings and that the temporary injunction would essentially restore the parties to their relative positions before the alleged violation of the non-compete agreement.  Money Mailer was able to demonstrate that Mr. Wheeler’s actions had a detrimental impact its business interests.

Additionally, the court found that Money Mailer was likely to prevail on the merits of its complaint, specifically citing that Mr. Wheeler’s own testimony provided abundant evidence of activities that should trigger the enforcement of the restrictive covenant.  For these enumerated reasons, the court granted Money Mailer’s request for an injunction restraining Mr. Wheeler from further violations of the non-compete provisions contained in the Franchise Agreement executed between the parties in 2003.

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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.