Posts tagged with "customer list"

Application of FINRA Rules & Regulations for Bank’s Employment 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, 1995 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 had 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 sent a 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.

Employment Contract Violation

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 that the assertion lacked jurisdiction and was 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.

–

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

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.