Posts tagged with "customers"

When is A Non-Compete Geographical Limitation Unreasonable?

In Braman Chemical Enterprise, Inc. v. Barnes, 2006 Conn. Super. LEXIS 3753, Ms. Valerie Barnes worked as an exterminator for Braman Chemical Enterprises, Inc. from November 5, 1990, to April 26, 2006.  On October 24, 1990, in preparation for Ms. Barnes beginning to work, the parties executed a non-compete agreement titled “Restriction Against Other Employment After Termination of Work With Braman Chemical Enterprises, Inc.” where it stated that Ms. Barnes was prohibited from working at any branch of a pest control business within fifty miles of the Hartford City Hall for a period of six months.

Case Details

The company provided pest control services to commercial and residential customers in approximately ninety percent of Connecticut’s towns and cities.  Ms. Barnes worked the majority of her career with Braman servicing the area defined as east of New Haven, west of Guilford, south of Meriden, and north of the Long Island Sound.  She received training for her operator’s license while employed by Braman but obtained her supervisor’s license on her own time and at her own expense.

On April 26, 2006, Ms. Barnes voluntarily terminated her employment at Braman and formed a Connecticut limited liability company called “Bug One, LLC” based in Hamden that provided substantially identical services as her previous employer.  Braman sued Ms. Barnes in Connecticut state court to enforce the non-compete and enjoin her from further violations of the restrictive covenant’s provisions.  Ms. Barnes asserted that the geographical limitation in the agreement was unreasonable and provided an unnecessary amount of protection for Braman.

The Court’s Findings

The court found Ms. Barnes’ argument to be meritorious and denied Braman’s request to enforce the agreement.  A non-compete agreement is analyzed in its entirety but a single unreasonable provision can be sufficient to invalidate the entire agreement and prevent enforcement.  Connecticut courts have traditionally tended to apply greater scrutiny to a non-compete agreement that creates a general restriction on a geographical area than agreements that focus simply on doing business with the employer’s clients.

Employers are legally allowed to protect themselves in a “reasonably limited market area” but may not overreach to the degree that the restriction prevents the former employee from practicing his or her trade in order to make a living.  While Braman contended that the geographical limitation was reasonably tailored to meet its legitimate business needs, the court held that the provision went well beyond the “fair protection of plaintiff’s [Braman’s] interests”.

The geographical area of fifty miles from Hartford City Hall placed an unreasonable restraint on trade for Ms. Barnes.  The court notes that the prohibited area covered roughly two million potential customers and an area of 7,850 square miles, covering parts of Connecticut, Massachusetts, Rhode Island, and New York.  To put this in perspective, the entire state of Connecticut is only 5,018 square miles.  This area as defined in the non-compete agreement was thus an unreasonable limitation and sufficient cause to invalidate the entire 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.

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.

The Lawsuit

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.

Evaluating Non-Compete Reasonableness

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.

Constructive Discharge

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.


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 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.

Breach of Non-Compete

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.

Past Consideration vs. New Consideration

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’s Decision

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.

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.

Identifying de facto Geographical Limitations in Connecticut Non-Compete Agreement

New Haven Tobacco Co., Inc. v. Perrelli, 18 Conn.App. 531
Case Background

New Haven Tobacco Company operated a wholesale tobacco business and entered into an employment contract with Mr. Frank Perrelli in December 1980.  As part of the contract, Mr. Perrelli signed a non-compete agreement wherein he agreed to “not directly or indirectly sell products similar to those of the Employer (New Haven Tobacco Co.) to any of the customers he has dealt with or has discovered and became aware of while in the employ of the Employer for a period of twenty-four months from the termination of his employment”.

In November 1981 Mr. Perrelli voluntarily left the employ of New Haven Tobacco and proceeded to start his own wholesale tobacco business.  New Haven Tobacco sued to recover money damages and for injunctive relief in the form of a court order restraining Mr. Perrelli’s wholesale tobacco business activities.

The Court’s Decision

The trial court found in favor of Mr. Perrelli and denied New Haven Tobacco’s injunction application.  It found that the agreement lacked geographical limitations and went against the public’s interest.  New Haven Tobacco appealed to the Appellate Court of Connecticut claiming that the trial court erred when it held that the non-compete agreement was unenforceable.  The Appellate Court reversed the trial court’s decision and found in favor of New Haven Tobacco.  The Appellate Court held that the agreement in dispute focused not on Mr. Perrelli engaging in a certain business sector, but instead on the prohibition of transacting with a specific group of customers, namely those of his former employer, New Haven Tobacco.

By limiting the customers the agreement applied to, the agreement in essence instituted a geographical limitation.  The customer list was local and de facto limited the agreement to the greater New Haven area.  The Appellate Court also held that the trial court erred with regard to invalidating the non-compete agreement on the grounds of public interest.  The trial court concluded that the provisions of the agreement aided in creating and maintaining a monopoly on the wholesale tobacco business and thus disadvantaged customers and was contrary to public interest.

The Appellate Court however found this assertion to be unsubstantiated and held that the non-compete agreement did not unreasonably interfere with the public’ interest.  The enforcement of the non-compete agreement would not disadvantage the public or place hardships on individuals wishing to transact in the local tobacco wholesale industry.

 

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.

Requisite Proof to Demonstrate Irreparable Harm in Connection to Breach of Non-Compete

VBrick Systems, Inc. v. Stephens, 2009 U.S. Dist. LEXIS 45835
Case Background

VBrick Systems, Inc. was a Delaware corporation with primary business operations based in Wallingford, Connecticut that provided networked streaming video products and services.  The company employed Mr. Robert Stephens as its Army Federal Territory Manager from July 2005 until April 1, 2008, when he tendered his resignation from the company and began to work at Optibase, Inc as its Director of Federal Sales.  Optibase is a direct competitor that also sells networked video products and services to government, military, and private sector customers. Mr. Stephens traveled to Connecticut after he was hired by VBrick to attend a training session at the company’s headquarters and signed an employment agreement that contained non-compete and non-disclosure clauses.

The Employment Agreement

In the agreement, he agreed to refrain from working at a competing company during an eighteen-month period after his termination from VBrick.  The non-disclosure covenant stipulated that Mr. Stephens be legally obligated to maintain the confidential nature of VBrick’s business operations and information that he had access to during his employment with the company.  The employment agreement stated that Connecticut law would govern any legal disputes but failed to enumerate any geographical limitations for the restrictive covenants.

VBrick alleged that Mr. Stephens breached the covenants by accepting a position with a competitor within eighteen months of his termination and by using VBrick’s proprietary information in his role as an Optibase employee.  VBrick sued in federal court and requested that the court enforce the provisions contained in the restrictive covenants.  The court ultimately found in favor of Mr. Stephens and denied VBrick’s request for injunctive relief.  The court found that VBrick did not meet the burden of proof to demonstrate that it would suffer irreparable harm if the court did not issue an injunction.

The Court’s Decision

The court held that VBrick failed to present adequate and convincing evidence that Mr. Stephens actually possessed or had access to any of its trade secrets or confidential information.  He had familiarized himself with the products he was marketing and selling by using the company’s training programs and corporate website, both of which are accessible by the public.

Additionally, VBrick did not convince the court that Mr. Stephens’ action as an Optibase employee had “affected or will significantly affect VBrick’s sales or revenues”.  This meant that VBrick was unable to show that it had been adversely affected by Mr. Stephens’ actions or that it was likely to be in the future.  VBrick’s testimony offered evidence to the contrary when it stated before the court that its sales and revenues remained strong despite Mr. Stephens’ termination and the national economic downturn.  In light of inadequate evidence to show that Mr. Stephens’ action at Optibase created an imminent danger for VBrick’s business operations, the court had no option but to deny VBrick’s request for injunctive relief.

 

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.

Balancing Policy Concerns When Determining Enforceability of Non-Compete Agreement

Booth Waltz Enterprises, Inc. v. Pierson, 2009 Conn. Super. LEXIS 1912
Case Background

Speedway Distributors, Inc. employed Mr. David Pierson as a sales representative beginning in 1998 and had him sign a non-compete agreement as a condition precedent to his employment.  The agreement, executed on January 26, 1998, prohibited Mr. Pierson from soliciting Speedway customers or divulging their contact information to other parties for a period of one year following his termination.  Speedway’s primary business operation was distributing aftermarket chemical products in Connecticut, Rhode Island, and western Massachusetts.

On October 20, 1998 Booth Waltz Enterprises, Inc. acquired certain Speedway assets, most notably its customer lists/information and its sales representatives’ non-compete agreements.  Booth Waltz offered Mr. Pierson a job under the new corporate management scheme and asked him to sign a new non-solicitation agreement but he voluntarily terminated his employment.

Following his termination, Mr. Pierson started his own business, Hometown Distributors, which engaged in the same business operations and geographical area as his former employer.  Booth Waltz alleged that Mr. Pierson was soliciting its customers in violation of the non-compete it acquired from Speedway and sued for the enforcement of the restrictive covenant.

The Court’s Decision

The court found in favor of Booth Waltz, holding that the “defendant [Mr. Pierson] has engaged in conduct which is in breach of the restrictive covenant.  This conduct would dictate that the plaintiff [Booth Waltz] is entitled to enforce the agreement”.  Mr. Pierson contended that the provisions of the non-compete agreement were unreasonable, rending the agreement unenforceable, but the court rejected these assertions.  In handing down its decision, the court had to balance the necessity to protect the employer’s business interests and the employee’s right to earn a living.

The duration of one year was reasonable and was supported by the public policy principle that Booth Waltz had a right to protect the long-term relationships that Speedway maintained with its customers.  Additionally, the court concluded that the geographical limitation (Connecticut, Rhode Island, and western Massachusetts) was reasonable because it only restricted specific customers appearing on Speedway’s customer list, and not the region as a whole.

The court also addressed and stated that its holding did not interfere with public interest since it did not unreasonably deprive the public of a good/service for the sake of protecting a business’s recognized interest.  This case is a good example of how a court must balance multiple interests and policy concerns when deciding a case disputing a non-compete agreement between an employer and one of its former employees.

 

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.