Posts tagged with "employment relationship"

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.

De Facto New Employment Relationship Precludes Restrictive Covenant Enforcement By Successor Employer

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Kelly Services, Inc. v. Savic, 2006 U.S. Dist. LEXIS 83930
Case Background

Ms. Anna Savic worked as a legal recruiter at The Wallace Law Registry and its successor companies from February 1989 until her resignation on June 20, 2005.  She began her employment primarily recruiting and placing paralegals in the Connecticut legal market.  Ms. Savic executed an employment agreement with Ms. Shelly Wallace, the owner and sole shareholder of the company, on October 2, 1990.

The agreement detailed the employment relationship between Ms. Savic and the company, specifically stating that employment was at will where either party could terminate the relationship at any time with or without cause (paragraph #3), that all the company’s information and records were private/privileged/confidential (paragraph #8), that she was prohibited from soliciting any applicant or client without express written consent for two years following termination (paragraph #9), and that she was prohibited from soliciting any employees to leave the employ of the company for two years following termination (paragraph #11).

Enforcing a Non-Compete Agreement

The Wallace Law Registry experienced a series of mergers and acquisitions during Ms. Savic’s employment and the company eventually became part of Kelly Services, Inc., a Delaware corporation with headquarters in Troy, Michigan.  Ms. Savic’s duties and responsibilities significantly changed around March 2000 and she received a new compensation schedule despite the fact that no new employment agreement was executed.

Kelly Services commenced an action to enforce the provisions of the 1990 Employment Agreement when Ms. Savic resigned from the company in 2005.  Ms. Savic asserted that the contractual obligations of the 1990 Employment Agreement were no longer in effect and that the agreement itself was not assignable during the series of mergers and acquisitions that occurred throughout her employment.

The central issues for the court were: (1) whether the 1990 Employment Agreement between Ms. Savic and The Wallace Law Registry was enforceable to Kelly Services because it lacked an assignment clause, and (2) if the agreement was assignable, whether it was enforceable.

While the 1990 agreement was silent on the assignability and/or successorship of the contractual provisions, Connecticut law and policy nonetheless enshrine the principle that employment contracts are assignable business assets.  Specifically, “Connecticut adheres to the view, rejected by most jurisdictions, that an employee’s covenant not to compete is an assignable asset of the employer”.  Madrigal Audio Laboratories, Inc. v. Cello, Ltd., 799 F.2d 814, 821 (2d Cir. 1986).  The court determined that the 1900 agreement was assignable but ultimately concluded that it was not enforceable by Kelly Services.

The Court’s Decision

In order to be successful in requesting enforcement of a non-compete agreement, a plaintiff must demonstrate (1) irreparable harm and (2) either (a) the likelihood of success on the merits or (b) sufficiently serious questions on the merits to make them fair ground for litigation.  The court held that that Kelly Services failed to establish a likelihood of success on the merits of the case.

The changes in employment/responsibilities in March 2000 went beyond mere modifications to the original employment agreement and the court concluded that a new employment relationship was created even though it was not formally detailed in a new employment agreement.  This, according to the court, rendered the 1990 Employment Agreement between Ms. Savic and The Wallace Law Registry unenforceable and no longer in effect.

This case is one that demonstrates that there are exceptions to every rule.  Despite the general policy in Connecticut of assigning employment contracts in the event of a merger or acquisition, there are always certain circumstances where the original agreement will not be enforceable by the successor employer.  An employer is prevented from enforcing an original employment agreement when a de facto new employment relationship is created due to significant changes in responsibilities, compensation, and/or position within the company.

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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.

What to Know About Your Non-Compete Agreement

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In the current economic environment, understanding your obligations under a non-compete agreement could be essential to finding new employment. In uncertain times, an employee may not understand that not all non-compete agreements are enforceable. Here are seven (7) important things to know about non-compete agreements.

(1)  Courts Do Not View All Non-Compete Agreements Equally:

Courts view non-compete agreements ancillary to the sale of a business or between partners differently than they view non-compete agreements between an employee and employer. “When an employee agrees to be subjected to future work restrictions, he or she does so in order to obtain employment and ordinarily gets nothing in return for giving up this important freedom.  Thus the employee is at a great bargaining disadvantage.”  CT Cellar Doors, LLC v. Stephen Palamar, 2010 Conn. Super. LEXIS 3247, J.D. of Waterbury, Docket No. UWY-CV-10-5016075-S (2010). Therefore, the courts will view such a non-compete with great scrutiny.

(2)  Reasonableness Requirement:

By definition, a non-compete is a restrictive covenant that prevents employees from competing with their former employers after termination, thereby creating a restraint on the free market. Given this, Connecticut courts may find that these covenants are against public policy. Consequently, non-compete agreements are only enforceable if the restraint imposed is reasonable.

(3)  Courts Consider Multiple Factors in Evaluating the Reasonableness of a Non-Compete:

In deciding whether a particular non-compete agreement is reasonable, the court will look to the following factors: “(1) the length of time the restriction operates; (2) the geographical area covered; (3) the fairness of the protection afforded to the employer; (4) the extent of the restraint on the employee’s opportunity to pursue his occupation; and (5) the extent of interference with the public’s interests.” Robert S. Weiss and Associates, Inc. v. Wiederlight, 208 Conn. 525 (1988). The Connecticut Appellate Court has instructed that “the five pronged test is disjunctive; a finding of unreasonableness in any one of the criteria is enough to render the covenant unenforceable.” New Haven Tobacco Co., Inv. v. Perrelli, 18 Conn. App. 531 (1989).

(4)  Involuntarily Termination Not Required:

A prevalent feeling among employees is that if “let go,” a non-compete should not apply.  However, this is not the law. When reviewing a non-compete agreement for reasonableness, the Court will not look to whether the employee left his position voluntarily or involuntarily.

(5)  Geography:

“The general rule is that the application of a restrictive covenant will be confined to a geographical area which is reasonable in view of the particular situation.” Scott v. General Iron, 171 Conn. 132 (1976) (upheld statewide restriction). Geographic restrictions should be “narrowly tailored to the plaintiff’s business situation.” Robert S. Weiss & Associates, Inc. v. Wiederlight, supra, 208 Conn. at 531. In CT Cellar Doors, LLC v. Stephen Palamar, supra, the Court held that a three-year restriction that covered the entire State of Connecticut was unenforceable, unfair and an unreasonable restraint of trade and was contrary to public policy.

Compare that to Robert S. Weiss and Associates, Inc. v. Wiederlight, supra, where the Supreme Court held that a two-year restriction that covered a 10-mile radius of Stamford, was narrowly tailored and therefore reasonable.  See also, Access America, LLC v. Mazzotta, 2005 Conn. Super. LEXIS 2597, J.D. of Middlesex, Docket  No. CV-O5-4003389 (2005)(15-mile restriction upheld); compare, Trans-Clean Corp. v. Terrell, 1998 Conn. Super. LEXIS 717, J.D. of Fairfield, Docket No. CV-97-0348039-S (1998) (60-mile restriction held unreasonable).

(6)  Duration:

Connecticut courts have frequently enforced non-compete periods of a year or more.  However, the courts have stated that the reasonableness of time and geographic restrictions in non-compete agreements are intertwined and “that broad geographic restrictions may be reasonable if the duration of the covenant is short, and longer periods may be reasonable if the geographic area is small.” Van Dyck Printing Company v. DiNicola, 43 Conn. Supp. 191 (1993), affirmed per curiam 231 Conn. 272 (1994) (one year);  Robert S. Weiss & Assoc. v. Wiederlight, supra (two years); Hart Nininger & Campbell Assoc. v. Rogers, 16 Conn. App. 619 (1988) (two years); Scott v. General Iron & Welding Co., 171 Conn. 132 (1976) (five years); Torrington Creamery, Inc. v. Davenport, 126 Conn. 515 (1940) (two years).

(7)  Forfeiture Clauses:

Forfeiture clauses differ from non-compete agreements in that the employee does not make an express promise not to compete, but rather agrees to a forfeiture of benefits if the employee engages in competition with its former employer. Despite this difference, the Connecticut Supreme Court has held that “a covenant not to compete and a forfeiture upon competing are but alternative approaches to accomplish the same practical result.” Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745 (2006). Consequently, forfeiture clauses are subject to the reasonable requirement of non-compete agreements.

Conclusion

Before signing a non-compete agreement, speak to an attorney who is well versed in the law surrounding restrictive covenants and employment contracts.  If you have already signed the non-compete agreement, contact an attorney before pursuing a course of conduct that might violate a non-compete clause. A violation of a non-compete may result in legal action brought against you by your former employer, whether or not such agreement is enforceable.  Situations involving non-compete agreements are very fact specific, requiring case-by-case analysis.

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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

What To Know About Your Severance Package

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During these economic times, many companies big and small, are facing the hard reality of layoffs. As hard as it is for companies, it is even harder for employees. Faced with no job and a bare economy, accepting a severance package might seem like the best choice.  But before signing anything, it is important to understand the basics of the severance package and the potential rights that might be relinquished in the process.

(1)  Time to Consider the Severance Package:

A prevalent misconception is that all employees are entitled to twenty-one (21) days to review severance package offers. Unfortunately, that is not the case.  In the case where the employer is only offering a severance package to one employee, and that employee is under the age of forty (40), there is no specific time to review the documents that is required by law. However, as the severance package must be made “knowingly and voluntarily,” that allows the employee some time to consider the severance agreement.  There is no statutory minimum amount of time.

If, however, the employee being offered the severance agreement is forty (40) years or older, he or she is protected by the Age Discrimination in Employment Act (“ADEA”) of the Older Workers Benefit Protection Act (“OWBPA”). By law, when only one employee is offered the severance agreement and a release of ADEA claims is included, the employer must provide the employee with twenty-one (21) days to review and consider the proposed severance agreement. Moreover, if the employer and employee engage in negotiations, the consideration period commences on the date of the employer’s final offer.

If more than one employee is terminated at or around the same time, it is considered a “group layoff.”  By law, when a severance agreement is offered as part of a group layoff, and a single employee is over the age of forty (40), and a release of ADEA claims is included, then every employee regardless of age must be given forty-five (45) days to consider the agreement.

(2)  Release of Claims:

Most severance agreements contain a release of a variety of claims, including claims you may have based upon your age, race, national origin, gender, disability, religion, among others. It may also include a release of all claims, whether known to you or not at the signing of the agreement.

However, the United States Equal Employment Opportunities Commission (“EEOC”) has held that, although the severance agreement may restrict the employee’s ability to file a lawsuit, the release cannot restrict the rights of an employee to file a charge of discrimination with the EEOC, nor can the severance agreement limit an employee’s right to testify, assist or participate in an investigation, hearing or other proceeding conducted by the EEOC. Furthermore, the EEOC has declared that an agreement cannot waive an employee’s rights regarding acts of discrimination that occur after the signing of the agreement.

(3)  Seven (7) Day Revocation Period:

When a severance agreement contains an ADEA release of claims, by law, the employer must provide you with seven (7) days to revoke the agreement after signing it. This seven (7) day window cannot be waived or changed by either party.

(4)  Ability to Consult with an Attorney:

Severance packages generally contain more than just the release of ADEA claims, but also claims under Title VII of the Civil Rights Act, Americans with Disabilities Act, Employee Retirement Income Security Act, retaliation, whistle blowing, breach of contract, invasion of privacy, among others. Given the breadth of the claims released, before the signing of a severance agreement, it is extremely important to consult with an attorney prior to its execution.

Moreover, when the severance agreement contains a release, the agreement must specifically advise the employee to seek the advice of any attorney.  Faced with financial distress because of the layoff, you may not be able to think objectively concerning your rights and options. It is best to consult an attorney.

(5)  Consideration:

Consideration is required for every agreement. That means that an employee must receive something of value in exchange for giving up certain rights. That “something of value” must be above and beyond what the employee would otherwise be entitled to.

(6)  Ability to Negotiate:

Despite the “take it or leave it” undertones of an employer, generally, many employers will negotiate severance on some level. Given that, there is also a risk that an employer will revoke the offer of severance if negotiation is attempted.  Your chances of negotiating successfully increase if there is a claim that your particular severance package is not fair in light of your industry, your position, or the circumstances of your employment.  Additionally, the negotiations do not need to focus on the dollar amount connected with the severance agreement.  Employers might be willing to extend insurance coverage, disability benefits, or other items.

(7)  Gather All Information:

Before deciding to accept, negotiate, or reject a severance package, it is important to understand completely what is being offered to you, including compensation, benefits and insurance.  If you are in an industry that provides for deferred stock options or bonus, it is important to understand whether you would still be entitled to it.   You should gather information concerning your employer’s welfare plans, health plans, vacation and sick leave policies, as well as any structured bonus plans or stock options.  If the severance package is only offering you what you would be entitled to, the agreement may lack adequate consideration.

(8)  Restrictive Covenants:

Many employers will place some kind of restrictive covenant into the severance package. These range from confidentiality clauses, to non- disclosure agreements, to non-solicitation agreements, to non-compete agreements.  Therefore, it is important to understand how signing the severance agreement may restrict your ability to find new employment.

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Before you sign a severance agreement, it is important to fully understand your rights and the consequences of accepting the offer. The attorneys at Maya Murphy, P.C., have years of experience in all sectors of employment law. If you have any questions relating to your severance agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

What to Know About Your Offer Letter

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In Connecticut, an employment relationship is “at will,” unless governed by a contract. Employment at will grants both parties the right to terminate the relationship for any reason or no reason, at any time. But what about employment pursuant to an offer letter?  Here are a few things you need to know about an offer letter and its terms.

(1)  At-Will Employees:

Most employees are “at-will” employees and an offer letter will most likely confirm that the employment is “at-will.” When an offer letter states that employment will be “at-will” it means that the employer or employee may terminate the employment for a good reason, a bad reason, or for no reason at all, at any time.  In a 2006 case, Petitte v. DSL.net, Inc., the Superior Court held that the employer could terminate an “at-will” employee, in which it offered employment pursuant to an offer letter, prior to the commencement of the employee’s duties.  2006 Conn. Super. LEXIS 915, J.D. of New Haven, Docket. No. CV-04-0489777-S (2006).

(2)  Position and Duties:

When reviewing or drafting an offer letter, you want to make sure that the employer stated the initial position the employee is being hired for and what duties or responsibilities are included as part of that position.  This way, everyone will have a better understanding of what is expected from the employee.  A well-drafted offer letter will often include a reservation of rights for the employer that could include a clause that allows for a change in position, assignment of additional duties and/or the elimination of duties.

(3)  Compensation:

An offer letter should set forth clearly what the base salary is and how that base salary will be paid. For example, is it to be paid out weekly, bi-weekly, or annually? More importantly, any bonus or compensation should be clearly defined as well, including how and when such bonus or commission will be paid.  Generally, in a skillfully drawn up offer letter, there will be a clause reserving the employer’s rights to alter or rescind these arrangements. If the bonus or commission structure is highly complex, an employment agreement or schedule to the offer letter should be considered.

(4)  Benefits:

As an employee, you would want your employer to outline the specific benefits you are expected to receive, including vacation, sick days, personal days, health benefits, pension benefits, 401(k) plans (or the similar), and any other comparable matters.  Generally, the employer will reserve the right to rescind or alter these benefits, in accordance with the corresponding plan.  An employer must provide notice to the employee if it makes any changes to these benefits. Conn. Gen. Stat. §31-71f.

(5)  Restrictive Covenants:

An offer letter will generally not include non-solicitation clauses or non-compete clauses.  However, an offer letter can condition employment upon the signing of these documents at commencement of employment. What is generally found in offer letters are confidentiality clauses and non-disclosure clauses.  By signing the offer letter, the employee (depending on the clause) may agree to refrain from disclosure of certain information, such as salary or client lists. Moreover, the employee may be requested to affirmatively acknowledge that he or she is not currently subject to any restrictive covenants, such as a non-compete clause.

(6)  Conditions of Employment:

While in most circumstances, the employment is “at-will,” the employer can still make the offer of employment contingent of other items, such as satisfactory references, drug screening, background check, valid driver’s license, or proof of authorization.

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As with any employment related document, complex issues can arise.  Careful drafting and review is necessary to protect the interests of the employee and employer.  If you have any questions relating to any offer letter or employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com