Posts tagged with "enforceable"

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

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.


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.

Role of Consideration in a Connecticut Non-Compete Agreement

J. M. Layton & Co. v. Millar, 2004 Conn. Super LEXIS 2226
Case Background

Mr. Reid Millar worked at J. M. Layton & Co., a Connecticut commercial insurance brokerage firm, for close to twenty years until he voluntarily terminated his employment on December 3, 2003.  During his career at Layton, Mr. Millar developed and maintained client relationships and the company even sent him to seminars in Florida on how to engender customer loyalty.  In January 1994, the company’s ownership transferred to an ‘Employee Stock Option Plan” scheme wherein Mr. Millar and the other employees became the new owners of the brokerage firm.  Mr. Millar signed an employment agreement later that year in August.

Mr. Millar signed this agreement in response to a memo from the company’s president stating, “The value of the stock in the company would increase when all employees/shareholders signed employment agreements”. The employment agreement contained non-compete and non-solicitation clauses prohibiting Mr. Millar from performing any service provided by Layton for a period of two years to any entity or person that was a client of Layton in the two years prior to termination.

Four years later, in 1998, the employee-owners sold the firm to SIG Acquisition Co. for $5.59 million.  Mr. Millar terminated his employment on December 3, 2003 and began to work for a competitor, Shoff Darby, soon after this decision.  Several clients made the switch with Mr. Millar and he provided them with services they previously received from Layton.  Layton sued Mr. Millar to enforce the terms of the restrictive covenant to which Mr. Millar presented a defense that there was not adequate consideration for the agreement to be enforceable.

The Court’s Decision

The court found in favor of Mr. Millar and held that the agreement between Layton and himself lacked the adequate consideration required to make the covenant legally binding on the signatory parties.  The court rejected Layton’s contentions that continued employment and increased value of stock in the firm were adequate forms of consideration for the agreement.

Consideration is a crucial contract law principle wherein each party must receive a benefit and/or a detriment from the agreement to make it legally valid and enforceable.  In the absence of consideration, an executory promise is generally unenforceable.  Courts have determined that continued employment alone is not adequate consideration for a restrictive covenant.  Past decisions have permitted it to qualify as adequate consideration when it accompanied by another defined benefit such as a change in compensation.

Likewise, the court held that the “increase in stock value” argument was without merit and did not constitute adequate consideration.  There was a timeline disconnect with the issuance of the stock, the employment agreement, and any increase in value that prevented adequate consideration in this form.  Mr. Millar received the stock seven months prior to signing the employment agreement and the increase in its value (if any) occurred four years after the agreement’s execution.

These components lacked a coherent connection that would unite them in a manner as to represent the adequate consideration needed to make the agreement enforceable.  The court concluded that the possible increase in stock value was far too “imprecise, indefinite, and self-serving, to be adequate consideration” and it denied Layton’s request for enforcement of the non-compete agreement.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Enforcing Non-Competes Associated with Sale of Company and Goodwill

Kim’s Hair Studio, LLC v. Rogers, 2005 Conn. Super. LEXIS 1805
Case Background

Ms. Dorothy Rogers owned a hair salon in Higganum, Connecticut called Dotties Creative Cuts and entered into an agreement to sell the company’s “assets, goodwill, and client lists” to Kim’s Hair Studio, LLC for the amount of $20,000.  This transaction essentially made Ms. Rogers a new employee of Kim’s hair Studio and as such, she was required to sign a non-compete agreement that prohibited her from offering competing services for twelve months after her termination within ten miles of 323 Saybrook Road, the primary work location of Kim’s Hair Studio.

The parties executed non-compete and confidentiality agreements on August 23, 2004.  Ms. Rogers did not like how the salon was being run by the company’s management and voluntarily terminated her employment in order to work at a new hair salon that was located a mere one-half mile away.  Ms. Rogers additionally removed a rolodex containing Kim’s Hair Studio’s client information and began to contact them to solicit their business.  Kim’s Hair Studio sued Ms. Rogers and requested that the court enforce the non-compete and confidentiality agreements.

The Court’s Decision

The court granted the request for an injunction and ordered the enforcement of the agreements’ provisions.  It concluded that the restrictions were reasonable in scope and that Ms. Rogers’ action had amounted to a breach of the covenant between the two parties.  Kim’s Hair Studio had legitimate interests in executing non-compete agreements with its employees because its goodwill and client clients were essential assets that Kim’s Hair Studio invested resources in to acquire and maintain.  The restrictive covenants were designed to prevent the loss or infringement of these assets and ensure that Kim’s Hair Studio was not negatively affected due to an employee’s termination, whether voluntary or involuntary in nature.

The court reasoned that a party is entitled to an injunction restraining further breach of a restrictive covenant when it demonstrates that the other party has or is very likely to breach the agreement.  Additionally, the court noted Connecticut courts’ willingness to enforce a non-compete agreement when it is made in connection with the sale of a company and its goodwill.  These legal principles, in conjunction with reasonable and limited restrictions, allowed the court to conclude that the non-compete agreement between Ms. Rogers and Kim’s Hair Studio was valid and enforceable under Connecticut law.

 

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.

Retention of Confidential Information is a Clear Breach of Non-Compete According to Connecticut Court

TyMetrix, Inc. v. Szymonik, 2006 Conn. Super. LEXIS 3865
Case Background

Mr. Peter Szymonik worked for TyMetrix, Inc. from July 2002 to March 10, 2005 as the Director of Client Services and then as Vice President of Technical Operations beginning in January 2004.  TyMetrix was a technology company that provided web-based systems for its clients in order to implement electronic invoicing, performance management metrics, matter & document management, budgeting, forecasting, and generating other business reports.  The company’s typical clients included the legal departments of Fortune 500 companies, law firms, and insurance companies.  The company operated within the United States but at the time had potential clients in the United Kingdom and Australia.  Mr. Szymonik signed an employment agreement in July 2002 and the document contained several post-employment restrictive covenants.

The non-compete agreement prohibited him from: 1) retaining, using, or disclosing any confidential information, 2) working for a competing enterprise for two years following termination, 3) soliciting TyMetrix’s clients (current or prospective) during those two years, and 4) soliciting or hiring any TyMetrix employee during those two years.

Breach of Employment Agreement

TyMetrix terminated Mr. Szymonik on March 10, 2005 and he proceeded to form a new company, SpectoWise, Inc., on July 5, 2005 where he served as its president.  In his capacity as the president of the new company, he solicited several TyMetrix clients and employees to join his firm and even hired at least one former TyMetrix employee.  TyMetrix also asserted that Mr. Szymonik retained copies of some of the company’s confidential information.

He claimed that he was only retaining the information to assist in litigation with TyMetrix and had not used its content in connection with the business operations of his new company or for any other personal gain.  TyMetrix sued Mr. Szymonik in Connecticut state court and asked the court to grant injunctive relief by enforcing the provisions of the July 2002 non-compete agreement.

The Court’s Decision

The court found in favor of TyMetrix, concluded that Mr. Szymonik had indeed breached a valid non-compete agreement, and ordered the covenant enforced.  Mr. Szymonik presented several defenses that the court ultimately rejected in its legal analysis.  He asserted that his new company, SpectoWise, offered very different services from TyMetrix and further argued that the non-compete was unenforceable because the company wrongfully terminated his employment.  As for the claim that the companies were vastly different, the court analyzed SpectoWise’s marketing material and discerned that it was abundantly clear the companies essentially offered the same services to their clients.

Furthermore, the court held that Mr. Szymonik’s termination was not in bad faith and did not go against public policy.  He failed to present any evidence to demonstrate that TyMetrix had violated any “expressed statutory or constitutional provision or judicially derived public policy” when it terminated his employment.  The court also held that Mr. Szymonik’s retention of TyMetrix documents was unlawful on its face and was a clear breach of the non-compete agreement.  It was irrelevant why Mr. Szymonik retained the documents because the mere fact that he still possessed the confidential information was a violation of the employment agreement.

The court’s legal analysis of the dispute indicated that there was in fact a breach of the non-compete agreement and that TyMetrix was likely to succeed on the merits of its claim.  These two factors led the court to find in favor of the employer (TyMetrix) and ordered the enforcement of the restrictive covenant that the parties had executed in July 2002.

 

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.

Contractual Imposition of a Penalty for Breach Violates Connecticut Law & Policy

PRF of Connecticut, Inc. v. Gosselin, 1993 Conn. Super. LEXIS 3201
Case Background

Mr. Stan Manousos and Mr. Edward Kennedy were part owners of Park, Ride & Fly, Inc., the largest operator of valet parking lots servicing Bradley International Airport.  In late 1991 they expressed interest in purchasing Airport Valet from Mr. Robert Gosselin in order to expand their business operations.  The parties executed a lease-purchase agreement on March 31, 1992, because Manousos and Kennedy did not have enough cash on hand to outright acquire Airport Valet.  They insisted on a non-compete agreement in conjunction with the lease-purchase agreement because they did not want Mr. Gosselin to use his experience in the valet parking industry to compete with them while he was receiving the lease payments.

The main stipulations of the restrictive covenant were that Mr. Gosselin was prohibited from competing, directly or indirectly, in the operation of any commercial parking lot with five (5) miles of Bradley International Airport for five (5) years following the execution of the agreement.  Pursuant to the agreement, Mr. Manousos and Mr. Kennedy were entitled to enforcement of the non-compete agreement and could withhold payments otherwise due under the lease-purchase agreement in the event of a breach.

Clause Change in the Agreement

Before executing the non-compete agreement, Mr. Gosselin had his son changed the working of a specific clause that served as an exception to the general prohibition on competing business activities.  The clause originally stated that Mr. Gosselin could continue to provide valet services to “patrons of the Brady International Inn”, a hotel that he had owed for quite some time prior to the transaction with Mr. Manousos and Mr. Kennedy where “patrons” referred to persons that were overnight guests at the Bradley International Inn.

The change to the provision made it read: “it shall not be a violation of this Non-Compete Agreement for Gosselin to provide parking and shuttle services at Bradley International Inn”.  This change would allow Mr. Gosselin to provide services to a broader customer base that just those identified as overnight guests of the Bradley International Inn.

Mr. Manousos and Mr. Kennedy discovered this change to the non-compete agreement in the fall of 1992 after a few incidents with customers and closely examining the language of the contract.  They commenced an action against Mr. Gosselin requesting the enforcement of the covenant not to compete.  Mr. Gosselin argued that the non-compete agreement was unenforceable because it constituted an unreasonable restraint of trade. The court disagreed with this contention and held that the restrictions contained in the non-compete agreement were reasonable, lawful, and enforceable.

The Court’s Decision

The court reiterated the policy that a non-compete agreement ancillary to a lawfully executed contract is legitimate and enforceable if the restrain is reasonable given the specific circumstances of the parties and their transaction.  Furthermore, the court noted that the execution of the lease-purchase contract was predicated on the inclusion of a covenant not to compete and was a valuable business asset for Mr. Manousos and Mr. Kennedy.

The court recognized Mr. Manousos and Mr. Kennedy’s reliance on the non-compete agreement when executing the lease-purchase agreement and concluded that they were entitled to enforcement of its provisions.  Accordingly, the court enjoined Mr. Gosselin from directly or indirectly competing in the commercial parking industry servicing Bradley International Airport within five miles of the airport until April 1, 1997 (the expiration of the proscribed five year prohibition in the non-compete agreement).

Additionally, the court clarified that any valet services provided at the Bradley International Inn to persons other than “registered overnight guests” would constitute a violation.  The court however determined that Mr. Manousos and Mr. Kennedy could not withhold the lease payments because the imposition of a penalty for breach of contract is invalid and in violation of Connecticut law and policy.  A liquidated damages clause may be enforceable under certain conditions but the court determined that the amount identified by the parties was unreasonable and therefore unenforceable.

 

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 Enforces Non-Compete and Rejects “Ambiguous Language” and “Unreasonable Restrictions” Defenses

Century 21 Access America v. Lisboa, 2003 Conn. Super. LEXIS 2085
Case Background

Century 21 Access America was a residential real estate sales company based in Milford, Connecticut that employed Ms. Nereida Lisboa as a salesperson from April 2002 until April 2003.  Her employment was contingent upon signing an Independent Contractor Agreement on April 24, 2002, wherein paragraph twelve constituted a non-compete clause.

The restrictive covenant prohibited Ms. Lisboa for a period of two years from working at a competing company located within fifteen miles of Milford, Connecticut.  Once Ms. Lisboa voluntarily terminated her employment with Century 21, she immediately began to work for William Raveis Real Estate, a direct competitor located directly across the street.  Century 21 sued Ms. Lisboa for breach of the non-compete agreement and requested that the court enforce the provisions of the covenant.

Defense Claims

Connecticut courts have the authority to exercise equitable power to order a temporary injunction pending final determination of the order, upon the moving party demonstrating that it will incur irreparable harm in the absence of such an injunctive order.  The court found that an injunction was warranted and proper in this case and as such, granted Century 21’s request for an injunctive order to restrain Ms. Lisboa from further violations of the covenant not to compete.  Ms. Lisboa offered several defenses to invalidate the agreement, including a claim that the language of the agreement was ambiguous and another claim that the provisions were unreasonable.  The court ultimately rejected both of these assertions and held in favor of Century 21.

The challenging party bears the burden of proof to show that an agreement is invalid and should not be binding upon the signatory parties.  The court found no merit in Ms. Lisboa’s claim that the agreement was ambiguous and that she was not obligated to refrain from any specific business activity.  The court stated that “although the covenant is neither a model of clarity or precise craftsmanship, the defendant [Ms. Lisboa] fails to demonstrate how the covenant’s language, in and of itself, is ambiguous”.

Reasonable Restrictions

The court further dissected Ms. Lisboa’s defenses and shot down her claim that the restrictions were unreasonable.  It is well established in Connecticut law that a company has a proprietary right to its clients and is thus entitled to protection for that right.  Century 21 had a legitimate business interest worthy of protection based on the fact that Ms. Lisboa could use information gained from Century 21’s client lists and the time she spent with the company to solicit business for herself and her new company to the detriment of Century 21.

The company was well within its rights to employ reasonable restrictions to protect this legitimate business interest.  Ms. Lisboa’s license to engage in the real estate industry is valid throughout the state of Connecticut and the covenant only restricted her business activities within a relatively small area with a fifteen-mile radius.  This, in combination with a limited time restriction, made the court conclude that the geographical restriction was in fact reasonable and enforceable.

The court identified a legitimate business interest that required protection and concluded that the provisions of the covenant not to compete were reasonable, leading it the grant Century 21’s request for injunctive relief in the form of 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.

Connecticut & Missouri Laws Apply the Same Tests to Determine the Enforceability of Non-Compete Agreements

H & R Block Eastern Tax Services, Inc. v. Brooks, 2000 U.S. Dist. LEXIS 19369
The Employment Agreement

Mr. Donald Brooks worked for H & R Block Eastern Tax Services, Inc. as an Accounting Service Manager from December 30, 1996, when he sold his business assets to H & R Block until the company terminated his employment on May 31, 2000.  The closing of the Asset Purchase Agreement was contingent on the execution of an employment agreement.

Under the agreement, H & R Block employed Mr. Brooks on a year-to-year basis but had the authority to terminate him at any time without notice.  The employment agreement contained a covenant not to compete that prohibited Mr. Brooks for two years after termination from soliciting H & R Block’s clients and offering competing business services within a twenty-five mile radius of the company’s offices in the sales district where he worked.  The non-compete agreement also stated that Missouri law would govern the contract and any legal disputes.

Mr. Brook’s termination became effective on May 31, 2000 and he began providing accounting/tax services to former H & R Block clients.  The company sued him for breach of the covenant not to compete and requested that the court enforce the provisions of the agreement.  He claimed that the covenant was unenforceable and therefore his actions did not constitute a breach that entitled the company to any type of relief.  The federal district court found in favor of H & R Block and granted the company’s request for injunctive relief by enforcing the non-compete agreement executed by the parties at the beginning of Mr. Brooks’s employment.

The Court’s Analysis

In its legal analysis, the court evaluated whether to apply the choice of law provision and examined the reasonableness of the agreement.  The covenant designated Missouri law as the choice of law because that was the location of the company’s corporate headquarters.  The agreement stipulated that Missouri law would apply to disputes except when Missouri had no connection to the contract or when its law contradicted public policy of a state with a materially greater interest in the issue.  The court concluded that Missouri had similar laws and public policy with regard to contract, employment, and non-compete principles.

Both states (Connecticut and Missouri) enforce covenants that “impose reasonable restrictions” in order to safeguard the “protectable interests” of a former employer.  Furthermore, both states stress that enforcement of a restrictive covenant must balance the need to protect the employer from unfair competition without unnecessarily restricting the employee’s ability to secure future employment.  The court approved the use of Missouri law due to its similarities with Connecticut state law and the application of very similar tests to ascertain an agreement’s enforceability.

The Agreement’s Restrictions

Next, the court analyzed whether the provisions in the agreement were reasonable limitations and did not excessively restrict Mr. Brooks’s ability to pursue his occupation following his termination from H & R Block.  The court found that the restrictions were temporary and spatially limited.  The agreement specifically prohibited “soliciting, diverting, or taking” business away from H & R Block and the restrictions inserted into the employment contract reflect this objective.

The language and provisions of the covenant restricted competing activities in the Greater Hartford Area but left Mr. Brooks free to practice in the majority of the state of Connecticut and the rest of the country.  These restrictions thus protected H & R Block’s legitimate business interests and did not create excessive hardships for Mr. Brooks.  The court found that the covenant not to compete was enforceable under the laws of both Missouri and Connecticut.

 

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.

Duration of Connecticut Non-Compete Agreement Reduced by the Court

Access America, LLC v. Mazzotta, 2005 Conn. Super. LEXIS 2597
Case Background

Ms. Vassilia Mazzotta worked at Access America, LLC, a franchised office affiliated with Century 21 Real Estate, as a licensed real estate broker.  She sold single and multi-family residential real estate in conjunction with her job at Access America until she terminated her employment on April 20, 2005.  There was an employment contract between Ms. Mazzotta and Access America that contained a non-compete clause wherein it stipulated that Ms. Mazzotta could not “engage in or carry on directly or indirectly, a business similar to or competing with any business or products carried on by [Access America] within a fifteen (15) mile radius of 136 Berlin Road, Cromwell, CT (Access America’s office)”.

Shortly after her termination with Access America, Ms. Mazzotta began to work at ERA Innovative Realty, a competing real estate broker well within the fifteen-mile radius as defined in the non-compete covenant of the employment agreement.  Access America brought suit against Ms. Mazzotta and sought injunctive relief in the form of enforcement of the non-compete covenant.  Ms. Mazzotta conversely argued that she signed the restrictive covenant under duress and that its provisions were unreasonable, therefore making it unenforceable.

The Court’s Decision

The court found in favor of Access America, holding that the non-compete agreement was valid and enforceable but did amend its provisions in a way that lessened the occupational hardship placed on Ms. Mazzotta.  The court justified its holding by first discussing the public policy of the issue.  It stated, “It has long been recognized in this state [Connecticut] that a restrictive covenant is a valuable business asset which is entitled to protection”.  Access America, according to the court, had legitimate reasons for using a non-compete agreement to protect its business interest in the form of the money, time, and effort it spent to train Ms. Mazzotta.

The court found Ms. Mazzotta’s defense of signing the agreement under duress to be unpersuasive because the same agreement that contained the restrictive covenant also contained clauses that conferred considerable benefits on her in the form of a private office and a higher commission rate on real estate sales.  In addition, the court cited Ms. Mazzotta’s termination letter wherein she reaffirmed her obligations and prohibitions under the employment agreement.

Reducing the Duration of the Non-Compete Agreement

The one portion of the decision that Ms. Mazzotta found favorable was the reduction in applicable duration for the non-compete agreement.  The court reduced the two-year prohibition down to only one year.  During the legal proceedings, both parties were open to the possibility that the court could reduce the duration of the restriction if in the end it found the non-compete to be valid and enforceable.

Both parties referenced an earlier case, Century 21 Access America v. Nereida Lisboa (35 Conn. L. Rptr. 272 (Conn. Super. Ct. 2003)) where a court had reduced the duration based on the specific language of the employment agreement and specifically the non-compete clause.  This portion of the decision is very valuable as it shows that certain non-compete agreements, depending on the specific language used, are enforceable but the court has the authority to amend the provisions to lessen the restrictions placed on the employee.

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

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.

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 Enforces Non-Compete Agreement for Niche Water Purification Company

KX Industries, L.P. v. Saaski, 1997 Conn. Super. LEXIS 2444
Case Background

Mr. Bruce Saaski worked for KX Industries, L.P., a manufacturer and distributor of solid carbon block water filters, from December 1993 to April 24, 1996, as the company’s Technical Support Manager.  His employment contract with KXI contained several restrictive covenants that prohibited him from using or disclosing confidential and proprietary information without the prior written consent of KXI, maintaining personal copies of the company’s confidential information, or working for an industry competitor.  The “industry competitor” restriction applied for one year after Mr. Saaski’s termination but the covenants pertaining to KXI’s confidential information were indefinite.

Mr. Saaski terminated his employment with KXI and began to work at Water Safety, a direct competitor, shortly thereafter.  Additionally, he failed to return copies of confidential information to KXI’s management upon his termination.  KXI sued Ms. Saaski for violation of the non-compete agreement he signed as part of his employment contract and sought a court injunction to enforce its provisions.  Ms. Saaski presented several arguments to the court as to why the agreement was not valid or enforceable.

The court rejected his assertions however and found in favor of KXI, granting their request for enforcement of the non-compete and confidentiality covenants. Mr. Saaski attacked the non-compete on the basis that its lacked consideration, arguing that there existed a prior employment agreement obligating KXI to employ him for a two-year period.

The Court’s Decision

The court held that Mr. Saaski did not present adequate evidence to prove the existence of a prior employment agreement and pointed to the language of the December 1993 agreement to show that Mr. Saaski gave consideration for the agreement when he agreed to the restrictive covenants contained therein. Furthermore, Mr. Saaski contended that the restrictions were unreasonable because they were overly broad in scope, specifically referring to the prohibition on working for a company “similar to” or in “competition with” KXI.

To determine if this language was in fact overly broad the court heard testimony from KXI’s Chief Executive Officer where he stated that there were only four competitors that the non-compete applied to: Honeywell, Culligan, Multipure, and Water Safety, Mr. Saaski’s new employer.  The court found this to be restricted in scope and not overly broad to disproportionately favor KXI’s interests.  The restriction applied only to a small section of the water purification industry and KXI’s CEO provided a plethora of companies that Mr. Saaski could work for without violating the non-compete agreement.

The court found the overall non-compete and confidentiality covenants to be reasonable and concluded that they did not place excessive restriction on Mr. Saaski’s ability to pursue his occupation and earn a living.  Accordingly, the court found in favor of KXI and enforced the provisions 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.