Applying Basic Contract Principles to the Enforcement of Non-Compete Agreements
North American Outdoor Products, Inc. v. Dawson, 2004 Conn. Super. LEXIS 2677
North American Outdoor Products, Inc. (NAOP) was a company created to facilitate sales of outdoor goods to mass retail merchants. The company marketed products such as instant garages, sporting goods, shelters, and canopies. Mr. Curt Dawson worked for NAOP in its sales and marketing department from February 1999 to April 2, 2004. He worked as the National Sales Manager for a period of time in Florida but returned to work in Connecticut when NAOP agreed in a January 2003 meeting to an annual raise of $25,000.00 and related moving expenses.
In March 2003, management requested that Mr. Dawson sign an Employee Agreement that contained and explained several restrictive covenants that would become effective upon termination. The agreement prohibited him from competing with NAOP for twelve months following termination as well as soliciting any entity that NAOP had transacted with in the three-year period prior to termination. Mr. Dawson signed and returned the employment and non-compete agreement on March 26, 2003 but a representative for the company did not sign the document at that time. A representative for NAOP only signed the document on March 20, 2004 when the company learned of Mr. Dawson’s intent to voluntarily terminate his employment.
NAOP brought legal action against Mr. Dawson and sought an injunctive order from the court to enforce the provisions of the non-compete agreement. Mr. Dawson however presented multiple defenses as to why the restrictive covenants were unenforceable: 1) lack of consideration, 2) unreasonable time and geographical restrictions, 3) unclean hands on the part of NAOP, and 4) lack of necessary signatures. The court found in favor of Mr. Dawson, held that the non-compete agreement was unenforceable, and denied NAOP’s request for injunctive relief.
Under Connecticut law, a non-compete agreement must have sufficient consideration to make the document legally binding upon the parties. For enforcement of a restrictive covenant, the employee must receive something in exchange for his or her covenant. The agreement at hand did not bestow any new benefit upon Mr. Dawson and stated that his continued employment was the consideration for the agreement. Connecticut courts have concluded however that “continued employment is not [sufficient] consideration for a covenant not to compete entered into after the beginning of the employment”. NAOP claimed that the raise and moving expenses promised in January 2003 demonstrated adequate consideration but the court rejected this notion because those promises bore no substantial connection to the written agreement from March 2003.
Furthermore, the court concluded that the covenant not to complete was unenforceable because of inherent ambiguities in its language. Courts cannot create a binding contract in the absence of a meeting of the minds between the parties. The plaintiff, in this case NAOP, bears the burden of proof with respect to demonstrating a meeting of the minds in order to prove its version/interpretation of the alleged contract. The court looked to the plain language of the agreement to ascertain whether it articulated clear and concise provisions that led to a meeting of the minds between Mr. Dawson and NAOP. The court concluded that the agreement was unclear about material details, namely the effective date of the provisions and the identification of the specific parties. The agreement was a bilateral document that required signatures of both parties in order to be complete and become legally binding. The absence of NAOP’s signature at the same time as Mr. Dawson’s thus rendered the agreement unenforceable.
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.