Posts tagged with "pay raise"

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

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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.

Court Invalidates Non-Compete Agreement for Excessive Restraint of Trade

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CT Cellar Doors, LLC v. Palamar, 2010 Conn. Super. LEXIS 3247

CT Cellar Doors was a Connecticut company owned by Mr. Claude Raffin that designed and installed custom metal basement entry doors, windows, and other accessories.  Mr. Raffin hired Mr. Stephen Palamar in January 2006 as an installer and later promoted him to operations foreman on August 21, 2007.  The promotion involved a substantial pay raise conditioned on Mr. Palamar signing a “non-competition-non-disclosure agreement”.  The parties executed the restrictive covenant wherein Mr. Palamar agreed to not compete with CT Cellar Doors anywhere within the state of Connecticut for three years following his termination from the company.

Mr. Palamar voluntarily terminated his employment on May 24, 2010, registered himself as a home improvement contractor with the Connecticut Department of Consumer Affairs, and began doing business as Custom Cellar Doors.  His new company advertised and performed the same services he performed while in CT Cellar Door’s employ.

The Dispute 

CT Cellar Doors sued Mr. Palamar in Connecticut court for “irreparable harm to its goodwill, reputation, and name” and requested injunctive relief because there was no adequate remedy at law.  Both parties agreed that the central issue of the case was “whether the agreement was enforceable under Connecticut law”.  The court and parties likewise recognized that CT Cellar Doors had the burden to show that both parties signed the agreement and that Mr. Palamar had violated its provisions.  Once/if those were established, then Mr. Palamar bore the burden to show that the agreement was unenforceable.

The parties did not dispute, as a matter of fact, that the agreement was signed and that Mr. Palamar violated its terms.  The dispute is over whether, as a matter of law, the agreement is valid and enforceable.  The court ultimately found in favor of Mr. Palamar and held that the agreement executed by the parties was unreasonable and unenforceable.

The Defense’s Argument

Mr. Palamar presented two arguments to address whether the agreement was reasonable under Connecticut law: 1) the agreement had inadequate consideration and 2) it was an unreasonable restraint of trade.  The court rejected the first argument, noted the substantial pay raise Mr. Palamar received, and held that it constituted adequate consideration.

Although that defense failed, the court agreed with Mr. Palamar that the agreement was an excessive restraint of trade and the agreement was unreasonable because it denied him the right to earn a living in his chosen profession that he had had for twenty-five years.  The court also noted that CT Cellar Doors did not present adequate evidence to demonstrate that they had experienced or were likely to experience irreparable harm.  At the time that litigation began, CT Cellar Doors had fifty clients while Mr. Palamar only had two.  CT Cellar Doors was not able to articulate a claim and present evidence that Mr. Palamar’s actions had damaged its business operations.

While CT Cellar Doors had a legitimate business interest to protect, the provisions of the non-compete went too far and placed oppressive occupational restraints on Mr. Palamar and excessively restricted his ability to secure future employment in his chose profession.  This lack of balance between the interests of the parties ultimately led the court to find the restrictions unreasonable and for it to invalidate the non-compete agreement.

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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.