Posts tagged with "prohibited"

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.

Connecticut Federal Court Applies Louisiana Law to Enforce Non-Compete to Protect Confidential Information

In United Rentals, Inc. v. Myers, 2003 U.S. Dist. LEXIS 25287, United Rental, Inc. was a Delaware corporation with principal business operations in Connecticut that employed Ms. Charlotte Myers in its Shreveport, Louisiana office from May 20, 2002, to March 7, 2003.  She signed an employment agreement with United Rentals on her first day of work that contained non-compete and confidentiality clauses that prohibited employment for a period of twelve months at any competing company located within one hundred miles of a United Rentals location where she worked.

The restrictive covenants further stated that the state and federal courts in Fairfield County, Connecticut would have jurisdiction in the event that legal proceedings ensued.  Upon her voluntary termination from United Rentals, Ms. Myers began to work at Head & Enquist Equipment, Inc., a competitor, at an office located approximately ten miles away from the United Rentals’ Shreveport office.  United Rentals contacted her to remind her of the restrictive covenants and her obligations under them but she continued her employment with Head & Enquist.

The Lawsuit

United Rentals sued Ms. Myers in Connecticut federal court for breach of the non-compete and confidentiality agreements and sought a court injunction to enforce their provisions.  The court found in favor of United Rentals and granted its request to enforce the non-compete agreement.

Ms. Myers presented various arguments to the court to persuade it to deny enforcement of the agreement, but the court ultimately found in favor of United Rentals.  She argued that Louisiana law should be controlling in the legal dispute, and further asserted that Louisiana law does not permit “choice of law” clauses in employment agreements.

The court investigated Ms. Myers’ contention and explained that the proper procedure to determine if a “choice of law” clause is permissible is to consult the law of the state being selected, in this case, that of Connecticut.  Connecticut law however cannot be the “choice of law” state when there is another state with a “materially greater interest…in the determination of the particular issue”.  The court held that Louisiana did in fact have a greater interest in the dispute and thus Louisiana law was applicable and controlling for the case.

The Court’s Decision

Although Louisiana law is less than favorable to United Rentals with regard to “choice of law” clauses, it still recognizes that parties are entitled to a remedy in connection with a violation of a confidentiality agreement “if the material sought to be protected is in fact confidential”.  Courts generally view the disclosure of confidential information as sufficient evidence for a company to establish that it would suffer irreparable harm if an injunction were not granted.

During her employment with the company, Ms. Myers was exposed to and had access to United Rentals’ trade secrets, contract details, customer data, financial information, and marketing plans/strategies.  The court held that this was clearly sensitive and confidential information, the content of which entitled United Rentals to protection in the form of a court-ordered injunction.

The court held for United Rentals despite applying Louisiana law in response to Ms. Myers’ justified assertion that this specific “choice of law” provision was not valid.  Although Louisiana law shuns “choice of law” provisions in non-compete agreements, it does support injunctions when it is necessary and proper for a company to protect its confidential business information.

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.

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.