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Court Grants Motion for Transfer to California District Court in Non-Compete Agreement Dispute

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United Rentals, Inc. v. Pruett, 296 F. Supp.2d 220

United Rentals, Inc. was a Delaware corporation with headquarters in Connecticut that employed Mr. Lawrence Pruett from May 2001 until August 2003 in its San Juan Capistrano, CA office.  He first worked as a salesperson and then the company promoted him to branch manager.  Mr. Pruett signed an Employment Agreement after verbally accepting the branch manager position wherein he agreed to restrictive covenants preventing employment with a competitor, soliciting the company’s customers, or from disclosing trade secrets.  The agreement contained a choice of law provision that stated Connecticut law would govern legal disputes arising from the agreement and that courts (federal or state) in Fairfield County had exclusive jurisdiction.

Mr. Pruett abruptly resigned in August 2003, began to work for one of United’s competitors, Brookstone Equipment Services, and allegedly solicited United’s customers.  United Rentals sued Mr. Pruett in federal court for violation of the non-compete agreement and requested that the United States District Court of Connecticut enforce the provisions of the agreement.  Mr. Pruett however submitted motions to dismiss and to transfer the case to a court in California, where he lived and worked.

Motion to Dismiss

The court denied Mr. Pruett’s motion to dismiss but granted his motion for transfer, handing the case over to the Central District of California.  The central issues of the case were the enforceability of the forum selection clause and the court’s ability to transfer the case to another district court.  Mr. Pruett argued that it was unenforceable because he “lacked notice of its existence, because the clause is unreasonable, and because it was the product of United’s overreaching”.

The court mentioned two United States Supreme Court cases, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), and Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) to establish the federal judicial system’s attitude toward forum selection clauses and their enforceability.  In Bremen, the court held that the clauses are valid and enforceable so long as there is no showing that it would be unreasonable or unjust.  This case reversed American courts’ “long-standing hostility to forum selection clauses”.  In Carnival, the court held that a forum selection clause was enforceable only if both parties were aware of its existence.

In the current case, the court denied the motion to dismiss and found that the clause was reasonable and that the written contract had indeed provided Mr. Pruett with adequate notice of its existence.

Motion for Transfer

The court did however grant Mr. Pruett’s motion for transfer under 28 U.S.C. 1404(a) which authorizes district courts to transfer civil action to other districts “for the convenience of parties and witness, [and] in the interest of justice”.  In reaching this decision, the court analyzed the convenience of the parties, the existence of the forum selection clause, and factors of systemic integrity and fairness.

Mr. Pruett bore the burden of proof to show that the transfer was in the best interest of justice and the court concluded that he meant his burden.  All the witnesses for the case lived in California, the actions that led to the suit took place in California, and the vast majority of documentary evidence (sales records, advertising information, customer lists, etc.) was in California.  With regard to justice, United Rentals asserted that a transfer to a district court in California would deprive it of uniform treatment of its employment contracts.

The court recognized that Connecticut and California law greatly differ on their treatment of non-compete agreements but concluded that California had a materially greater interest in the case “because the impact of this litigation will be felt entirely in California”.  Furthermore, the court noted that California had a right to apply its own laws in order to protect its residents from anti-competitive measures by out-of-state employers that are contrary to California’s established public policy.

This case demonstrates that the convenience of the parties and the interests of justice can at times outweigh a contractual forum selection clause.  The court analyzed these factors and concluded that the facts surrounding the case favored a transfer of venues to a district court in California.

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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.

Five Prong Test for Non-Compete Agreement in Connecticut

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Scott v. General Iron & Welding Co., 171 Conn. 132
The Employment Agreement

General Iron & Welding was a Meriden, CT-based company engaged in the business of welding and fabricating metals.  Mr. Roy Scott began his employment with the company as an apprentice welder in 1958/59.  During his employment with the company, Mr. Scott received valuable training and experience that allowed him to become a manager in 1968 and then chief engineer in 1971.  Mr. Scott agreed to a non-compete covenant as part of his promotion and signed the agreement on April 6, 1971.  The agreement prohibited Mr. Scott from disclosing vital business information including customer contact lists, processes, product details, and research. 

Additionally, the agreement prohibited Mr. Scott from participating in the management of a similar business within Connecticut for a period of five years.  He returned to a lower position following a wage dispute and on March 24, 1972 Mr. Scott voluntarily left General Iron & Welding and found work with Kiely Manufacturing Company where he had hopes to participate in the management of that company in some capacity.

The Court’s Decision

Mr. Scott brought action asking the court to invalidate the non-compete agreement between himself and General Iron & Welding.  The trial court refused to invalidate the agreement and Mr. Scott appealed the decision.  The Supreme Court of Connecticut affirmed the lower court’s decision and held in favor of General Iron & Welding.  The Supreme Court concluded that the agreement had adequate consideration, contained reasonable terms, and was therefore enforceable. 

More importantly however, the court’s decision created a five-prong test to assess the validity and enforceability of a non-compete agreement.  In order for an agreement to be legally binding, it must exhibit the following characteristics: 1) reasonable with respect to time, 2) reasonable with respect to place (geography), 3) afford the employer a fair degree of protection, 4) cannot place an excessive burden on the employee’s opportunity to pursue his occupation, and 5) cannot interfere with the interests of the public.  The court instituted and applied this five-part test in its conclusion that the covenant had fair provisions that rendered it valid and enforceable.

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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.

Both Parties Must Sign Non-Compete Agreement To Make It Legally Binding

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Fairfaxx Corp. v. Nickelson, 2000 Conn. Super. LEXIS 2340
Case Background

Fairfaxx Corporation, a company based in Norwalk, Connecticut, employed Ms. Sarah Nickelson from January 1997 until she voluntarily terminated her employment on November 23, 1998.  Fairfaxx provided services for full and part-time employees to clients located in Fairfield and New Haven counties in Connecticut in addition to Putnam and Westchester counties in New York.  Ms. Nickelson first worked as a part-time receptionist for Fairfaxx at Aviator in Stratford, then as a temporary employee of Fairfaxx itself, and then hired on a permanent basis as a Personnel Consultant in May 1997.  She did not have an employment contract and as such, she was classified as an employee at will.

Seven months later, in December 1997, Fairfaxx’s employees, including Ms. Nickelson, were presented with a “Confidentiality and Non Compete Agreement”.  There was an understanding that the employees would be terminated should they refuse to sign the restrictive covenant.  Ms. Nickelson signed and returned the non-compete agreement on December 9, 1997.  The covenant not to compete prohibited Ms. Nickelson from recruiting candidates or soliciting clients in New Haven, Fairfield, Putnam, and Westchester counties for two years following her termination.

Breach of Covenant

Ms. Nickelson moved in November 1998 and was promptly contacted by a recruiter concerning a job at Premier Staffing Solutions, a company in direct competition with Fairfaxx.  She was offered a position with Premier and accepted due to the shorter commute and higher commission rate.  She ended her employment with Fairfaxx on November 23, 1998 and immediately began to work for Premier.

Fairfaxx sued Ms. Nickelson in Connecticut state court for breach of the covenant not to compete and requested that the court enforce the restrictions contained therein.  Ms. Nickelson argued that the non-compete agreement was not a valid employment agreement and she was not obligated to abide by its restrictions.  The court ultimately found in favor of Ms. Nickelson, invalidated the non-compete agreement, and denied Fairfaxx’s request for injunctive relief.

The Court’s Decision

The court came to this decision because the agreement lacked adequate consideration and the requisite signatures.  The non-compete agreement spoke of “mutual promises” but the court concluded that Ms. Nickelson received nothing in exchange for her covenants.  She had the same job, same salary, and same benefits after she signed the agreement as before its execution.  She was promoted to Manager of the Temporary Division at Fairfaxx in January 1998 but the court found that this was not in any way connected to the non-compete agreement and held that this could not be construed as consideration for the covenants that Ms. Nickelson gave to the company.

Furthermore, the court found that the non-compete agreement was not legally binding because it was only signed by Ms. Nickelson.  Fairfaxx noted that it clearly intended to sign the agreement and have its provisions become legally binding but did not actually know if someone from the company’s management had signed the covenant not to compete.  The agreement was designed to be a bilateral contract and would not become legally binding until both parties had signed.  The agreement contained signature blocks for Ms. Nickelson and Fairfaxx and required both in order for the restrictions/provisions to become effective.

In light of a missing requisite signature and inadequate consideration, the court held that the non-compete agreement was unenforceable and denied Fairfaxx’s request for injunctive relief.

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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.

Connecticut Court Uses Oral Agreement to Substantiate Consideration for Non-Compete Agreement

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In Command Systems, Inc. v. Wilson, 1995 Conn. Super. LEXIS 406, Mr. Steven Wilson worked for Command Systems, Inc. where he received a promotion to the position of Vice President and Secretary of the company on June 26, 1990.  In September of that year, management informed Mr. Wilson that he would receive a bonus contingent on the company achieving certain sales goals.  The company did achieve the specified goals in December 1990 but the company informed Mr. Wilson that he needed to sign an agreement containing a contractual non-compete clause before he could receive the bonus.  The parties signed an agreement on December 21, 1990, that contained several restrictive covenants.

Mr. Wilson voluntarily terminated his employment with Command Systems a few years later and formed a new company, the Vertex Company.  The creation of the new company and Mr. Wilson’s actions are the basis of Command’s complaint regarding the breach of the December 1990 non-compete agreement.  Mr. Wilson requested summary judgment on the matter because the agreement lacked consideration and was therefore not legally binding on the parties.

The court had to answer the basic question of whether the 1990 agreement with the contractual restrictions was a valid and enforceable contract.  The court ultimately denied Mr. Wilson’s request for summary judgment and found that the agreement between the parties had adequate consideration and constituted an enforceable contract.  The agreement stated that the consideration for the agreement was “Wilson’s appointment as Secretary of Command”, but he had held this title for several months prior to the non-compete agreement.  The court recognized this but looked beyond this clause of the agreement to identify adequate consideration in relation to Mr. Wilson’s promotion.

The Court’s Decision

The court looked to affidavits provided by Mr. Caputo, Command’s president, to find adequate consideration for the agreement.  The court did not find any factual holes in Mr. Caputo’s statements and had no reason to believe that they contained any misrepresentations, omissions, or lies.  The affidavits repeatedly referenced several conversations between Mr. Caputo and Mr. Wilson, especially an oral agreement wherein Mr. Wilson agreed to sign a non-competition restriction in exchange for being promoted to Secretary of the company.  Mr. Caputo stated, “The decision to make Wilson Secretary of the plaintiff corporation was based on his agreement to sign the contract of employment” in December 1990 that contained the restrictive covenants.

Command provided Mr. Wilson with the non-compete contract when he received the paperwork that officially named him Secretary, although the parties did not sign the agreement until several months later in December.  The contract contained language and clauses that highlighted that Mr. Wilson was being made Secretary of the company in exchange for the execution of an employment agreement restricting future employment activities.

The court used the information from Mr. Caputo’s affidavits to hold that there was an understanding between the parties at the time of Mr. Wilson’s promotion that it was contingent upon the execution of a non-compete agreement.  The court interpreted the oral agreement and the contract presented at the time of promotion as contemporaneous evidence that the non-compete agreement was in fact supported by adequate consideration.  Mr. Wilson failed to meet the requisite burden of proof in demonstrating that the agreement lacked consideration and the court denied his request for summary judgment.

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If you have any questions regarding non-compete agreements or any employment matter, please do not hesitate to contact Joseph Maya and the other experienced attorneys at Maya Murphy, P.C. at 203-221-3100 or by email at JMaya@MayaLaw.com.

Courts Cannot Extend Expired Non-Compete Agreements Under Connecticut Law

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Aladdin Capital Holdings, LLC v. Donoyan, 2011 U.S. Dist. LEXIS 61095

Ms. Harumi Aoto Donoyan worked as a Senior Managing Director for Japan Sales and Marketing at Aladdin Capital Holdings, LLC, a boutique investment bank in Stamford, Connecticut.  The firm promoted her to this position in 2008 contingent on executing a restrictive covenant wherein she promised not to complete with the firm following termination while she continued to receive compensation and other benefits from the firm.  Aladdin terminated Ms. Donoyan in April 2010 with the agreement that she would receive her full salary and benefits through May 5, 2011.  This arrangement made prohibitions in the non-compete effective until May 5, 2011 since the restrictions were applicable while she received benefits from the firm.

Aladdin alleged that Ms. Donoyan engaged in activities that amounted to competing with the firm while she was still receiving a salary and benefits.  It filed a suit in federal court on April 25, 2011 and served Ms. Donoyan on April 28, 2011, ten and seven days respectively before the expiration of the restrictive covenant.

The case reached the federal district court in June 2011, well after the non-compete agreement had expired.  Aladdin asked the court to declare that Ms. Donoyan had breached the agreement and issue an injunction prohibiting any further violations.  The court noted that the request for injunctive relief was moot since the time restriction had already expired.

The Court’s Analysis

The court did however analyze its authority as a court sitting in equity to extend the duration of a restrictive covenant as a remedy for a previous breach of a non-compete agreement.  Restrictive covenants can have built-in provisions that extend the time restriction upon a breach by the former employee.

This however, was not the case with the dispute before the court and the only way for the time restriction to be extended was for the court to unilaterally amend the agreement.  While some states’ highest courts have held that the lower courts have “broad equitable power to extend even an expired restrictive covenant as a remedy for breach”, the federal court here did not see any evidence that the Connecticut Supreme Court held this legal stance.

In light of this, the federal court held that it lacked the authority under Connecticut state law to extend an expired non-compete agreement.  The federal court’s holding with regard to this issue was that “a request for injunctive relief based on a restrictive covenant becomes moot upon the expiration of the period specified in the parties’ restrictive covenant, unless the restrictive covenant contains language that expressly permits extension of the restrictive covenant”.  Aladdin could have placed an automatic extension mechanism in its non-compete agreement but chose not to do so.

Even though the court acknowledged that Ms. Donoyan had in fact breached the non-compete agreement, it ultimately denied Aladdin’s request to extend and enforce the restrictive covenant based on the fact it lacked the authority to do so under Connecticut law.

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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.

Is it Illegal to Decline to Hire a Qualified Candidate Because of Age in Connecticut?

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Under both Connecticut and federal law, age discrimination against both employees and candidates for a job is illegal.  Under the Age Discrimination in Employment Act (the “ADEA”), a federal statute, it is illegal to discriminate against anyone over 40 based on their age with respect to any term, condition, or privilege of employment, including hiring, firing, promotion, layoff, compensation or benefits, or job assignments, among other things.  It is also illegal to retaliate against anyone who opposes employment practices that discriminate based on age.

If you have any questions related to sexual harassment and discrimination in Connecticut, please contact Joseph C. Maya, Esq. at (203) 221-3100 or e-mail him directly at JMaya@Mayalaw.com.