Posts tagged with "provisions"

Connecticut Non-Compete Prohibits Client Solicitation in Investment Services Industry

In Robert J. Reby & Co. v. Byrne, 2006 Conn. Super. LEXIS 2115, Mr. Patrick Byrne worked at Robert J. Reby & Co., a financial firm in Danbury, Connecticut, as a registered investment advisor from June 2005 to July 2005.  The company advises high net worth individuals and families in the areas of trusts, wealth management, and taxation.  Mr. Byrne signed an employment contract with Robert J. Reby & Co. wherein it contained a non-compete agreement that stipulated he be prohibited from soliciting the company’s clients or disclosing any of its confidential information in the event of his termination.  Following Mr. Byrne’s short employment with Robert J. Reby & Co. he began to work at Aspetuck Financial Management, LLC, a wealth management firm based in Westport.   Robert J. Reby & Co. alleged that Mr. Byrne solicited its clients for his new firm, Aspetuck, in direct violation of the non-compete agreement.  Mr. Byrne countered that the provisions of the non-compete were unreasonable in the sense that it placed an excessive restraint on his trade and prevented him from pursuing his occupation.

The court held that the non-compete agreement between Mr. Byrne and Robert J. Reby & Co. contained reasonable terms and was enforceable.  It failed to see any merits in Mr. Byrne’s claim that the agreement was too broad and created an insurmountable occupational hardship.  The provisions of the agreement only restricted a very small segment of Mr. Byrne’s occupational activities.  The terms he agreed to only prevented him from soliciting the specific and limited group of people that were clients of Robert J. Reby & Co..  The court held that the covenant was not a pure anti-competitive clause because it did not prevent him from engaging in the investment services industry as a whole.  This limited scope with regard to the prohibition levied upon Mr. Byrne caused the agreement to be reasonable and therefore enforceable.

The court also took time to discuss the public policy behind finding the non-compete agreement enforceable and establishing the legitimacy of the agreement.  Companies, according to the court, have a legitimate interest in protecting their business operations by preventing former employees from exploiting or appropriating the goodwill of its clients that it developed at its own, and not the employees’, expense.

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

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Court Uses Connecticut Law to Supersede Massachusetts Law in Application of Non-Compete Agreement

In Custard Insurance Adjusters v. Nardi, 2000 Conn. Super. LEXIS 1003, Mr. Robert Nardi worked at Allied Adjustment Services’ Orange, CT office beginning in September 1982 as the vice president of marketing, overseeing the adjustment of claims for insurance companies and self-insurers.  The company had Mr. Nardi sign non-compete and confidentiality agreements as a term of his employment.  The agreements established that he could not solicit or accept claims within a fifty-mile radius of Allied’s Orange office for a period of two years following his termination.  The agreements further specified that the names and contact information of Allied’s clients were the company’s confidential property.  The choice of law provision stated that Massachusetts law would be controlling (Allied had its headquarters in Massachusetts).  On September 1, 1997, Allied sold its business and all its assets, including its non-compete agreements, to Custard Insurance Adjusters.  Mr. Nardi became increasingly worried about future employment at Custard when the company restructured its compensation format, allegedly decreasing his annual income by 25%.  At this point, Mr. Nardi began to inquire about employment at other companies and in particular contacted Mr. John Markle, the president of Mark Adjustment, with whom he had a previous professional history.  He also arranged meetings between Mr. Markle and four other current Custard employees to discuss switching companies.  While the companies are competitors in the insurance industry, Mark’s business was restricted to the New England region while Custard operated nationally.  Custard terminated Mr. Nardi and asked the court to enforce the non-compete agreement.

The court first sought to tackle the issue of the choice of law provision since it designated Massachusetts law as controlling but this lawsuit was brought in Connecticut state court.  The court asserted its authority over the issue and case because it could not ascertain any “difference between the courts of Connecticut and Massachusetts in their interpretation of the common law tort breach of fiduciary obligation brought against a former officer of a corporation”.  The court emphasized that above all else, the legal issue at hand was that of contractual obligations and a company’s business operations.  It asserted its authority in this respect by stating it believed “that the Massachusetts courts interpret the tort of tortious interference with contractual and business relationships the same way our [Connecticut’s] courts do”.  Additionally, the court cited that the application of Massachusetts law would undermine Connecticut’s policy to afford legal effect to the Connecticut Unfair Trade Practices Act (CUTPA) and Connecticut Uniform Trade Secrets Act (CUTSA), two-state statutes used by Custard to sue Mr. Nardi.

Next, the court addressed the enforceability of the non-compete agreement signed by Mr. Nardi and Allied.  Mr. Nardi contended that the provisions of the agreement were only binding upon the signatory parties (himself and Allied) and that Custard lacked the authority to enforce its provisions.  He asked the court to deny Custard’s request to enforce the non-compete because it was “based on trust and confidence” between the signatory parties and “was thus not assignable”.  The court rejected this train of thought because the non-compete explicitly contained an assignability clause and it held that the non-compete covenant was properly and legally transferred to Custard under Massachusetts law.

Mr. Nardi based a substantial portion of his defense on the claim that Custard violated, and therefore invalidated, the agreement when it modified his compensation format.  He alleged that he was the victim of unjustified reductions in his professional responsibilities and compensation following Custard’s acquisition of Allied in 1997.  Mr. Nardi however was still an executive at the new company despite a reduction in rank and he himself had expressed excitement about becoming an executive at a national, instead of a regional, company.

The court ultimately found the non-compete to be valid and enforceable, therefore granting Custard’s request for injunctive relief.  It assessed the facts of the case and Mr. Nardi’s current position to amend the time restriction of the agreement, however.  Taking into account that he was starting a family and had a young child in conjunction with estimates that the full restrictions could amount to a 60-70% loss of business for Mr. Nardi, the court reduced the time limitation from two years to six months.  The court concluded that while the provisions were reasonable at face value, they could have unforeseen consequences that would have severely impaired Mr. Nardi’s ability to make a living in order to provide for his family.

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.

Policy of Enforcing Connecticut Non-Compete Agreements to Protect Employer’s Interests

Torrington Creamery, Inc. v. Davenport, 126 Conn. 515 pertains to a dispute regarding a non-compete agreement between an employer and employee in the dairy products industry in 1940.  While this case is by no means recent, it is a seminal case that lays the groundwork for the policy of enforcing non-compete agreements in Connecticut on the grounds of protecting the employer’s interest.  Specifically, this is one of the first Connecticut cases to address the enforceability of a company’s non-compete agreements when another company acquires it.

The High Brook Corporation employed Mr. Preston Davenport as a farm manager and superintendent beginning in 1932 at its Torrington, Connecticut location.  The company produced and distributed dairy products in the towns of Torrington, Litchfield, Winsted, Thomaston, New Milford, New Preston, and Greenwich, all towns in western or southwestern Connecticut.  High Brook changed its name to The Sunny Valley Corporation in March 1938 and on April 15, 1938, had Mr. Davenport sign an employment contract.  The contract specified that Mr. Davenport would receive a fixed compensation with no set duration and that he would be subject to several restrictive covenants.  A non-solicitation clause prohibited Mr. Davenport from soliciting, either directly or indirectly, Sunny Valley or its successor’s customers for a period of two years.  Meanwhile, a non-compete clause prohibited Mr. Davenport from engaging in the dairy production and distribution industry in the towns where Sunny Valley operated.  Another clause in the employment agreement stipulated that a court’s invalidation of a portion of the agreement would not affect the legally binding nature of the other provisions.  Sunny Valley sold its operations and assets to Torrington Creamery, Inc. in October 1938 and the company discharged Mr. Davenport from employment on October 18, 1938.  He proceeded to start his own dairy production and distribution business in February 1939 in the towns of Torrington and Litchfield.

Torrington Creamery sued Mr. Davenport to enforce the duration and geographical limitations of the restrictive covenant he had signed with Sunny Valley Corporation.  The Superior Court in Litchfield County found in favor of Torrington Creamery, Mr. Davenport appealed the decision, and the case went on to the Connecticut Supreme Court where it affirmed the lower court’s decision.  The Supreme Court found the terms of the non-compete agreement to be reasonable and necessary for the protection of Torrington Creamery’s business interests.  The notion of “protecting an employer’s business interests” is a driving force and major policy concern when deciding whether to enforce a non-compete agreement under Connecticut law.  Restrictive covenants become valuable assets of the employer and courts generally hold that the employer is entitled to the right to safeguard these assets.  Equally as important, the court held that the employer benefits contained in a restrictive covenant can be assigned to a purchaser in the event of the sale of the business and its assets.  Thus, when a company acquires another company, it gains the legal authority to enforce the acquired company’s valid non-compete agreements.  Courts view restrictive covenants as valuable business assets that provide for the necessary protection of the employer and any successor company.

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 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.

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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.  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 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.

Termination Does Not Invalidate a Non-Compete Agreement

Termination Does Not Invalidate a Non-Compete Agreement

Built In America, Inc. v. Morris, 2001 Conn. Super. LEXIS 2953

Mr. Michael Morris was the owner of Built In America, Inc. until he sold his entire stock in the company to Mr. Marc Costa in October 2000. The parties executed a Purchase and Sale Agreement that legally transferred the stock and ownership of the company. The transaction included an employment contract for an initial period of two years and a non-compete clause that became effective upon Mr. Morris’s termination from the company. The company terminated Mr. Morris in April 2001 and he proceeded to work in direct competition with his former employer. Mr. Costa and Built In America sued Mr. Morris for violation of the non-compete agreement and asked the court to enforce the agreement’s provisions. Mr. Morris argued that the restrictive covenant was null and void because the company had breached the employment agreement when it unlawfully terminated his employment.
The court found in favor of Built In America, ordered the enforcement of the covenant not to compete, and issued an injunction. There was no dispute over the reasonableness of the covenant, only a dispute over whether it became void when the company allegedly improperly terminated Mr. Morris. Built In America cited previous Connecticut cases, most notably Robert S. Weiss & Associates, Inc. v. Wiederlight (208 Conn. 525 (1988)), where the court held that termination did not invalidate a non-compete agreement. Furthermore, the court concluded that the company was justified with respect to its decision to terminate Mr. Morris’s employment, stating that his “behavior was so outrageous that one is left to believe he was inviting his discharge”. The court ultimately concluded that the covenant was legally binding and ordered its enforcement.
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.

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Enforceability of Non-Solicitation Agreement for Potential Clients of Former Employer

Webster Financial Corporation v. McDonald, 2009 Conn. Super. LEXIS 169

USI Insurance Services of Connecticut, Inc., formerly Webster Insurance, Inc., employed Mr. William McDonald as a senior vice president at its Westport, CT office. The company had Mr. McDonald sign an employment agreement dated February 11, 2003 that contained non-compete and non-solicitation clauses in the event of his termination. The agreement prohibited Mr. McDonald from soliciting any of USI’s contacts that had been clients or potential clients in the twelve months prior to his termination and established a geographical limit of twenty-five miles within USI’s Westport office. As for the time limitation, the covenant was applicable for the great period of two years following Mr. McDonald’s termination or as long as he received benefits from a deferred compensation plan. Mr. McDonald resigned on September 21, 2007 and began to work at Shoff Darby, Inc., an industry competitor well within the prohibited twenty-five radius of USI’s Westport office. At his new firm, Mr. McDonald proceeded to solicit and sell insurance products to USI’s former and current clients. Additionally, he contacted several USI employees and urged them to leave the company to seek employment with Shoff Darby.
USI sued Mr. McDonald and asked the court to enforce the provisions of the restrictive covenant. Mr. McDonald presented two defenses to the court, arguing that the agreement was overly broad and therefore unenforceable. He claimed that the prohibition of potential clients and the potential unlimited duration made the non-compete agreement unreasonable and unenforceable. USI asserted the validity of the agreement and emphasized to the court that it contained a “blue pencil” provision that authorized the court to amend the time and/or geographical limitation in order to comply with Connecticut law. Mr. McDonald countered this argument stating that this legal procedure would require the court to essentially rewrite the non-compete contract, an act forbidden under Connecticut law.
The court found in favor of USI with regard to the issue of the agreement’s enforceability with its holding stating, “taking the covenant as whole, nothing on the face of the contract renders the covenant unenforceable as a matter of law”. While deliberating about the claim that the prohibition on potential clients was unreasonable, the court stated that there is no direction or precedent from the Connecticut Appellate Courts and that the Superior Courts throughout the state were divided on the issue. This court took the approach used in Cuna Mutual Life Ins. Co. v. Butler (2007 Conn. Super. LEXIS 1623) that such limitations on potential clients are reasonable so long as they are “readily identifiable and narrowly defined”. The court concluded that the potentially unlimited applicable duration of the agreement was not “per se unreasonable” because the agreement as a whole contained several other definitive restrictions such as the twenty-five radius from the Westport office and the limited group of clients for the anti-solicitation clause.

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Enforcing a Non-Compete Agreement to Protect Software Company’s Confidential Information

Enforcing a Non-Compete Agreement to Protect Software Company’s Confidential Information

Weseley Software Development Corporation v. Burdette, 977 F. Supp. 137

Mr. Wesley Burdette worked for Weseley Development Corporation first as a Logistics Analyst and then as a Senior Logistics Analyst from May 1993 to September 16, 1996. Weseley was a software development company based in Shelton, Connecticut whose focus product was a transportation and logistics management program referred to as TRACS (Tactical Routing and Consolidation System). Mr. Burdette played a significant role in the development and testing of TRACS versions 3.0 and 3.1. He worked with “customers and potential customers to evaluate, develop, tailor, and implement Weseley’s products” during his approximately three years of employment. He gave Weseley his two weeks notice on August 29, 1996 and planned to switch companies to work for Manugistics for the marketing and sales of its product titled MTP. Management reminded Mr. Burdette of the non-compete clause in his employment agreement that he had signed.
The most important covenants that he signed in conjunction with his employment contract were those not to compete or disclose confidential information. The agreement was signed on January 14, 1995 after Mr. Burdette was allowed time to consult with an attorney regarding any and all of the agreement’s provisions. The non-compete clause stipulated that he could not work for a competitor for a period of six months following his termination with Weseley or disclose confidential information for an indefinite period of time. The company sued Mr. Burdette to enforce the non-compete and asked the court to enjoin him from further employment with Manugistics. Mr. Burdette countered that the agreement was unenforceable because its provisions were unreasonable and that Weseley had only signed the agreement once litigation began.
The court found in favor of Weseley and enforced the non-compete covenant, enjoining Mr. Burdette from working for Manugistics for a period of six months as stated in the language of the agreement. It validated the agreement because there was adequate consideration in the form of “continued employment, an articulated paid vacation entitlement, a new entitlement to severance benefits, and stock options”. Furthermore, it found the limitations to be reasonable such that they fairly balanced Weseley’s desire to protect its business and Mr. Burdette’s desire to still be able to pursue his career. It was paramount that the court protected the company’s interests since Mr. Burdette had a great deal of access to proprietary research & development information that could have severely disadvantaged Weseley should Mr. Burdette have shared the information with Manugistics. Although the court stated that there was no evidence that he had already disclosed confidential information, it held that he would inadvertently draw upon his knowledge gained while employed at Weseley and eventually disclose some amount, however small it may be in, in the course of his new employment with Manugistics.
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.

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

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. 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 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 trigger 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.
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.

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Court Invalidates Non-Compete Agreement for Excessive Restraint of Trade

Court Invalidates Non-Compete Agreement for Excessive Restraint of Trade
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 “noncompetition-nondisclosure 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.
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.
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.
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.

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Enforcing a Non-Compete Agreement in a Medical Partnership

Enforcing a Non-Compete Agreement in a Medical Partnership

Fairfield County Bariatrics and Surgical Associates, P.C. v. Ehrlich, 2010 Conn. Super. LEXIS 568

Doctors Neil and Craig Floch created Floch Surgical Associates in 1999 in Norwalk, Connecticut to provide medical and surgical services to patients. They decided to gear their practice towards bariatric surgery and hired Dr. Timothy Ehrlich, a board certified general surgeon and graduate of Louisiana State University School of Medicine, in 2002. He was granted surgical privileges at Norwalk Hospital and St. Vincent’s Hospital (in Bridgeport, CT) and operated as the only member of the medical group to perform bariatric surgeries exclusively. On January 1, 2006, the two Floch doctors and Dr. Ehrlich formed Fairfield Bariatrics and Surgical Associates, P.C. (FCB). Each doctor became a third shareholder in the professional corporation and signed identical employment agreements that outlined the compensation schedule, termination protocols, and included a non-compete agreement. The non-compete prohibited each doctor, for two years after termination, from practicing general medicine/surgery within fifteen miles of FCB’s main office in Norwalk and barred performing bariatric procedures at hospitals located in Stamford, Norwalk, Greenwich, Danbury, and Bridgeport.
Doctors Neil and Craig Floch voted to terminate Dr. Ehrlich in July 2009 and notified him of the decision in a letter dated July 30, 1999. They justified his termination by claiming that he repeatedly “misrepresented the group” and had lost his surgical privileges at Norwalk Hospital due to non-compliance with the hospital’s Trauma Service requirements. Dr. Ehrlich proceeded to form his own limited liability company, Ehrlich Bariatrics LLC, on October 22, 2009 and opened offices in Waterford and Trumbull. Both of these municipalities are located outside of the prohibited area created by the non-compete agreement but he also continued to perform operations at St. Vincent’s Hospital in Bridgeport, an activity expressly prohibited by the restrictive covenant.
FCB sued Dr. Ehrlich in Connecticut court and requested that the court enforce the provisions outlined in the non-compete agreement dated January 1, 2006. The court found in favor of FCB, determined that Dr. Ehrlich had violated a valid non-compete agreement, and enforced the provisions of the covenant not to compete. The court stated that the challenging party (Dr. Ehrlich for this case) bore the burden of proof to demonstrate that the agreement was unenforceable. He asserted that he had not been properly terminated and that the agreement itself was unreasonable, and therefore unenforceable. The court rejected both of these arguments and concluded that the agreement was valid and enforceable.
Dr. Ehrlich advanced the unconvincing argument that he was the victim of improper termination because the shareholders meeting at which the vote was taken to terminate his employment was not properly noticed pursuant to the corporation’s by-laws. He essentially contended that the “lack of notice renders his termination a nullity”. The court however disagreed with Dr. Ehrlich because a physician whose termination is being voted on is not entitled to cast a vote. The lack of voting power for this matter meant that his presence was not required and he was not entitled to notice of the special shareholders meeting where the vote was taken. The court ultimately concluded that Doctors Neil and Craig Floch had taken the proper and necessary steps in accordance with the corporation’s by-laws to terminate Dr. Ehrlich’s employment with FCB.
Next, Dr. Ehrlich unsuccessfully contended that the agreement contained unreasonable provisions and therefore the court was not obligated or permitted to order its enforcement. Discerning the reasonableness of a non-compete agreement required the court to balance the competing needs of the parties as well as the needs of the public. Furthermore, the challenging party must show that the provisions are unreasonable in scope. First, the court established that FCB did in fact have a legitimate business interest that necessitated protection. The company was entitled to protect potential new patients within a reasonably limited market area. FCB was only concerned with future patients and did not seek to prevent Dr. Ehrlich from providing follow-up services to current or past patients.
Next, the court addressed and cited a variety of case law that showed Connecticut courts’ history of enforcing non-compete agreements when they protect against “something other than mere competition”, including the use of customer lists, impaired of purchased good will, confidential data/trade secrets, use of information concerning potential clients in a limited area, or some other advantage the former employee acquired while working for the plaintiff company. The court found that Dr. Ehrlich had greatly benefitted from his association with FCB and that his continued actions would negatively affect the reputation and business operations of his former employer.
Lastly, the court took time to address the differences between non-compete agreements for an employer-employee relationship and those for partnerships. It held that since there was not unequal bargaining power or impaired ability to earn a living, the provisions were not unreasonable in scope. The court noted that Dr. Ehrlich’s offices in Trumbull and Waterford did not violate the agreement and there were numerous hospitals located outside the prohibited area where he could find employment as a board certified surgeon specializing in bariatrics. He had actually received encouragement from several doctors to apply for privileges at permissible hospitals, including the Hospital of St. Raphael in New Haven.
In light of Dr. Ehrlich violating a legally binding non-compete agreement that protected a legitimate business interest, the court ordered the enforcement of the restrictive covenant.
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.

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