Posts tagged with "restrictions"

Breach and Irreparable Harm Required for Enforcement of Non-Compete Agreement

Opticare, P.C. v. Zimmerman, 2008 Conn. Super. LEXIS 759

Opticare, P.C. was a company engaged in the business of offering optometry and ophthalmology services to patients.  A sister company, Opticare Eye Health Centers, Inc. was created in 1995 to provide management services to Opticare, operate an ambulatory surgical center, and own/operate retail eye-wear stores.  Opticare employed Dr. Neal Zimmerman as an ophthalmologist specializing in vitreoretinal surgery from April 1984 to November 10, 2006.  He signed several employment agreements with Opticare during his time as an employee with the company and each one contained a non-compete clause that would become effective upon Dr. Zimmerman’s termination.

The restrictive covenant stated that Dr. Zimmerman was prohibited for eighteen months after his termination from offering medical services at a competing company located with a restricted area that was a hexagon ranging from fifteen to thirty miles from where he practice his profession.  The non-compete agreements also specified that Dr. Zimmerman was required to provide one year notice of voluntary termination if he intended to continue to practice medicine in the state of Connecticut.

On September 6, 2006, Dr. Zimmerman provided a sixty-day notice of voluntary termination to Opticare’s management and shortly thereafter, five other physicians tendered their resignation from the company.  He began providing ophthalmological services on January 2, 2007 at a new office located in Prospect, Connecticut, a mere four miles from Opticare’s office in Waterbury and clearly within the prohibited area according to the non-compete agreement.  He testified that approximately 50% of his current patients were former patients of Opticare, his former employer.  Opticare sued Dr. Zimmerman for breach of the non-compete agreement and asked the court to grant injunctive relief by enforcing the restrictions enumerated in the agreement.

The Court’s Decision

After weighing the evidence presented by the parties, the court held in favor of Dr. Zimmerman and concluded that the non-compete agreement was not enforceable.  Dr. Zimmerman admitted he violated the agreement based on the face value of its terms but raised questions regarding the legality of the covenant and argued that he was not obligated to refrain from further activities at his new practice.  The court weighed the evidence to evaluate whether Dr. Zimmerman’s breach of the agreement had any negative impact on Opticare’s business operations or that the company had incurred irreparable harm.

It ultimately found that Opticare failed to present sufficient evidence to prove that it experienced either of these detriments and the court noted that Opticare was “still in business and there was no showing that the business is close to ruination or has been permanently harmed in any way”.  Breach alone, according to the court, is insufficient to demonstrate that an injunction is necessary.  A moving party must demonstrate breach and incurred or imminent irreparable harm in order to be successful with a request for injunctive relief.

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.

Enforcing Non-Competes Associated with Sale of Company and Goodwill

Kim’s Hair Studio, LLC v. Rogers, 2005 Conn. Super. LEXIS 1805
Case Background

Ms. Dorothy Rogers owned a hair salon in Higganum, Connecticut called Dotties Creative Cuts and entered into an agreement to sell the company’s “assets, goodwill, and client lists” to Kim’s Hair Studio, LLC for the amount of $20,000.  This transaction essentially made Ms. Rogers a new employee of Kim’s hair Studio and as such, she was required to sign a non-compete agreement that prohibited her from offering competing services for twelve months after her termination within ten miles of 323 Saybrook Road, the primary work location of Kim’s Hair Studio.

The parties executed non-compete and confidentiality agreements on August 23, 2004.  Ms. Rogers did not like how the salon was being run by the company’s management and voluntarily terminated her employment in order to work at a new hair salon that was located a mere one-half mile away.  Ms. Rogers additionally removed a rolodex containing Kim’s Hair Studio’s client information and began to contact them to solicit their business.  Kim’s Hair Studio sued Ms. Rogers and requested that the court enforce the non-compete and confidentiality agreements.

The Court’s Decision

The court granted the request for an injunction and ordered the enforcement of the agreements’ provisions.  It concluded that the restrictions were reasonable in scope and that Ms. Rogers’ action had amounted to a breach of the covenant between the two parties.  Kim’s Hair Studio had legitimate interests in executing non-compete agreements with its employees because its goodwill and client clients were essential assets that Kim’s Hair Studio invested resources in to acquire and maintain.  The restrictive covenants were designed to prevent the loss or infringement of these assets and ensure that Kim’s Hair Studio was not negatively affected due to an employee’s termination, whether voluntary or involuntary in nature.

The court reasoned that a party is entitled to an injunction restraining further breach of a restrictive covenant when it demonstrates that the other party has or is very likely to breach the agreement.  Additionally, the court noted Connecticut courts’ willingness to enforce a non-compete agreement when it is made in connection with the sale of a company and its goodwill.  These legal principles, in conjunction with reasonable and limited restrictions, allowed the court to conclude that the non-compete agreement between Ms. Rogers and Kim’s Hair Studio was 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.

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

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.

 

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.

Imminent Risk of Irreparable Harm is Requisite for Enforcing Non-Compete Agreements

Minnesota Mining and Manufacturing Co. v. Francavilla, 191 F.Supp.2d 270
Case Background

The Minnesota Mining and Manufacturing Company (3M) is an international conglomerate that maintains its Optical Component business operations in St. Paul, Minnesota and West Haven, Connecticut.  3M sues the St. Paul facility primarily for research and development while the West Haven office focuses on the manufacturing of optical fibers, one of only a few such facilities in the world.  Mr. Sergio Francavilla maintained employment at the West Haven facility as a Senior Manufacturing Specialist from December 13, 1999, to November 21, 2001.  He oversaw the production of specialty optical fibers and designed a new “Modified Chemical Vapor Deposition Laboratory”.  Additionally, he designed and implemented an improvement project to update the facility’s process that launched in July 2001.

The Employment Agreement

The parties signed an employment agreement on December 13, 1999 that contained a non-compete clause that he could not work for a company that produced competing products with 3M for a period of two years following termination.  The one exception to this provision was that he could work for a competing company so long as it was a “large conflicting organization whose business is diversified” and he accepted employment in a division that was not in direct competition with 3M.

The employment agreement also contains a non-disclosure clause that prohibits any disclosure of 3M’s confidential information that Mr. Francavilla was privy to during his employment with the company.  A final clause stipulated that any product developed by Mr. Francavilla while a 3M employee was 3M’s exclusive property.

Mr. Francavilla submitted a resume to StockerYale, a Massachusetts company that manufactures specialty optical fiber products.  StockerYale extended a job offer to him on October 31, 2001 for the position of Director of Manufacturing/Specialty Optical Fiber.  He tendered his resignation and informed his superiors that his last day would be November 23, 2001 and that his new employer was not a direct competitor.

3M sued Mr. Francavilla in federal court however when it learned the identity of his new employer and asked the court to enforce the non-compete agreement.  The court found that Mr. Francavilla had breached the restrictive covenant and granted 3M’s request for an injunction to prevent Mr. Francavilla’s continued employment at StockerYale.

Risk of Irreparable Harm

Mr. Francavilla argued that 3M failed to show that his actions would likely cause irreparable harm to the company.  The court rejected this contention and held that there was a good chance of disclosing former employer’s confidential information when there is “a high degree of similarity between an employee’s former and current employment”.  The imminent risk of irreparable harm is requisite for a court to grant a request for an injunction in connection with a non-compete agreement.

The court felt that there was indeed immediate risk of 3M’s confidential information being disclosed by Mr. Francavilla at his new employer and held that enforcement of the restrictive covenant was necessary to protect that information.  Mr. Francavilla had access to very valuable information during his employment at 3M, specifically in the field of research and development.  The specialty optical fibers industry is quite small and any disclosure of confidential information could prove to be extremely damaging to a company.

Time and Geographical Restrictions

The court also addressed the reasonableness of the time and geographical restrictions, concluding that both were reasonable and enforceable.  Two years is not an overly restrictive limitation and only restricts his employment is a very niche industry, leaving him with many options to pursue a career.  The covenant does restrict Mr. Francavilla’s future employment opportunities but “does not force the defendant [Mr. Francavilla] to sacrifice his livelihood”.

While the enforceability of a non-compete agreement hinges on the reasonableness of its provisions, the court focused on the requisite imminent risk of irreparable harm to justify granting an injunction.  The court spent a great deal of time discussing this requisite factor in non-compete legal disputes and stated that it is a crucial component when determining whether to grant a request for an injunction.

 

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.

Excessive Geographical Limitation in Connecticut Non-Compete Agreement Found Unenforceable

Timenterial, Inc. v. Dagata, 29 Conn. Supp. 180
Case Background

Timenterial was a company that engaged in the sale and rental of mobile units and had previously employed Mr. James Dagata.  The employment contract contained a non-compete clause wherein Mr. Dagata agreed not to “engage in any business venture having to do with the sale or rental of mobile homes or mobile offices in a fifty miles radius from any existing Timenterial, Inc. sales lot” for one year following the termination of his employment.

Mr. Dagata terminated his employment on June 1, 1970, and Timenterial claimed that he had been active in business ventures involving mobile homes beginning June 12, 1970, at an office located a mere one-quarter mile from Timenterial’s Plainville, CT office.  Timenterial commenced a suit for violation of the non-compete agreement and sought to restrain Mr. Dagata from further mobile home business ventures in accordance with the agreement.

The Court’s Decision

The court found in favor of Mr. Dagata and held that the non-compete agreement was unenforceable because the geographical restriction in the agreement was unreasonable and excessive.  At the time of legal proceedings, Timenterial had seven facilities in Connecticut, four in Massachusetts, two in Vermont, and one in New Hampshire.  The court applied the fifty-mile radius as stipulated in the agreement and held that this territorial prohibition was unreasonable.

The application of the agreement would mean that Mr. Dagata could not be involved in the mobile homes business in all or substantial parts of Connecticut, New York, Massachusetts, Vermont, New Hampshire, and Rhode Island.  This placed excessive restrictions on Mr. Dagata and severely limited the opportunity for him to practice his occupation.  This excessive and burdensome characteristic of the non-compete rendered the agreement unenforceable and the court concluded that Mr. Dagata’s actions did not constitute a breach 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.

Court Enforces Non-Compete Against Connecticut Ophthalmologist

Musto v. OptiCare Eye Health Centers, 2000 Conn. Super. LEXIS 2298
Employment Background

Dr. Anthony Musto owned an eye care services professional corporation with two other doctors from 1973 to 1996.  He worked as a private practice ophthalmologist in the greater Bridgeport area until the three doctors sold the practice to OptiCare Eye Health Centers, Inc. on July 31, 1996.  Dr. Musto owned one-third of the shares of the business, sold them to OptiCare for a profit of $590,000, and signed an employment agreement with OptiCare to work as an ophthalmologist on their payroll.

He worked as an OptiCare employee from August 1, 1996, to August 4, 2000, providing management with a one-year written notice of voluntary termination on August 1, 1999.  Following his termination, Dr. Musto proceeded to open a private practice office in Fairfield and perform surgeries at Bridgeport Hospital, including three extremely rare procedures: dactocystorhinostomy, blethoroplasty, and removal of eyelid tumors.

The Non-Compete Agreement

Dr. Musto signed a non-compete agreement with OptiCare as part of his employment contract and initialed each page to demonstrate he understood the agreement’s obligations and restrictions.  The restrictive covenant stipulated that Dr. Musto be prohibited from engaging in the practice of ophthalmology or ophthalmic surgery for a period of eighteen months following termination with fifteen miles of OptiCare’s Stratford or Bridgeport offices.

OptiCare sued to prevent further violations of the non-compete agreement because of Dr. Musto’s new practice in Fairfield, a location clearly within fifteen miles of the identified OptiCare offices.  The company sought to enjoin him from performing general ophthalmic surgeries at Bridgeport Hospital, also located within the geographical restrictions, but did not ask the court to prevent him from performing the three rare surgeries since he was the only doctor on staff at the hospital with the requisite expertise and knowledge to perform them.  Dr. Musto however argued before the court that the restrictions contained in the agreement were unreasonable and the court should deny OptiCare’s request for their enforcement.

The Court’s Decision

The court held that the non-compete agreement was in fact reasonable and granted OptiCare’s request for its enforcement.  The court granted the request, stating, “Where the context of the covenant not to compete is the sale of the good will of an established business, the courts recognize that enforcement of the covenant is necessary to prevent the seller from depriving the buyer of the value of the transaction”.  When OptiCare acquired Dr. Musto’s professional corporation, it purchased the asset of continued patronage from people who had been patients of that practice, and the court concluded that OptiCare was entitled to protection of this valuable asset.

When determining whether a restrictive covenant is reasonable, the court must determine if it affords more than fair and just protection to the party in whose favor it operates without unduly interfering with public interest.  The eighteen-month duration was deemed reasonable because it was short enough not to cause any unwarranted or extreme hardships on Dr. Musto’s ability to start another practice.  Additionally the court concluded that the fifteen-mile restriction was reasonable because it was not a distance greater than what was necessary to protect the good will asset that OptiCare acquired from Mr. Musto and his partners.

 

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

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 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.

If you have questions regarding non-compete agreements or any employment matter, contact Joseph Maya at 203-221-3100 or by email at JMaya@MayaLaw.com.

Non-Compete Enforceability: Must Protect Legitimate Interest & Not Be Punitive

Non-Compete Enforceability: Must Protect Legitimate & Not Be Punitive
Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water. The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut. Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement. The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years. The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage. In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500. He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.
HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine. He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position. Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA. The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed. The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.
According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA. While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects. The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage. McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings. The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.
Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests. Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences. The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.
Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case. HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company. The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities. Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.
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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Non-Compete Enforceability: Must Protect Legitimate Interest & Not Be Punitive

Non-Compete Enforceability: Must Protect Legitimate & Not Be Punitive
Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water. The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut. Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement. The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years. The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage. In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500. He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.
HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine. He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position. Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA. The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed. The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.
According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA. While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects. The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage. McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings. The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.
Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests. Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences. The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.
Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case. HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company. The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities. Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.
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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