Posts tagged with "soliciting"

Enforcement of a Non-Compete Agreement in the Salon Industry

Piscitelli v. Pepe, 2004 Conn. Super. LEXIS 3264
Case Background

Ms. Francine Piscitelli owned and operated a hairdressing and beauty salon since 1985.  She employed Ms. Bernadette Pepe as a stylist from 1990 to July 31, 2004.  The salon moved and underwent a change in its trade name in 1997.  Ms. Piscitelli had Ms. Pepe sign an Employment Agreement on February 27, 1997, that contained a restrictive non-compete covenant.

The non-compete agreement prohibited Ms. Pepe for one year following termination from engaging in competing business activities, soliciting the salon’s employees, or soliciting the salon’s current clients.  The agreement designated a restricted area for the covenant not to compete: Branford, North Branford, East Haven, Guilford, and the portion of New Haven east of the waterway formed by the Quinnipiac River, New Haven Harbor, and Morris Cove.

Ms. Pepe signed a three-year lease on March 9, 2002 for a premise in North Branford to operate a full-service hair and nail salon.  Ms. Piscitelli learned of this in May 2004, confronted Ms. Pepe about the development, and Ms. Pepe confirmed what her boss had been hearing around the salon.  Ms. Pepe assured her boss that she would not be soliciting any of the employees or any current clients beyond her own.  Ms. Piscitelli was comforted by these assurances and allowed Ms. Pepe to continue to schedule appointments at the salon until she voluntarily terminated her employment on July 31, 2004.

In the following months, three stylists left the salon to work for Ms. Pepe at La Bella salon and Ms. Pepe solicited clients of her previous salon regarding the opening of her own salon.

The Court Hearing and its Outcome

Ms. Piscitelli sued Ms. Pepe in Connecticut state court for breach of the non-compete agreement.  Ms. Pepe however contended that the agreement was unenforceable because it: 1) lacked adequate consideration, 2) contained unreasonable restrictions, and 3) there was an adequate remedy at law, thus barring injunctive relief as an appropriate legal solution.  The court rejected these defenses, found in favor of Ms. Piscitelli, and granted her request for enforcement of the covenant not to compete.

While the agreement did not increase Ms. Pepe’s compensation, paragraph ten created additional consideration because it obligated the employer, Ms. Piscitelli, to pay for “certain courses in professional education and training”.  This benefit, according to the court, was adequate consideration in exchange for Ms. Pepe’s covenants.

Furthermore, the court concluded that the covenant not to compete was reasonable with respect to the time and geographical limitations contained therein.  The restrictions did not unnecessarily restrict Ms. Pepe’s ability to earn a living or secure future employment within the salon industry.  The restriction adequately protected Ms. Piscitelli’s legitimate business interests while not excessively harming Ms. Pepe’s career opportunities.

Lastly, the court disagreed with Ms. Pepe that there was an adequate remedy at law available for the case.  The court held that Ms. Piscitelli met the burden of proof to show the need for an injunction and concluded that injunctive relief was appropriate for the case.

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.

De Facto New Employment Relationship Precludes Restrictive Covenant Enforcement By Successor Employer

Kelly Services, Inc. v. Savic, 2006 U.S. Dist. LEXIS 83930
Case Background

Ms. Anna Savic worked as a legal recruiter at The Wallace Law Registry and its successor companies from February 1989 until her resignation on June 20, 2005.  She began her employment primarily recruiting and placing paralegals in the Connecticut legal market.  Ms. Savic executed an employment agreement with Ms. Shelly Wallace, the owner and sole shareholder of the company, on October 2, 1990.

The agreement detailed the employment relationship between Ms. Savic and the company, specifically stating that employment was at will where either party could terminate the relationship at any time with or without cause (paragraph #3), that all the company’s information and records were private/privileged/confidential (paragraph #8), that she was prohibited from soliciting any applicant or client without express written consent for two years following termination (paragraph #9), and that she was prohibited from soliciting any employees to leave the employ of the company for two years following termination (paragraph #11).

Enforcing a Non-Compete Agreement

The Wallace Law Registry experienced a series of mergers and acquisitions during Ms. Savic’s employment and the company eventually became part of Kelly Services, Inc., a Delaware corporation with headquarters in Troy, Michigan.  Ms. Savic’s duties and responsibilities significantly changed around March 2000 and she received a new compensation schedule despite the fact that no new employment agreement was executed.

Kelly Services commenced an action to enforce the provisions of the 1990 Employment Agreement when Ms. Savic resigned from the company in 2005.  Ms. Savic asserted that the contractual obligations of the 1990 Employment Agreement were no longer in effect and that the agreement itself was not assignable during the series of mergers and acquisitions that occurred throughout her employment.

The central issues for the court were: (1) whether the 1990 Employment Agreement between Ms. Savic and The Wallace Law Registry was enforceable to Kelly Services because it lacked an assignment clause, and (2) if the agreement was assignable, whether it was enforceable.

While the 1990 agreement was silent on the assignability and/or successorship of the contractual provisions, Connecticut law and policy nonetheless enshrine the principle that employment contracts are assignable business assets.  Specifically, “Connecticut adheres to the view, rejected by most jurisdictions, that an employee’s covenant not to compete is an assignable asset of the employer”.  Madrigal Audio Laboratories, Inc. v. Cello, Ltd., 799 F.2d 814, 821 (2d Cir. 1986).  The court determined that the 1900 agreement was assignable but ultimately concluded that it was not enforceable by Kelly Services.

The Court’s Decision

In order to be successful in requesting enforcement of a non-compete agreement, a plaintiff must demonstrate (1) irreparable harm and (2) either (a) the likelihood of success on the merits or (b) sufficiently serious questions on the merits to make them fair ground for litigation.  The court held that that Kelly Services failed to establish a likelihood of success on the merits of the case.

The changes in employment/responsibilities in March 2000 went beyond mere modifications to the original employment agreement and the court concluded that a new employment relationship was created even though it was not formally detailed in a new employment agreement.  This, accordingly to the court, rendered the 1990 Employment Agreement between Ms. Savic and The Wallace Law Registry unenforceable and no longer in effect.

This case is one that demonstrates that there are exceptions to every rule.  Despite the general policy in Connecticut of assigning employment contracts in the event of a merger or acquisition, there are always certain circumstances where the original agreement will not be enforceable by the successor employer.  An employer is prevented from enforcing an original employment agreement when a de facto new employment relationship is created due to significant changes in responsibilities, compensation, and/or position within the 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 like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Balancing Policy Concerns When Determining Enforceability of Non-Compete Agreement

Booth Waltz Enterprises, Inc. v. Pierson, 2009 Conn. Super. LEXIS 1912
Case Background

Speedway Distributors, Inc. employed Mr. David Pierson as a sales representative beginning in 1998 and had him sign a non-compete agreement as a condition precedent to his employment.  The agreement, executed on January 26, 1998, prohibited Mr. Pierson from soliciting Speedway customers or divulging their contact information to other parties for a period of one year following his termination.  Speedway’s primary business operation was distributing aftermarket chemical products in Connecticut, Rhode Island, and western Massachusetts.

On October 20, 1998 Booth Waltz Enterprises, Inc. acquired certain Speedway assets, most notably its customer lists/information and its sales representatives’ non-compete agreements.  Booth Waltz offered Mr. Pierson a job under the new corporate management scheme and asked him to sign a new non-solicitation agreement but he voluntarily terminated his employment.

Following his termination, Mr. Pierson started his own business, Hometown Distributors, which engaged in the same business operations and geographical area as his former employer.  Booth Waltz alleged that Mr. Pierson was soliciting its customers in violation of the non-compete it acquired from Speedway and sued for the enforcement of the restrictive covenant.

The Court’s Decision

The court found in favor of Booth Waltz, holding that the “defendant [Mr. Pierson] has engaged in conduct which is in breach of the restrictive covenant.  This conduct would dictate that the plaintiff [Booth Waltz] is entitled to enforce the agreement”.  Mr. Pierson contended that the provisions of the non-compete agreement were unreasonable, rending the agreement unenforceable, but the court rejected these assertions.  In handing down its decision, the court had to balance the necessity to protect the employer’s business interests and the employee’s right to earn a living.

The duration of one year was reasonable and was supported by the public policy principle that Booth Waltz had a right to protect the long-term relationships that Speedway maintained with its customers.  Additionally, the court concluded that the geographical limitation (Connecticut, Rhode Island, and western Massachusetts) was reasonable because it only restricted specific customers appearing on Speedway’s customer list, and not the region as a whole.

The court also addressed and stated that its holding did not interfere with public interest since it did not unreasonably deprive the public of a good/service for the sake of protecting a business’s recognized interest.  This case is a good example of how a court must balance multiple interests and policy concerns when deciding a case disputing a non-compete agreement between an employer and one of its former employees.

 

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

Connecticut & Missouri Laws Apply the Same Tests to Determine the Enforceability of Non-Compete Agreements

H & R Block Eastern Tax Services, Inc. v. Brooks, 2000 U.S. Dist. LEXIS 19369
The Employment Agreement

Mr. Donald Brooks worked for H & R Block Eastern Tax Services, Inc. as an Accounting Service Manager from December 30, 1996, when he sold his business assets to H & R Block until the company terminated his employment on May 31, 2000.  The closing of the Asset Purchase Agreement was contingent on the execution of an employment agreement.

Under the agreement, H & R Block employed Mr. Brooks on a year-to-year basis but had the authority to terminate him at any time without notice.  The employment agreement contained a covenant not to compete that prohibited Mr. Brooks for two years after termination from soliciting H & R Block’s clients and offering competing business services within a twenty-five mile radius of the company’s offices in the sales district where he worked.  The non-compete agreement also stated that Missouri law would govern the contract and any legal disputes.

Mr. Brook’s termination became effective on May 31, 2000 and he began providing accounting/tax services to former H & R Block clients.  The company sued him for breach of the covenant not to compete and requested that the court enforce the provisions of the agreement.  He claimed that the covenant was unenforceable and therefore his actions did not constitute a breach that entitled the company to any type of relief.  The federal district court found in favor of H & R Block and granted the company’s request for injunctive relief by enforcing the non-compete agreement executed by the parties at the beginning of Mr. Brooks’s employment.

The Court’s Analysis

In its legal analysis, the court evaluated whether to apply the choice of law provision and examined the reasonableness of the agreement.  The covenant designated Missouri law as the choice of law because that was the location of the company’s corporate headquarters.  The agreement stipulated that Missouri law would apply to disputes except when Missouri had no connection to the contract or when its law contradicted public policy of a state with a materially greater interest in the issue.  The court concluded that Missouri had similar laws and public policy with regard to contract, employment, and non-compete principles.

Both states (Connecticut and Missouri) enforce covenants that “impose reasonable restrictions” in order to safeguard the “protectable interests” of a former employer.  Furthermore, both states stress that enforcement of a restrictive covenant must balance the need to protect the employer from unfair competition without unnecessarily restricting the employee’s ability to secure future employment.  The court approved the use of Missouri law due to its similarities with Connecticut state law and the application of very similar tests to ascertain an agreement’s enforceability.

The Agreement’s Restrictions

Next, the court analyzed whether the provisions in the agreement were reasonable limitations and did not excessively restrict Mr. Brooks’s ability to pursue his occupation following his termination from H & R Block.  The court found that the restrictions were temporary and spatially limited.  The agreement specifically prohibited “soliciting, diverting, or taking” business away from H & R Block and the restrictions inserted into the employment contract reflect this objective.

The language and provisions of the covenant restricted competing activities in the Greater Hartford Area but left Mr. Brooks free to practice in the majority of the state of Connecticut and the rest of the country.  These restrictions thus protected H & R Block’s legitimate business interests and did not create excessive hardships for Mr. Brooks.  The court found that the covenant not to compete was enforceable under the laws of both Missouri and Connecticut.

 

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.

Two-Prong Test for Temporary Injunction for Breach of Non-Solicitation Agreement

Integrated Corporate Relations, Inc. v. Bidz, Inc., 2009 Conn. Super. LEXIS 2212
Case Background

Integrated Corporate Relations, Inc. was a Westport-based parties relations and public consulting firm that contracted with Bidz, Inc., a California corporation, to perform various investor relations services.  The agreement between the companies contained a non-solicitation clause that prohibited Bidz from soliciting, hiring, or otherwise engaging any of Integrated’s personnel during the agreement and for one year following its termination.  Integrated stated that this was their standard practice with clients in order to protect its legitimate business interests and the resources it had spent to develop its business model.  It also claimed that it incurs a hardship when an employee leaves because it must find a suitable replacement.

Integrated hired Mr. Andrew Greenebaum in 2003 as an at-will employee at the company’s Los Angeles office to work as a Senior Managing Director where he was the primary manager of Bidz’s account.  Mr. Greenebaum worked in this capacity until his resignation on February 27, 2009 at which point he founded his own company, Addo Communications, Inc. with another former Integrated employee.  Bidz terminated its business relationship with Integrated on March 30, 2009 and shortly thereafter contracted with Mr. Greenebaum and Addo for investor relations services.

Granting Temporary Injunction

Integrated sued Bidz when it learned of this new business relationship and claimed that Bidz had violated the non-solicitation agreement in their contract.  The company requested equitable relief and called for the enforcement of the restrictive covenant.  Integrated requested a temporary injunction while the case was being decided in order to prevent further violations of the agreement.  The court’s holding in this case pertains to the issue of whether to grant a temporary injunction.

The court outlined that the primary purpose of a temporary injunction is to “preserve the status quo until the rights of the parties can be finally determined after a hearing on the merits”.  Connecticut courts will generally grant temporary injunctions when the moving party: 1) demonstrates “it is likely to succeed on the merits of its case” and 2) that it will “suffer immediate and irreparable harm if the injunction is not granted”.  The court concluded that Integrated failed to meet either of these requirements and denied the company’s request for a temporary injunction.

The Court’s Decision

The court concluded that Integrated lacked a meritorious claim regarding a breach of the employment contract by Bidz contracting with one of its former employees.  The non-solicitation agreement in question is one between a consulting company and a client, not between a company and its employee(s).  Integrated failed to present any case from any jurisdiction in the United States where a court recognized this business arrangement as an interest that warranted legal protection.

This, according to this court, meant that Integrated lacked a legitimate business interest that a temporary injunction would be necessary to protect.  Additionally, Integrated failed to present evidence that Bidz had actually “solicited” Mr. Greenebaum and purposefully induced him to terminate his employment with Integrated.  The court used these two factors to hold that that Integrated would most likely not succeed on the merits of its case.

Conclusions

The facts of the case also led the court to conclude that Integrated would not experience imminent and irreparable harm if it failed to issue an injunction.  The court held that this was requisite for granting a temporary injunction and commented “Connecticut law supports a distinctly moderated level of proof required to establish the elements of irreparable harm”.  Even though Connecticut courts require only a “moderated level of proof”, the moving party must demonstrate some degree of imminent, irreparable harm.  The only loss that Integrated could demonstrate was that two employees terminated their employment and started their own company.  They were both at-will employees however and could have done so at any point in time, regardless of Bidz’s action.

In conclusion, the court held that Integrated failed to meet the requirements that would warrant a temporary injunction against Bidz to prevent it from transacting with Mr. Greenebaum and his company Addo.

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.

Breach of Non-Compete in Connecticut Insurance Firm

Breach of Non-Compete in Connecticut Insurance Firm
CUNA Mutual Life Insurance Co. v. Butler, 2007 Conn. Super. LEXIS 1623

Mr. Matthew Butler worked for CUNA Mutual Life Insurance Co. for approximately five years (August 2002 to March 2007) as an Executive Benefits Specialist servicing accounts in Maine, Vermont, Connecticut, Rhode Island, New Hampshire, Massachusetts, and part of New York. CUNA sold insurance-related products to credit unions and Mr. Butler was responsible for marketing and constructing deferred executive compensation programs that involved life insurances, mutual funds, and annuities. CUNA had Mr. Butler agree to and sign a non-compete agreement when it hired him and stipulated that he be prohibited from soliciting or providing services to CUNA clients for a period of two years following his termination from the company. Mr. Butler also agreed to return “all company books, rate books, records, applications, materials, conditional receipts, [and] customer or client lists”.
On March 22, 2007, while still employed by CUNA, Mr. Butler created Elite Capital Management Group to do business as an affiliate of Cambridge Research Investment, with the intent to continue to market and sell insurance-related products. On March 28, 2008, he sent an e-mail to seventy-five of his CUNA clients lauding the prestige, expertise, and quality of the newly formed Elite Capital. He tendered his resignation from CUNA and immediately began to provide the same services at his new firm. He told the court that several clients had contacted him for work because of his March 28 e-mail describing Elite Capital. CUNA sued Mr. Butler in Connecticut state court requesting enforcement of the non-compete agreement.
The court granted CUNA’s request to enforce the restrictive covenant and enjoined Mr. Butler from further soliciting and providing services to CUNA’s current or past clients. This was a proper decision in order to provide the necessary protection for CUNA with regard to its investment in developing good will and positive customer relationships via its employment and occupational enrichment of Mr. Butler. There was clearly a breach of the restrictive covenant in Mr. Butler’s active solicitation of CUNA’s clients during and immediately following his employment at the company. Furthermore, the court held that the restrictions were reasonable in the sense that they “protected CUNA Mutual’s substantial investment in building good will with its clients while permitting Mr. Butler to market to a very large potential group of customers”. The restrictions had a very limited scope (credit unions in the northeast that were customers of CUNA) and did not excessively restrict Mr. Butler’s ability to earn a living. There was no evidence that the agreement would create unreasonable hardships for Mr. Butler since he was still able to market his skills and products to state and federal banks, corporations, non-profits, and other business that were not in the narrow definition of prohibited parties.

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Constructive Discharge Does Not Invalidate Connecticut Non-Compete Agreements

Constructive Discharge Does Not Invalidate Connecticut Non-Compete Agreements
Drummond American LLC v. Share Corporation, 2009 U.S. Dist. LEXIS 105965

Ms. Martha Mahoney worked for Drummond American LLC, a company that sold commercial grade chemicals and hardware to governmental and industrial customers, as its Connecticut Sales Agent until August 2008. She was in charge of facilitating contact between the company and its customers. Drummond had her sign a covenant not to compete as a condition of her employment with the company. The non-compete agreement prohibited Ms. Mahoney from soliciting orders from or selling competitive products to any customers she solicited or sold to on Drummond’s behalf in the twelve months prior to termination. The agreement detailed that the restrictions applied for two years following Ms. Mahoney’s termination. Ms. Mahoney began to work for Share Corporation in August 2008. The company was a direct competitor with Drummond and had Ms. Mahoney sign an agreement stating that she would honor her non-compete with Drummond during her employment with Share. She contacted her previous Drummond customers however and sold Share’s products to twelve such customers.
Drummond sued Ms. Mahoney for breach of the restrictive covenant and asked the court to enforce the non-compete clauses. Ms. Mahoney did not deny that she breached the non-compete agreement but argued that she should not be held liable for her breach because the agreement was invalid. Her main contentions were that the agreement was unenforceable under the five-prong test as stated by the Connecticut Supreme Court in Scott v. Gen. Iron & Welding Co., 171 Conn. 132 (1976), and that her constructive discharge invalidated the agreement. The court ultimately rejected these defenses, found in favor of Drummond, and ordered the non-compete agreement enforced.
In Scott, the court held that a non-compete agreement’s reasonableness is evaluated based on five factors: 1) duration of the restrictions, 2) geographic area of the restrictions, 3) degree of protection afforded to the employer, 4) restrictions on employee’s ability to pursue a career, and 5) any interference with the public’s interests. Here, the court held that the agreement between Drummond and Ms. Mahoney did not violate any of these factors. An employer possesses a proprietary right to its customers and is entitled to protect this right for a reasonable period. The court held that a two-year period was reasonable and enforceable. Furthermore, the court found that the provisions of the agreement were not overly broad and did not unnecessarily restrict her ability to earn a living. The covenant only prevents her from soliciting and transacting with twenty-six customers, meaning that there were still thousands of potential clients not excluded under the agreement’s provisions.
The court likewise rejected Ms. Mahoney’s argument that Drummond constructively discharged her and this action invalidated the non-compete agreement. A constructive discharge is when the employer creates an intolerable work atmosphere that forces the employee to quit involuntarily instead of the employer directly terminating the individual’s employment. The court held that the nature of an employee’s termination is irrelevant in this respect and does not affect the validity of the agreement and its legally binding nature upon the parties.
All of Ms. Mahoney’s defenses failed under the court’s scrutiny and analysis of the case, rending her liable for her breach of the non-compete agreement.
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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