Posts tagged with "unenforceable"

Technology Company’s Non-Compete Found Enforceable on Grounds of Protecting Employer’s Interest and Commercial Operations

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Xplore Techs. Corp. v. Killion, 2010 Conn. Super. LEXIS 2401

Xplore Technologies Corporation was a company engaged in the engineering, developing, and marketing of rugged computer tablets.  Mr. Timothy Killion worked as a Senior Sales Representative with the company from December 8, 2003, to June 2010.  As part of his employment contract with Xplore, Mr. Killion signed a non-compete and non-disclosure agreement that stated, “By accepting this offer, you agree not to exercise or participate in any activity directly or indirectly competing with that of Xplore Technologies, Corp.” for a period of one year.

In June 2010, Mr. Killion announced that he would be leaving Xplore to work for another company, later identified as DRS Technologies, Inc., a direct competitor.  In the years leading up to Mr. Killion’s resignation he was intimately involved in the development of a new product and a deal with AT&T valued at $20-23 million.  Xplore commenced a suit seeking an injunction to prevent DRS’s further employment of Mr. Killion and prevent the disclosure/utilization of any classified information regarding Xplore’s business operations.  Mr. Killion claimed that the non-compete agreement was unenforceable because it was too broad in scope.

The Court’s Decision

The Superior Court held in favor of Xplore Technologies, finding the non-compete to be valid and issued an injunction prohibiting DRS from employing Mr. Killion until a year after his resignation from Xplore.  The court found that the strongest factor that made the agreement enforceable was the employer’s interest to protect its commercial operations.  Non-compete agreements protect employers in the specific area in which they do business by restricting the disclosure of trade secrets, technical marketing, and financial information.  The court held that the non-compete agreement was a reasonable and binding way for Xplore to protect itself given the uniqueness of the industry, its products, and business activities.

The court struck down Mr. Killion’s assertion that the agreement was too broad with regard to time and space.  It held that the one-year period was appropriate and reasonable provided the length of Mr. Killion’s employment with Xplore and the nature of the company.  The lack of geographical limitations does not invalidate the agreement in this case.  The nature of Xplore’s business is heavily internet-based and its employees’ work is not confined to a specific office within a specific geographical area.  Instead, the geographical limitations become Xplore’s three direct competitors that conduct business in the same manner and that are involved in the development of similar products.

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

Technology Company’s Non-Compete Found Enforceable on Grounds of Protecting Employer’s Interest and Commercial Operations

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Xplore Techs. Corp. v. Killion, 2010 Conn. Super. LEXIS 2401

Xplore Technologies Corporation was a company engaged in the engineering, developing, and marketing of rugged computer tablets.  Mr. Timothy Killion worked as a Senior Sales Representative with the company from December 8, 2003, to June 2010.  As part of his employment contract with Xplore, Mr. Killion signed a non-compete and non-disclosure agreement that stated, “By accepting this offer, you agree not to exercise or participate in any activity directly or indirectly competing with that of Xplore Technologies, Corp.” for a period of one year.

In June 2010, Mr. Killion announced that he would be leaving Xplore to work for another company, later identified as DRS Technologies, Inc., a direct competitor.  In the years leading up to Mr. Killion’s resignation he was intimately involved in the development of a new product and a deal with AT&T valued at $20-23 million.  Xplore commenced a suit seeking an injunction to prevent DRS’s further employment of Mr. Killion and prevent the disclosure/utilization of any classified information regarding Xplore’s business operations.  Mr. Killion claimed that the non-compete agreement was unenforceable because it was too broad in scope.

The Court’s Decision

The Superior Court held in favor of Xplore Technologies, finding the non-compete to be valid and issued an injunction prohibiting DRS from employing Mr. Killion until a year after his resignation from Xplore.  The court found that the strongest factor that made the agreement enforceable was the employer’s interest to protect its commercial operations.  Non-compete agreements protect employers in the specific area in which they do business by restricting the disclosure of trade secrets, technical marketing, and financial information.  The court held that the non-compete agreement was a reasonable and binding way for Xplore to protect itself given the uniqueness of the industry, its products, and business activities.

The court struck down Mr. Killion’s assertion that the agreement was too broad with regard to time and space.  It held that the one-year period was appropriate and reasonable provided the length of Mr. Killion’s employment with Xplore and the nature of the company.  The lack of geographical limitations does not invalidate the agreement in this case.  The nature of Xplore’s business is heavily internet-based and its employees’ work is not confined to a specific office within a specific geographical area.  Instead, the geographical limitations become Xplore’s three direct competitors that conduct business in the same manner and that are involved in the development of similar products.

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

Court Invalidates Non-Compete Agreement for Unreasonable Restrictions

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Trans-Clean Corp. v. Terrell, 1998 Conn. Super. LEXIS 717

Trans-Clean Corp. was a company engaged in the business of restoring exteriors and interiors of commercial buildings.  The company began to employ Mr. Alton Terrell as a salesman and manager in December 1990 in connection with the company’s acquisition of Travel Washer, Inc..  The parties executed an employment agreement that created a one-year term of employment, specified the compensation schedule, and contained a non-competition covenant.  The non-compete agreement stated that Mr. Terrell was prohibited for two years following the completion of his employment contract or any renewal thereof from competing with Trans-Clean within sixty miles of the company’s main office in Stratford, CT.

The parties negotiated a pay increase in 1993 and a new compensation schedule was created.  Trans-Clean considered this a renewal of the original employment contract and held the belief that the non-compete agreement was still valid and in effect.  Mr. Terrell however did not share the same view and did not treat the pay increase and new compensation schedule as a renewal of the original contract.  While the parties had different interpretations of the pay increase, there were no direct discussions to clarify its characteristics.

The Dispute

Mr. Terrell suddenly resigned from Trans-Clean in September 1997 and proceeded to create his own commercial restoration company and solicited business from individuals/businesses on Trans-Clean’s customer list.  Trans-Clean sued Mr. Terrell and asked the court to issue an injunction to enforce the non-compete agreement and prevent any further violations.  The court had to tackle two central issues to decide the dispute: 1) whether customer lists are protected trade secrets and 2) the nature and reasonableness of the employment contract and non-compete agreement.  It held that the lists were not trade secrets that entitled Trans-Clean to an injunction and further concluded that the non-compete agreement was unreasonable and unenforceable.

The court held that the customer lists were not trade secrets or confidential information that required protection.  There was never a company policy to designate the lists as confidential information or maintain a degree of secrecy of customers or contact persons.  Furthermore, each salesperson maintained his or her own personal contact lists and did not have any direct access to other sales representatives’ lists.  Each salesperson had the responsibility of developing his or her list, maintaining business relationships, and collecting accounts.  These lists did not amount to a business interest for which Trans-Clean was entitled to protection and injunctive relief.

Reasonableness of the Covenant

Next, the court assessed the reasonableness of the covenant not to compete and found that its provisions, specifically the geographical restriction, were unreasonable and unenforceable.  The sixty-mile radius restriction covered 75% of Connecticut, including the state’s six major metropolitan areas (Bridgeport, New Haven, Hartford, Waterbury, Stamford, and Danbury), and extended into parts of New York (including four out the five boroughs) and New Jersey.  The restriction, according to the court, was overreaching and unnecessarily infringed on Mr. Terrell’s ability to purse his occupation and obtain future employment.  He had twenty years of experience in the commercial restoration industry and it was the only field in which he had ever worked.

Renewal of the Original Agreement

Lastly, the court analyzed whether the pay increase and modification of the compensation schedule amounted to a renewal of the original agreement.  The court stated there was a “question of fact” that it needed to answer in order to decide the case.  It noted that the writing drawn up by the company regarding the pay increase did not make any reference to the original employment contract and there was no apparent connection between the two writings.

In the absence of any reference or connection, the court concluded that the pay increase was not a renewal or extension of the original employment contract.  The court noted however that Mr. Terrell “should be bound by the non-compete agreement if that agreement is found to be reasonable”.  The court’s earlier analysis revealed that the covenant was in fact unreasonable, thereby overriding Mr. Terrell’s obligation to abide by its provisions.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Court Invalidates Non-Compete Agreement for Excessive Restraint of Trade

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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 “non-competition-non-disclosure 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.

The Dispute 

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.

The Defense’s Argument

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.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

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

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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 practiced 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.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Enforcing a Non-Compete Agreement in a Medical Partnership

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

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 toward 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.

Violating the Restrictive Covenant

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.

Improper Termination Argument

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.

Unreasonable Provisions Argument

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.

Enforcing the Non-Compete Agreement

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.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Enforcement of a Non-Compete Agreement in the Salon Industry

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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.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Industry Specific Factors Can Render Unenforceable a Covenant Not to Compete

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Case Background

A non-compete covenant may be unenforceable even if it is reasonable in terms of geographic designation and time limitation.  In Creative Dimensions, Inc. v. Laberge, 2012 Conn. Super. LEXIS 1464 (Conn. Super. May 31, 2012), two individuals sold their business and became “at will” employees of the purchaser.  At issue was a nationwide agreement not to compete for a period of 18 months following termination of their employment.  The court found the covenant reasonable in time and space but unenforceable nevertheless because of certain other factors, including attributes of the underlying industry.

The employer offered goods and services in the area of trade show signs, services, and exhibits.  The former employees joined a sign company that, as a result, expanded into the portable and custom exhibits market.  In deciding the case, the Court focused on two of the five factors relevant to determining the enforceability of a restrictive covenant: the extent to which it (a) protects legitimate business interests, and (b) unreasonably restricts an individual’s ability to engage in an occupation or profession.

Protections of the Non-Compete Covenant

Significantly, the defendants were the only employees of the plaintiff subject to a covenant not to compete.  The employer argued that it had invested time, energy, and money in the defendants as at will employees.  To this contention, the Court responded: “. . . an employer’s desire to stop competition from an employee in whom the employer has invested time, energy, and money is not sufficient, alone, to support the validity of a Covenant not to Compete or not to Solicit. Equitably, the Covenant must protect against something more, and must be bargained for in exchange for more.”

Stated differently, a covenant not to compete must seek to protect against something more than mere competition, i.e., some advantage the employee acquired that would render unfair his immediate competition.

In this case, there was no evidence that the employer had trade secrets or confidential data that defendants accessed prior to their departure. By the same token, the employer’s customers were either already public knowledge or readily accessible through its own website.  The relationship between the employer and its customers was not markedly different from those of other portable display businesses.  In fact, the employer’s customers often used the services of the employer’s competitors, and the employer on occasion even outsourced business to its competitors. Significantly, the employer did not require other employees to sign a covenant not to compete even though employees had been lost to competitors in the past.

The Court’s Decision

As a result, the Court concluded that the employer did not truly believe that such covenants were necessary to protect itself within the portable display market.

The Court also found that the covenant seriously impeded defendants’ ability to pursue their chosen careers.  “The test for reasonableness is not whether the defendants would be able to make a living in other ways, or in other occupations, but whether or not the [covenant] as drafted and applied would unfairly restrain their “opportunity” to pursue their occupation.”

Finally, the Court emphasized that the portable display market “does not involve a fixed and unchanging clientele.”  The market is highly competitive, customer loyalty is fleeting, and sales staff are fairly transient.  In sum, while the defendants may have learned aspects of the trade show business while in the plaintiff’s employ, they were not provided with specialized or protected knowledge not readily available to others in the field.  Consequently, by virtue of their employ, defendants were not possessed of an unfair advantage in the market.

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The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Role of Consideration in a Connecticut Non-Compete Agreement

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J. M. Layton & Co. v. Millar, 2004 Conn. Super LEXIS 2226
Case Background

Mr. Reid Millar worked at J. M. Layton & Co., a Connecticut commercial insurance brokerage firm, for close to twenty years until he voluntarily terminated his employment on December 3, 2003.  During his career at Layton, Mr. Millar developed and maintained client relationships and the company even sent him to seminars in Florida on how to engender customer loyalty.  In January 1994, the company’s ownership transferred to an ‘Employee Stock Option Plan” scheme wherein Mr. Millar and the other employees became the new owners of the brokerage firm.  Mr. Millar signed an employment agreement later that year in August.

Mr. Millar signed this agreement in response to a memo from the company’s president stating, “The value of the stock in the company would increase when all employees/shareholders signed employment agreements”. The employment agreement contained non-compete and non-solicitation clauses prohibiting Mr. Millar from performing any service provided by Layton for a period of two years to any entity or person that was a client of Layton in the two years prior to termination.

Four years later, in 1998, the employee-owners sold the firm to SIG Acquisition Co. for $5.59 million.  Mr. Millar terminated his employment on December 3, 2003 and began to work for a competitor, Shoff Darby, soon after this decision.  Several clients made the switch with Mr. Millar and he provided them with services they previously received from Layton.  Layton sued Mr. Millar to enforce the terms of the restrictive covenant to which Mr. Millar presented a defense that there was not adequate consideration for the agreement to be enforceable.

The Court’s Decision

The court found in favor of Mr. Millar and held that the agreement between Layton and himself lacked the adequate consideration required to make the covenant legally binding on the signatory parties.  The court rejected Layton’s contentions that continued employment and increased value of stock in the firm were adequate forms of consideration for the agreement.

Consideration is a crucial contract law principle wherein each party must receive a benefit and/or a detriment from the agreement to make it legally valid and enforceable.  In the absence of consideration, an executory promise is generally unenforceable.  Courts have determined that continued employment alone is not adequate consideration for a restrictive covenant.  Past decisions have permitted it to qualify as adequate consideration when it accompanied by another defined benefit such as a change in compensation.

Likewise, the court held that the “increase in stock value” argument was without merit and did not constitute adequate consideration.  There was a timeline disconnect with the issuance of the stock, the employment agreement, and any increase in value that prevented adequate consideration in this form.  Mr. Millar received the stock seven months prior to signing the employment agreement and the increase in its value (if any) occurred four years after the agreement’s execution.

These components lacked a coherent connection that would unite them in a manner as to represent the adequate consideration needed to make the agreement enforceable.  The court concluded that the possible increase in stock value was far too “imprecise, indefinite, and self-serving, to be adequate consideration” and it denied Layton’s request for enforcement of the non-compete agreement.

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

Excessive Geographical Restriction Invalidates Connecticut Non-Compete Between Dance Studio and Instructor

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RKR Dance Studios, Inc. v. Makowski, 2008 Conn. Super. LEXIS 2295
Case Background

This case involved the legal analysis used to determine if a non-compete agreement between a dance studio and one of its instructors is enforceable in the State of Connecticut.  Jessica Makowski worked as an at-will instructor for RKR Dance Studios from November 29, 2001, to September 28, 2007, at one of its franchised dance studios.  Maximize Your Impact, LLC became the franchisor for RKR in January 2004 and thus became the employer of Ms. Makowski.

She signed a non-compete agreement with Maximize on May 5, 2006, that contained provisions specifying a two-year duration and geographical limitation of a fifteen-mile radius from Maximize’s dance studio and a ten mile radius from any Fred Astaire Dance Studio, whether they be corporate-owned, franchised, or otherwise established.  Ms. Makowski voluntarily left Maximize on September 28, 2007 and shortly thereafter began employment with Steps in Time, a dance studio located within ten miles of another Fred Astaire Dance Studio.  Maximize sued Ms. Makowski to enforce the provisions of the non-compete agreement.

Ms. Makowski contended that she did not violate the agreement because there was inadequate consideration and unreasonable limitations, characteristics that would make the non-compete agreement unenforceable.  The court, while finding that there was adequate consideration, ultimately found in favor of Ms. Makowski, held the non-compete covenant to be unreasonable, and denied Maximize’s request for the court to enforce the agreement.

Considering Continued Employment 

The major issue with regard to consideration in this case revolved around the question “is continued employment adequate consideration for a non-compete agreement?”.  The court cited previous cases, both state (Roessler v. Burwell (119 Conn. 289)) and federal (MacDermid, Inc. v. Selle (535 F. Supp.2d 308)), where the courts concluded that continued employment was adequate consideration for at-will employees for restrictive covenants with their employers.

The court highlights the exchange between the parties, such that the employee receives wages and the employer receives his or her services and the protection created by the non-compete agreement.  The payment and receipt of wages was adequate consideration to legitimize a non-compete agreement and render vague terms sufficient for enforcement.  The court did discuss several dissenting cases but noted that the facts of those cases were critically different from the legal dispute between Ms. Makowski and Maximize.

The court emphasized that the pivotal fact with regard to continued employment as adequate consideration is whether it involves at-will employment.  If there is at-will employment, as was the case with Ms. Makowski, then continued employment is sufficient consideration to render the non-compete agreement enforceable.

Unreasonable Restrictions

The agreement was ultimately found to be unenforceable however due to containing unreasonable restrictions.  The court highlighted the public policy of non-compete agreement enforcement and the balance that must be struck between: 1) the employer’s need to protect legitimate business interests, 2) the employee’s need to earn a living, and 3) the public’s need to secure the employee’s presence in the labor pool.  Fair protection must be afforded to employer and employee alike, a principle that is absent in the agreement between Ms. Makowski and Maximize.

The court specifically stated that the geographical limitation was extremely unreasonable and placed a great hardship on Ms. Makowski’s efforts to earn a living and pursue her career.  Evidence pertaining to job prospects in Massachusetts, Rhode Island, Connecticut, and New York revealed that the closest permissible studio to employ Ms. Makowski was located in Natick, MA, a staggering one and a half hour drive from her house.  The court felt that a three hour daily, roundtrip commute was an excessive burden for Ms. Makowski to bear and concluded that this provision was indeed unreasonable and invalidated the agreement as a whole.

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