Connecticut Court rejects overly broad non-compete agreement blocking employee opportunities after conclusion of employment
Connecticut employees just got a little more freedom.
Employees of a purchased company got hired because their knowledge and skills were crucial for the buying company’s success. A three-year employment contract, which stated that the employees will be subject to an 18-month non-compete agreement if they leave, is signed. Soon after the three-year contract is up, these employees leave for a rival company. Is the non-compete enforceable?
That was the question a Connecticut court faced in a recent lawsuit. The plaintiff, Creative Dimensions, Inc., or CDI, acquired Convergence Exhibits from owners and defendants Adam Laberge and William Miller in 2005. Both companies were in the portable display industry primarily creating signs, vendor sets at trade shows, and custom exhibits. The two defendants signed a Restrictive Covenant which essentially said for that 18 months after termination, the defendants will not engage in competition with CDI at any competing business. In 2009 however, the defendants left CDI for another business in the same industry. The presiding judge, Judge Angela Robinson, struck down the Restrictive Covenant.
Five key factors are to be considered by a court in deciding whether or not to enforce restrictive covenants: 1) length of time of restriction, 2) geographical location, 3) extent to which the covenant is protecting legitimate business interests, 4) the extent to which the employee’s opportunity to pursue an occupation is restricted and 5) the extent of interference with public interest. A finding of unreasonableness of just one factor could void the agreement.
The first and second factors are usually used in lawsuits regarding a restrictive covenant, which makes Judge Robinson’s decision so atypical. She instead determined that the agreement was not proper due to the third and fourth factor of determining the restrictive covenant’s validity.
A non compete covenant must be reasonable in light of the current business practices of the company. If a company allows competion, then the non compete agreement will be viewed with disfavor. Judge Robinson found that CDI occasionally “outsourced display and design work to other individuals and to other companies, with whom it competes without requiring that they execute any Non-compete,…Agreements …thereby giving them access to designs and plans.” Thus, the company
Further, the judge found that other salespeople joined and left the company without being required to sign any form of non-competes. The fact that principals at CDI did not require other employees or competitors to sign this agreement indicates that they did not believe that restrictive covenants were necessary. In addition, CDI had no specific trade secrets that the defendants took with them to the competitor. CDI’s client information was not secret. It was readily available through CDI’s website and other public venues. Because CDI had no secrets to safeguard, the court found the protections of the non-compete agreement unnecessary and thus, unreasonable. Although they might have learned certain aspects of the business from CDI, Laberge and Miller did not possess any protected knowledge of the company as it was known to multiple competitors.
The court also found that the covenant impeded the employees’ chances of finding another occupation in the same field. “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.” The ban against working in any area the employees were involved in at CDI, along with the restriction against working with a previous CDI client, effectively keeps the defendants out of the portable display industry all together.
So what does this mean for employees? If the non-compete looks like it is a blanket prohibition against working in the same market and your employer’s business is not highly confidential, tell your employer that the agreement may not be enforceable and refer to the facts in this article.
For further information on non-compete agreements and other employment contracts, please visit our Employment Law Page.
Posted December 13, 2014