U.S. - Connecticut
News:
- 2018.12.17 No Enforcement of Non-compete; No damages for breach (CT law). It is generally smart for executives to narrow the scope of non-competes and non-solicits not only to the scope of their work but also to those with whom they have interacted. That tipped the scales away from a former employer in Henkel v. Bell(ED Mich), which sets forth some instructive non-compete language. For a copy of the decision, send an email to Mark.
Non-Competition Rule (1976 Case):
- "In order to be valid and binding, a covenant which restricts the activities of an employee following the termination of his employment must be partial and restricted in its operation 'in respect either to time or place, . . . and must be reasonable – that is, it should afford only a fair protection to the interest of the party in whose favor it is made and must not be so large in its operation as to interfere with the interests of the public....' The interests of the employee himself must also be protected, and a restrictive covenant is unenforceable if by its terms the employee is precluded from pursuing his occupation and thus prevented from supporting himself and his family." Scott v. General Iron & Welding Co., 171 Conn. 132, 137 (1976) (citations omitted).
Non-competition Rule (2010 Case): 5 factor test and background set forth in Xplore Technologies v. Killion (Ct Sup. Ct. 10/8/2010), and enforced in specialty IT area for one year period despite no geographical limitation, per following analysis:
- A covenant not to compete is valid and enforceable if the “restraint is reasonable.” New Haven Tobacco Co. v. Perrelli, 18 Conn.App. 531, 533, 559 A.2d 715, cert. denied, 212 Conn. 809, 564 A.2d 1071 (1989). “The five factors to be considered in evaluating the reasonableness of a restrictive covenant ancillary to an employment agreement are: ?1) the length of time the restriction operates; ?2) the geographical area covered; ?3) the fairness of the protection accorded to the employer; 4) the extent of the restraint on the employee's opportunity to pursue his occupation; ?and 5) the extent of interference with the public's interest.” Robert S. Weiss & Associates, Inc. v. Wiederlight, 208 Conn. 525, n.2, 546 A.2d 216 (1988). “The five prong test is disjunctive, rather than conjunctive; ?a finding of unreasonableness in any one of the criteria is enough to render the covenant unenforceable.” New Haven Tobacco Co. v. Perrelli, supra., 534. The defendant has argued that the plaintiff cannot satisfy these criteria for a variety of reasons that this court does not accept. The first element refers to the time of the restriction. In the instant action, the agreement precludes the non competition for a period of one year. The court finds that, given the length of employment and the specific involvement with the attempt to market this new product before other companies are able to sell similar products, a one-year restriction is a reasonable period of time.
- The second argument is that the geographical requirement is non-existent. However, the defendant is looking at this requirement in a very narrow form. The second element regarding the geographical area in the context of this case is actually the territory that would encompass only the rugged computer marketed by three competing companies. In the world of internet and technical advancements in the sales context a set number of miles from an office is useless. Unlike a dentist or doctor who operate a office within a certain geographical area where he or she competes for patients, the sale of computers can be done in a different manner. Mr. Killion himself testified that his work was not performed at a set location and even though the offices were in New York he was able to work from his home or the area in Connecticut. It goes without saying that in the world of marketing a new computer product, the world is at your fingertips. The plaintiff very clearly demonstrated and admitted during the testimony of Mr. Sassower that the “directly affecting” language in the covenant refers to approximately three different companies, Dell, DRS, and Panasonic that are marketing a rugged computer tablet. Therefore, the geographical area or in this instance the territory of the rugged computer is restricted only as to the three direct competitors attempting to gain the business from the same client base. In Robert J. Reby & Co., Inc v. Byrne, Superior Court, judicial district of Danbury, Docket No. CV 054004259 (July 13, 2006, Schuman, J.) [41 Conn. L. Rptr. 649], the court upheld a restrictive covenant that prohibited an employee from soliciting potential customers that were identified to him through leads developed in the course of his employment. In the instant matter, the defendant not only had leads with AT & T for the same sale but had many meetings, discussions and attempts to garner the business for Xplore. There is no question in any one's mind that the potential customers for this one product are limited to companies such as AT & T as well as the military. The geography is covered by the operations of the companies. In other words, the defendant could seek employment with any other computer based company for a position that is not competing for the same customer for the same product. Considering the rapid growth of the computer, notebook and tablet industry this restriction is reasonable. In other words, as the plaintiff argues, Mr. Killion could work in a number of other companies and/or for a distinctly different product that would not have the impact upon the plaintiff that was intended to be prevented by the non-compete provision. The geographical area is based upon the market area and therefore the fact that no specific miles are incorporated or calculated is not a basis to determine that the geographical area element is not satisfied. The area is the clearly defined by the product and potential customers. In New Haven Tobacco Co. v. Perrelli, supra, 18 Conn.App. 537, the court determined that a covenant that applied only to former and present customers was automatically limited in geography in that it applied to the area in which customers were located. Here, customers are very limited as noted above but even more so the competitors are limited. In following this rationale the product and client base have limited the area for purposes of competition. Therefore, the court cannot agree with the defendants' claim that without a specific area noted the covenant is presumed invalid. The contract provision is limited to the product, client base and even competitors by the very nature of Xplore's business.
- The protection that is afforded through the non compete provision to the plaintiff is a reasonable and fair restriction given the uniqueness of the product and the industry. It appears reasonable that when you are working with and introducing a product that is new to the market, there will be a need to protect the new technology. The business of Xplore is dependent upon this one new product that according to Mr. Sassower will introduce them to the market and stabilize their company.
Remedies
2012.Sept.09 Asset Purchase and Restrictive Covenants (NY and CT Law, from Assignability to Torts). In Milso Industries v. Nazzaro, a Connecticut District Court recently applied Connecticut law to a dispute involving (1) an asset purchase that involved the seller's assignment of employment agreements that did not expressly allow for that, (2) the buyer's hiring of seller's key employees pursuant to offer letters that they did not sign, and (3) trade secret and non-compete torts arising when the key employees broke away to form a competing company. In the latter respect, the court addressed Connecticut law involving the following claims (among others):
- customer lists and business plans as trade secrets (subject to protection under a 3-prong test);
- breach of fiduciary duties, including loyalty, while employed and planning to compete, and after resigning;
- aiding and abetting a fiduciary breach (also involving a 3-prong test);
- unjust enrichment through breaches of restrictive covenants;
- tortious interference with contractual relations (involving a 5-prong test); and
- unfair competition in violation of Connecticut's trade secret protection law.