U.S. - North Carolina Non-competes
2019.08.15 Invalidation of Non-Solicitation Provision. Quoting from this client alert:
- In Sterling Title Co. v. Martin, the defendant signed a 2007 employment contract that included an agreement not to “solicit or attempt to solicit any customer or partner of the Company with whom I had contact during my employment with the Company to purchase a product or service of the Company.” In 2017, the defendant left to form her own title insurance company. Her former employer sued to seek enforcement of the contract, including the customer non-solicitation provision. The trial court dismissed the suit on the basis that the agreement was unenforceable as a matter of law, and the plaintiff appealed.
- The Court of Appeals agreed with the trial court, affirming its conclusion that the restriction was unreasonably overbroad. While the covenant only lasted one year, its prohibitions applied to any client of the business, no matter how long ago that business relationship ended. Because the defendant had been employed by the plaintiff for almost 11 years, this restriction applied to customers throughout that entire time frame.
2019.06.12 Overview of NC Non-compete Law
2017.09.20 "North Carolina Business Court Addresses Consideration Requirement for Covenant Not to Compete" - This Law360 article begins as follows:
- In American Air Filter Co., Inc. v. Price, No. 16 CvS 13610, 2017 WL 2797794 (N.C. Super. Ct. June 26, 2017), the plaintiff’s former employee signed an employment agreement that renewed automatically each year. The agreement contained a non-compete covenant. The plaintiff alleged that its former employee received consideration for each renewing year in the form of base salary, commissions and bonuses.
- Significantly, however, the complaint did not allege that the former employee’s salary or bonus was increased in conjunction with the alleged annual renewals. Id., 2017 WL 2797794, at *2. Therefore, in deciding the plaintiff’s claim seeking to enforce the employment agreement’s covenant not to complete against the former employee, the Business Court concluded that there was no consideration to support the agreement at the time of the employee’s resignation in 2016 and therefore, it dismissed the claim. Id., 2017 WL 2797794, at *7-8.
2016.07.28 Noncompete Overbroad - No Blue Pencil because No Job Description. The 4th Circuit began its decision in RLM v Tuschen by noting that North Carolina law generally disfavors enforcement of non-competition provisions, and explained as follows in finding the provision at issue overly broad (not due to its one year term but because of its absence of any reference to job function):
- [The] noncompetition agreement was “largely unmoored from RLM's legitimate business interests,” and would limit the former training and development official from working for eScience even if she only sought to “mow their lawns, cater their business lunches, and serve as their realtor.
2016.04.16 North Carolina Supreme Court Re-Affirms Classic View Of "Blue-Pencil Doctrine" - This Brooks Pierce alert begins: "The North Carolina Supreme Court, in a long-awaited decision, reaffirmed the Court's historic view on the "blue-pencil" doctrine in North Carolina as it relates to non-competition agreements." The case is Beverage Systems Of The Carolinas, LLC v. Associated Beverage Repair, LLC, 2016 N.C. Lexis 177 (N.C. Mar. 18, 2016).
2013.Jan.29 Doctor Wins Non-Compete Battle - see Carolina Asthma and Allergy Center, P.A. vs. Maeve O’Connor, M.D., Case No. 13-CVS-328, (General Court of Justice, Mecklenburg County, NC) - discussed in NoncompeteBlog.
2009.Jan.06 Medical Staffing Network v. Ridgway (670 S.E.2d 321, NC Ct of Appeals) summarizes applicable law through the following quotations from the opinion, with the import being that NC courts will enforce non-competes but only if they are narrowly drawn:
- To be enforceable under North Carolina law, a non-competition agreement must be: (1) in writing; (2) part of an employment contract; (3) based on valuable consideration; (4) reasonable as to time and territory; and (5) designed to protect a legitimate business interest. See Farr Assocs. v. Baskin, 138 N.C. App. 276, 279, 530 S.E.2d 878, 881 (2000). The party who seeks enforcement of the covenant has the burden of proving the reasonableness of the agreement. Hartman v. Odell and Assoc., Inc., 117 N.C. App. 307, 311, 450 S.E.2d 912, 916 (1994), disc. review denied, 339 N.C. 612, 454 S.E.2d 251 (1995).
- This Court has held that restrictions barring an employee from working in an identical position for a direct competitor are valid and enforceable.See Precision Walls, Inc. v. Servie, 152 N.C. App. 630, 638-39, 568 S.E.2d 267, 273 (2002) (finding a one-year, two-state restriction against employment with a direct competitor to be reasonable and within a legitimate business interest). However, we have held that restrictive covenants are unenforceable where they prohibit the employee from engaging in future work that is distinct from the duties actually performed by the employee.See, e.g., Paper Co. v. McAllister, 253 N.C. 529, 534-35, 117 S.E.2d 431, 434 (1960) (finding a non-compete covenant overbroad and unenforceable where the employee's employment duties were confined exclusively to the sale and distribution of fine paper products, yet the restrictive covenant contained in his employment agreement sought to prevent him from engaging in the manufacture or distribution of all paper or paper products); see also VisionAIR, Inc. v. James, 167 N.C. App. 504, 508-09, 606 S.E.2d 359, 362-63 (2004) (finding a two-year restriction against employment with “similar businesses” throughout the Southeast to be unreasonable).Likewise, we have held that one franchisee has no legitimate interest in preventing an employee from competing with franchisees in other cities or states. Manpower, 42 N.C. App. at 522-23, 257 S.E.2d at 115.
2007 Article General discussion with special attention to engineers - Employee Non-Compete Agreements in North Carolina.
2007 Law Review Article Putting the Blue Pencil Down: An Argument for Specificity in Noncompete Agreements (Neb. Law Review, 1/1/2007) -- see text opposite footnote 74 to the effect that under N.C. law "equity will neither enforce nor reform an overreaching and unreasonable covenant."
Non-solicitation
2009.Jan.06 Medical Staffing Network v. Ridgway (NC Ct of Appeals) applies the foregoing to invalidate a non-solicitation provision, based on the following quotations from the opinion:
- ... as drafted, the non-solicitation clause contained in Section 9(b) of the 2000 Agreement prevents Ridgway not only from engaging in business with current or former clients of MSN with whom he developed a relationship, but also prohibits him from soliciting the business of any “MSN client,” which as defined by the agreement, includes clients of any of MSN's affiliates or divisions outside of the medical staffing business with whom Ridgway would not have had contact. See Electrical South, Inc. v. Lewis, 96 N.C. App. 160, 167, 385 S.E.2d 352, 356 (1989), disc. review denied, 326 N.C. 504, 393 S.E.2d 876 (1990) (interpreting the word “or” in its conjunctive sense so as to construe therestriction against the drafter).
- MSN presented no evidence, and the trial court made no findings that MSN had any legitimate business interest in preventing competition with, foreclosing the solicitation of clients and employees of, and protecting the confidential information of an unrestricted and undefined set of MSN's affiliated companies that engage in business distinct from the medical staffing business in which Ridgway had been employed. We conclude that on its face, this bar extends beyond any legitimate interest MSN might have in this case.