Enforcement of a Non-Compete
by
Joseph C. Maya on Feb. 19, 2024
Summary: The trip-wire for the enforcement of a restrictive covenant is a breach by a former employee of contractual provisions contained in the agreement. An employer is entitled to relief if a former employee is engaging, or threatening to engage, in activities expressly prohibited by a non-compete agreement, that would cause harm to the employer. A former employee’s violation of a non-compete agreement constitutes a breach and “dictate[s] that the plaintiff is entitled to enforce the agreement.” An employer may also be entitled to relief where the former employee has not yet breached the agreement but is threatening to do so. Under these circumstances, the former employer may be entitled to injunctive relief from the court restraining any breach irrespective of the potential damage.
Injunctive Relief
For an employer to obtain an injunction against a former employee seeking the enforcement of the non-compete agreement, it must demonstrate both breach and incurred or imminent irreparable harm. Breach alone is insufficient to warrant the issuance of an injunction and the courts have held that “a party seeking a temporary injunction must first establish irreparable harm.”
The Supreme Court of the United States has rarely commented on the subject of non-competes but in Doran v. Salem Inn, Inc., the court reiterated the traditional standard for granting injunctive relief, stating that it “requires the plaintiff to show that in the absence of its issuance he will suffer irreparable injury and also that he is likely to prevail on the merits.” Thus, a successful plaintiff must show that it has incurred or is likely to incur irreparable harm from the actual or proposed activities of a former employee constituting a contractual breach.
When determining whether a party has violated the terms of a non-compete agreement courts are sometimes faced with very peculiar circumstances that necessitate further legal analysis. Such situations include those where a party’s actions hover between the permissible and impermissible, questions regarding the similarities between old and new employment, and the permissibility of working for a former client upon termination from the plaintiff employer.
Questions of Degree
Two typical situations that require the court to determine what constitutes prohibited conduct and therefore a breach of a non-compete agreement are (a) defining the parameters of “competing business activity” and (b) discerning the permissible engagement within the restricted geographical area. Some defendants assert the defense that they were merely “marketing” and that this does not amount to a “competing business activity” that would violate a restrictive covenant.
Marketing is in fact a “competing business activity” in violation of non-compete agreements and marketing includes not only the actual sale of products or services, but also any efforts to promote and effectuate a sale of those products or services. Furthermore, the courts have stated that activities that are not competitive on their face may in fact be competitive and therefore constitute a breach of a non-compete agreement if they produce a competing activity.
A second issue is addressing a party’s actions when he engages in activities within the prohibited geographic area, even though the new employer’s place of business does not, itself, violate the terms of the agreement. Courts have consistently held that this situation involves competing business activities and breach of the restrictive covenant.
The specific location of new employment may not violate a non-compete agreement but conducting business operations and acting in furtherance of the new employment within the prohibited area does constitute a breach. Contracts that restrict employment activities focus on competing activities of former employees rather than the particular location of the employee’s new office.
Employment Similarities
Whether, or to what extent, prior and current employment is similar may also impact a court’s determination of whether a breach occurred. Employment, even with a direct competitor, will not create a breach of a non-compete agreement if the details of the case demonstrate starkly contrasting differences between the old and new positions.
A plaintiff employer has the burden of proving that it is likely to succeed on the merits of the case and that the former employee will render “similar services” to the new employer and thereby facilitate unfair economic activities. In order to receive injunctive relief from the court, the plaintiff must submit evidence demonstrating the occupational similarities and how the new employment has or is likely to result in a breach of a non-compete agreement.
Former Clients
A further bone of contention is whether covenants not to compete prohibit an employee from working for a former client that had a relationship with his or her prior employer. Courts have rejected the theory that the prohibition on competing business activities extends to former clients and have concluded that employers are not thereby entitled to enforcement of a non-compete agreement.
Injunctive relief for breach of a non-compete agreement is designed to prevent a former employee from working for a competing company rather than a former client. Connecticut courts will deny injunctive relief when “such relief appears to be more logically directed to an employee engaged in a competing business than to an employee accepting employment not with a competing business, but a former client.” The general rule in Connecticut is that working for a former client, unless specifically prohibited in the non-compete agreement, does not create a breach of the contract.
The Parol Evidence Rule
A final principle of contract law that applies to the enforcement of covenants not to compete is the application of the Parol Evidence Rule, a rule that may prohibit the use of evidence outside the four corners of the non-compete contract concerning matters included within the finalized document. The Parol Evidence Rule essentially prohibits the use of evidence not contained in a finalized agreement that vary or contradict the terms of the contract.
When litigating a case regarding the enforcement of a non-compete agreement, in most cases, parties may not present collateral evidence (written articles, oral representations, etc.) that contradict the finalized written restrictive covenant. A finalized restrictive covenant document will cause most courts to refuse admission of conflicting evidence and to admit some supplemental evidence only to clarify ambiguous provisions of the contract. The courts will consider a contract as the “final agreement” when “there is no evidence to contradict a finding that the parties intended the writing to be the final expression of the parties.”
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