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Surprise! Part of Your Non-Solicitation Agreement Is Unenforceable

Posted January 24, 2016
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You want a non-competition or non-solicitation agreement your company can enforce, right?  Stupid question, you say.  Well, companies need to analyze the language in their contracts if that's their goal (some agreements I've seen make me doubt what the company's goal was, as if simply having something signed protected them.)

Trade secret litigation is always intellectually interesting for us, but expensive for clients to pursue or defend.  Avoiding litigation and protecting your trade secrets starts with a good written agreement with restrictive covenants (promises to not do certain things).  A recent trial court decision reminds us of this important point. The decision also has an interesting discussion about our uniform trade secrets act - most states have this law - and whether it preempts other types of claims. But that's for another day.

Judge Moukawsher, a relatively new judge, penned the opinion in National Waste Associates, LLC v Scharf et al.  Typical fact pattern: employee with a written non-competition and non-solicitation agreement leaves for a competing company, and the former employer sues to enforce the agreement.  What's also typical is the employer asserted claims under Connecticut's Uniform Trade Secrets Act, Unfair Trade Practices Act and for unjust enrichment.  I plan to chat about that part of the opinion next time.

National Waste had this employee sign two agreements, one in 2004 and pretty much the same one again in 2010.  The lesson there:  you should provide additional consideration to an employee who has been working for you for more than a few weeks when you ask them to sign a non-competition agreement or non-solicitation agreement. National Waste gave the employee nothing to sign the 2004 agreement (which was unenforceable because of that fact), but gave her $50,000 to sign the 2010 agreement. Smart move.

The 2010 agreement, however, forbid the former employee from soliciting people who were "prospective customers" of National Waste.  The fact that the former employee didn't know who these prospective customers might be (presuming she wasn't the one prospecting them while at National Waste) rendered that part of the agreement too broad and thus unenforceable. Not really a surprise, and most lawyers with experience defending these types of cases know to look for broad language like that to use as a defense.

We don't know from the court's decision whether the agreement contained a "blue pencil" provision which would have allowed the Judge to revise that provision to say, for example, "prospective customers that the former employee came to know while at National Waste" or who were "prospective customers that the former employee was soliciting on behalf of National Waste."  Blue penciling allows the court to edit the agreement so it's enforceable, but the agreement must specifically allow the court to modify the language.

Our advice: Don't pull non-competition agreements or non-solicitation agreements off the web and use them, and don't use your buddy's form.  You owe it to your company to do better.  And you are almost guaranteeing problems, and will cost your company more in attorney's fees if you are faced with going to court to enforce the contract.  Have a lawyer draft it for you, or review what you currently use.

About the Author

Business and Employment Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.