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InfoPAKSM
Fifty State Survey on Covenants Not to Compete
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Association of Corporate Counsel Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 USA Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701 tel +1 202.293.4103, fax +1 202.293.4701 www.acc.com www.acc.com
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Fifty State Survey on Covenants Not to Compete
Fifty State Survey on Covenants Not to Compete September 2015 Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com
This InfoPAKSM is designed to provide a summary of the law governing covenants not to compete in each state. The InfoPAKSM will aid in the counseling and drafting of covenants and provide guidance regarding commonly-occurring contract issues, including factors courts consider when analyzing a covenant not to compete. This information should not be construed as legal advice or a legal opinion on specific facts, or representative of the views of Greenberg Traurig LLP or of ACC or any of its lawyers, unless so stated. This InfoPAK is not intended as a definitive statement on the subject but rather to serve as a resource providing practical information for the reader. This material was compiled by Greenberg Traurig, LLP, the 2015 Sponsor of the ACC Financial Services Committee. For more information on Greenberg, visit their website at www.gtlaw.com , or see the “About Greenberg Traurig, LLP” section of this InfoPAK. The ACC wishes to thank the members of the Employment and Labor Law Committee for their contributions to the development of this InfoPAK.
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Contents I.
Introduction ...................................................................................................................................... 5
II.
Fifty State Survey ............................................................................................................................. 5 A.
Alabama ...................................................................................................................................................................................... 6
B.
Alaska .......................................................................................................................................................................................... 8
C.
Arizona .....................................................................................................................................................................................10
D.
Arkansas ...................................................................................................................................................................................13
E.
California ..................................................................................................................................................................................16
F.
Colorado ..................................................................................................................................................................................19
G.
Connecticut .............................................................................................................................................................................23
H.
Delaware ..................................................................................................................................................................................27
I.
District of Columbia ..............................................................................................................................................................30
J.
Florida .......................................................................................................................................................................................32
K.
Georgia .....................................................................................................................................................................................42
L.
Hawaii .......................................................................................................................................................................................58
M.
Idaho .........................................................................................................................................................................................61
N.
Illinois ........................................................................................................................................................................................66
O.
Indiana .......................................................................................................................................................................................70
P.
Iowa ...........................................................................................................................................................................................75
Q.
Kansas .......................................................................................................................................................................................78
R.
Kentucky ..................................................................................................................................................................................81
S.
Louisiana ...................................................................................................................................................................................84
T.
Maine .........................................................................................................................................................................................91
U.
Maryland ...................................................................................................................................................................................92
V.
Massachusetts .........................................................................................................................................................................95
W.
Michigan....................................................................................................................................................................................97
X.
Minnesota.............................................................................................................................................................................. 100
Y.
Mississippi ............................................................................................................................................................................. 103
Z.
Missouri ................................................................................................................................................................................. 106
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III.
Fifty State Survey on Covenants Not to Compete
AA.
Montana................................................................................................................................................................................. 113
BB.
Nebraska ............................................................................................................................................................................... 116
CC.
Nevada ................................................................................................................................................................................... 121
DD.
New Hampshire .................................................................................................................................................................. 124
EE.
New Jersey ........................................................................................................................................................................... 127
FF.
New Mexico ......................................................................................................................................................................... 130
GG.
New York ............................................................................................................................................................................. 132
HH.
North Carolina .................................................................................................................................................................... 136
II.
North Dakota ...................................................................................................................................................................... 141
JJ.
Ohio ....................................................................................................................................................................................... 145
KK.
Oklahoma ............................................................................................................................................................................. 148
LL.
Oregon .................................................................................................................................................................................. 151
MM.
Pennsylvania.......................................................................................................................................................................... 157
NN.
Rhode Island ......................................................................................................................................................................... 161
OO.
South Carolina ..................................................................................................................................................................... 166
PP.
South Dakota ....................................................................................................................................................................... 169
QQ.
Tennessee ............................................................................................................................................................................. 173
RR.
Texas ...................................................................................................................................................................................... 176
SS.
Utah ........................................................................................................................................................................................ 182
TT.
Vermont ................................................................................................................................................................................ 185
UU.
Virginia ................................................................................................................................................................................... 187
VV.
Washington .......................................................................................................................................................................... 189
WW.
West Virginia ....................................................................................................................................................................... 192
XX.
Wisconsin ............................................................................................................................................................................. 194
YY.
Wyoming............................................................................................................................................................................... 197
About Greenberg Traurig, LLP .................................................................................................. 199 A.
Greenberg Traurig, LLP’s Trade Secrets & Mobility Team ....................................................................................... 199
IV.
State Index .................................................................................................................................... 204
V.
Endnotes ........................................................................................................................................ 205
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I.
Introduction
Covenants not to compete are vital for employers looking to protect their legitimate business interests. In many instances, employees will have access to an employer’s proprietary information, including trade secrets, intellectual property, and highly confidential materials. Postemployment restrictions are intended to protect the employer’s legitimate business interests by, for example, prohibiting an employee from working for the employer’s competitors or soliciting business from the employer’s customers. Employers should consider covenants for employees who have access to such highly confidential materials. It is important to understand how each state addresses covenants. While courts do not necessarily favor covenants not to compete because they seek to restrict competition, covenants are often enforced if they meet certain standards, which vary state by state. This InfoPAKSM will help users determine the law in each state, including issues governing the enforceability, which is essential when drafting a covenant not to compete. This InfoPAKSM is organized by state and discusses the most important factors to consider when drafting a covenant not to compete. All states contain the same information. Each section first provides the relevant state statute or statutes, if any, governing covenants not to compete. Following the statute section, these topics are then discussed: consideration in the context of a covenant not to compete, whether a covenant is enforceable in that particular state, and whether a court will modify an otherwise illegal covenant. Next, the summary provides factors courts in each state consider when determining whether time and geographic restrictions are reasonable, highlighting specific cases where courts have found restrictions either reasonable or unreasonable. Thereafter, each section contains information regarding choice of law provisions and forum selection clauses. Finally, each section contains a list of the leading cases governing covenants not to compete in each state. This InfoPAKSM is intended to provide users with a basic understanding of these different areas and guide further research on specific topics by providing references to relevant statutes and case law.
II. Fifty State Survey Below are separate summaries that highlight the important factors governing covenants not to compete in each of the fifty states. The summaries are organized in alphabetical order.
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Fifty State Survey on Covenants Not to Compete
A.
Alabama
1.
Key Statutes
Alabama law provides:1 a) Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind otherwise than is provided by this section is to that extent void. b) One who sells the good will of a business may agree with the buyer and one who is employed as an agent, servant or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a specified county, city, or part thereof so long as the buyer, or any person deriving title to the good will from him, or employer carries on a like business therein. c) Upon or in anticipation of dissolution of the partnership, partners may agree that none of them will carry on a similar business within the same county, city or town, or within a specified part thereof, where the partnership business has been transacted.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. “[C]ontinued employment and compensation in return for a promise not to compete constitutes consideration.”2
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.3
3.
Are They Enforceable?
The court will enforce a covenant not to compete within the exception of Alabama Code § 81-1(b) if: ■
The employer has a protectable interest;
■
The restriction is reasonably related to that interest;
■
The restriction is reasonable in time and place; [and]
■
The restriction imposes no undue hardship [on the employee].4 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
The court may modify the covenant to make the restrictions narrower and to make the agreement enforceable.5 .
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
A covenant may not operate in an area where the employer no longer engages in the activity the covenant was designed to shield from unfair competition.6
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■
■
■
■
■
■
■
Reasonable
In the case of a physical therapist, a 75-mile radius and five-year covenant not to compete for the sale-of-business and two-year covenant in the employment context.7 In the case of a former sales clerk, a five-mile radius from the former store and a three-year covenant.8 Two-year covenants barring telephone equipment sales and long-distance service business’s senior regional manager and salesman from soliciting former or prospective customers of the employer with whom the employees had contact.9 A two-year covenant barring a former independent contractor or employee from competing in six counties.10 A one-year covenant barring an insurance agent from servicing any insurance policy sold or serviced by the agent for his former employer, or the existence of which the agent learned of while working for the former employer.11 A two-year statewide covenant in stock option agreements precluding two former bank officers from engaging in the banking business.12 A one-year covenant signed by at will employees six months after commencement of employment.13 ii.
Unreasonable
■
A covenant for a five-year, 60-mile radius against a former partner.14
■
A covenant for a one-year, 25-mile radius against a urologist.15
■
A two-year covenant barring a pest control technician from competing in 21 counties. 16
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Fifty State Survey on Covenants Not to Compete
6.
Will the State Enforce a Choice of Law Provision?
Alabama follows the rules explained in the Restatement (Second) of Conflicts sections 187– 88, that parties may choose the governing law or, in the absence of such a choice, the court will apply the law of the state that has the most significant relationship to the transaction in question. However, the state “will not enforce a contract that is contrary to the fundamental policy of the forum state if the forum state has a materially greater interest in the determination of the issue.”17
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Alabama will follow the law of the state in which the contract was formed.18
7.
Will the State Enforce a Forum Selection Clause?
Alabama has not directly considered a forum selection clause in a covenant not to compete case. A federal court in Alabama has reviewed the issue and enforced a forum selection clause in a covenant not to compete based on federal standards.19
8.
Leading Cases
Pitney Bowes, Inc. v. Berney Office Solutions, 823 So. 2d 659 (Ala. 2001).
B.
Alaska
1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
The issue has not been directly addressed in Alaska.20
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
The issue has not been decided in Alaska.
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3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
When a noncompetition covenant is overbroad, the court will reasonably alter its language so that it will be rendered enforceable, unless it determines the covenant was not drafted in good faith.21 The Alaska Supreme Court has rejected the “blue pencil” approach, adapting the “reasonable alteration” approach. This allows the courts to determine what restrictions would be reasonable between the parties and “fashion a contract reasonable between the parties, in accord with their intention at the time of contracting” and enables them to “evaluate all factors comprising ‘reasonableness’ in the context of employee covenants.”22 However, the covenant must have been drafted in good faith.23
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The court considers what is reasonably necessary to protect the employer under the circumstances. Alaska courts will allow a customer restriction to substitute for a geographic term even where the covenant also lacks a durational limit.24
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■
■
A covenant, without geographic or time limitations, where a former employee agreed to refrain from using the former employer’s client list after termination of employment and to refrain from servicing potential clients who first made contact with the prior employer during her former employment.25 Two year covenant prohibiting a former partner from servicing past or present clientele of the company.26 ii.
■
Reasonable
Unreasonable
A five-year, statewide covenant. 27
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6.
Will the State Enforce a Choice of Law Provision?
Alaska courts have not addressed the issue in a covenant not to compete case. However, Alaska has adopted the “most significant relationship” approach of the Restatement (Second) of Conflict of Laws.28
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Alaska courts have not addressed the choice of law issue in a covenant not to compete case. However, the courts are likely to adopt the Restatement (Second) of Conflict of Laws.29
7.
Will the State Enforce a Forum Selection Clause?
The Alaska Supreme Court has rejected the common law rule that forum selection clauses are per se invalid and adopted instead a reasonableness approach.30
8.
Leading Cases
Data Mgmt. v. Greene, 757 P.2d 62 (Alaska 1988).
C.
Arizona
1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
d.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.31
Yes.32
3.
Are They Enforceable?
Yes. Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Arizona courts have adopted the Restatement (Second) of Contracts view of the “blue pencil” doctrine.33 If it is clear from its terms that a contract was intended to be severable, the court can enforce the lawful part and ignore the unlawful part. Where the severability of the agreement is not evident from the contract itself, the court cannot create a new agreement for the parties to uphold the contract.34 An unreasonable restriction against competition in a contract may be modified and enforced to the extent that it is reasonable, where the restriction is divisible, that is, where the severable character of the restriction is evidence from the terms of the agreement.35 Under the blue pencil doctrine, Arizona courts can only excise unreasonable terms and enforce the remaining terms; they cannot go further than cutting grammatically severable portions by “rewriting” a covenant to make it reasonable.36
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Right to earn a living: A restriction is unreasonable “if the restriction is greater than necessary to protect the employer’s legitimate interest . . . or . . . if that interest is outweighed by the hardship to the employee and the likely injury to the public.”37 When the restraint is for the purpose of protecting customer relationships, its duration is reasonable only if it is no longer than necessary for the employer to put a new man on the job and for the new employee to have a reasonable opportunity to demonstrate his effectiveness to the customers. If a restraint on this ground is justifiable at all, it seems that a period of several months would usually be reasonable. If the selling or servicing relationship is relatively complex, a longer period may be called for.38
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■
■
Reasonable
A temporary restraining order barring former employees from competing within a 200-mile radius, soliciting or accepting such business from the former employer’s customers, soliciting for employment any person employed by the employer as of the former employee’s last day of employment, and using or disclosing any of the former employer’s confidential and proprietary information.39 A six-month restrictive covenant precluding a former employee from working at any business for which the sale of mattresses accounts for more than 50
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12 Fifty State Survey on Covenants Not to Compete
percent of sales revenue within 10 miles of any location where the former employer conducts business.40 ■
■
■
A three-year covenant restricting an orthopedic surgeon from practicing orthopedic medicine within a 5-ile radius of the employer’s three offices, though the surgeon could treat his patients seeking emergency care and continue as a physician for a high school team.41 A disc jockey’s covenant not to become employed by or associate with any radio station within 50 miles for the duration of one year.42 A covenant prohibiting an employee from practicing veterinary medicine within 12 miles for a period of five years.43 ii.
■
■
6.
Unreasonable
A covenant that prohibited an employee from doing certain activities “only within the counties in which Employee solicited business on behalf of the Company during the 12 months preceding the cessation of Employee’s employment with the Company.” The court noted that Maricopa County alone is 9,1224 square miles, and held the covenant unreasonable because “[R]equiring Defendants to work in another county effectively, and unreasonably, necessitates relocation.44 One-year, four-state noncompetition, confidentiality, and nonsolicitation postemployment covenants purporting to restrict a former independent contractor engaged in sales and marketing.45
■
For lack of any temporal or geographic restrictions.46
■
Three-year postemployment covenant not to compete.47
■
A two-year covenant in the financial services industry.48
■
One-year, twenty-five mile restriction on salesperson.49
■
Two-year covenant not to compete for dental technician in Pima County.50
Will the State Enforce a Choice of Law Provision?
Arizona has not addressed the issue in a covenant not to compete case. However, “Arizona courts generally look to the Restatement (Second) of Conflict of Laws to determine which jurisdiction’s law applies. [Section 187 of the] Restatement provides that the law of the state chosen by the parties to govern their contractual rights and duties will apply unless the chosen state has no relationship with the parties and the transaction, or unless the application of the law of the chosen state will be contrary to the fundamental policy of the forum state.”51 In 2011, the District Court refused to enjoin an employee’s violation of a non-compete clause which said that Washington State law applied. The court noted that (1) Washington law adopts a liberal approach to non-compete agreements, allowing such agreements to be Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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enforced even if they are quite broad and last for long periods of time, and (2) Washington allows a court to rewrite a non-compete agreement to render it reasonable and enforceable if the court concludes that it otherwise would be unreasonable and unenforceable. Because Arizona law does not embrace either approach, the court held that the choice of law provision was invalid under sections 187(1) and (2) of the Restatement (Second) of Conflict of Laws.52
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Arizona has not addressed the issue in a covenant not to compete case. However, Arizona courts generally look to section 188 of the Restatement (Second) of Conflict of Laws and have held that, “[i]n the absence of an explicit choice of law by the parties, the contractual rights and duties of the parties are determined by local laws of the state having the most significant relationship to the parties and the transaction.”53
7.
Will the State Enforce a Forum Selection Clause?
Arizona has not addressed the issue of forum selection clauses in a covenant not to compete case. However, the Arizona Supreme Court has held that “a forum selection clause that is fairly bargained for and not the result of fraud will be enforced so long as to do so is reasonable at the time of litigation and does not deprive a litigant of his day in court. The burden of so showing falls upon the party challenging the validity of the clause.”54
8.
Leading Cases
Phoenix Orthopaedic Surgeons v. Peairs, 164 Ariz. 54, 790 P.2d 752 (Ct. App. 1989), overruled on other grounds by Valley Med. Specialists v. Farber, 194 Ariz. 363, 982 P.2d 1277 (Ariz. 1999).
D.
Arkansas
1.
Key Statutes
None.
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2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.55
The issue has not been decided in Arkansas.
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Arkansas courts “will not apportion or enforce a contract to the extent that it might be considered reasonable.”56 The covenant “must be valid [exactly] as written.”57 (citations omitted). Arkansas courts “will neither rewrite nor vary the terms of noncompete clauses nor enforce only those parts that are valid.”58 Furthermore: Simply striking the offending language of the covenants not to compete would not suffice. In order to accomplish the [former employer’s] purpose, it would be necessary to rewrite the covenant not to compete, and this we will not do. It has long been the rule that, when a covenant not to compete is too farreaching to be invalid, we will not make a new contract for the parties.59
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Arkansas courts have consistently rejected covenants for terms exceeding two years after termination of employment.60 A noncompetition covenant that fails to state a geographic restriction may render it overbroad.61
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■ ■
■
■
A two-year statewide noncompetition covenant.62 A two-year noncompetition and nondisclosure covenant prohibiting a former employee from soliciting “any of the customers or clients of the Employer.”63 A one-year noncompetition covenant prohibiting an employee from soliciting, accepting, or servicing the business of any client of record and agency’s district.64 The five-year, 70-mile noncompetition covenant executed by the seller of a minority interest in the company.65 . ii.
■
■
■ ■
■
6.
Reasonable
Unreasonable
A two-year covenant barring a salesperson from competing in 21 counties in one state, 18 counties in another state, and other “temporary areas,” finding that the limitations severely restricted the former employee’s ability to make a living.66 A two-year covenant, not specific as to geographical location, barring a former employee from working in a similar business.67 A two-year, 75-mile covenant not to compete68. Noncompetes that seek to prohibit work with the former employer’s prospective clients go too far and are not enforceable.69 A noncompete without a specific geographic scope is not enforceable.70
Will the State Enforce a Choice of Law Provision?
Arkansas courts will apply “the law chosen by the parties, if there is sufficient nexus.”71
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Arkansas courts have traditionally considered three different bases for making choice of law determinations: “the law of the state in which the contract was made; the law of the state where the contract is performed; and the law of the state which the parties intend to govern the contract, provided that state has a substantial connection with the contract.”72 Recently, Arkansas courts have begun to apply the “significant contacts” test, which requires an examination of “the nature and quantity of each state’s ‘contacts’ with the transaction at issue.”73
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7.
Will the State Enforce a Forum Selection Clause?
Arkansas courts will uphold a forum selection clause in a noncompetition covenant case “unless it can be shown that the enforcement of the forum selection clause would be unreasonable and unfair.”74
8.
Leading Cases ■ ■
Freeman v. Brown Hillier, Inc., 102 Ark. App. 76 (2008). Statco Wireless, LLC v. Southwestern Bell Wireless, LLC, 95 S.W.3d 13 (Ark. Ct. App. 2003).
E.
California
1.
Key Statutes
California Business and Professions Code: 16600. Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. 16601. Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein. (Definitions omitted). 16602. (a) Any partner may, upon or in anticipation of any of the circumstances described in subdivision (b), agree that he or she will not carry on a similar business within a specified geographic area where the partnership business has been transacted, so long as any other member of the partnership, or any person deriving title to the business or its goodwill from any such other member of the partnership, carries on a like business therein. (b) Subdivision (a) applies to either of the following circumstances: (1) A dissolution of the partnership. Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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(2) Dissociation of the partner from the partnership. 16602.5. Any member may, upon or in anticipation of a dissolution of, or the termination of his or her interest in, a limited liability company (including a series of a limited liability company formed under the laws of a jurisdiction recognizing such a series), agree that he or she or it will not carry on a similar business within a specified geographic area where the limited liability company business has been transacted, so long as any other member of the limited liability company, or any person deriving title to the business or its goodwill from any such other member of the limited liability company, carries on a like business therein.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
California does not recognize a covenant not to compete in the employment context. In Edwards v. Arthur Andersen, the California Supreme Court clarified that, under section 16600, California employers may not enforce covenants not to compete in agreements with employees.75 The only exceptions are in the statute. Not only are non-compete covenants void under California law, but an employer could be liable in tort for wrongful termination, if it terminates an employee who refuses to agree to an unenforceable covenant not to compete.76 Notably, the policy against covenants not to compete has even been applied in the context of settlement agreements with employees containing a “no hire” provision.77 .
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
No. As noted above, California does not recognize a covenant not to compete in the employment context.
3.
Are They Enforceable?
Not in the employment context or outside the exceptions to section 16600. In Edwards v. Arthur Andersen, the California Supreme Court clarified that California employers may not enforce covenants not to compete in agreements with employees.78 However, certain restrictions may be available as a remedy in a situation where former employees take confidential and proprietary information, such as information relating to customers.79
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4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
California courts will not reform an illegal covenant.80 Also, as noted above, tort liability can exist for requiring an employee to sign such an agreement, even if the agreement has a severability provision.81
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
As noted, California will not enforce a covenant not to compete against an employee, without regard to time restrictions. With respect to an agreement not to solicit an employer’s workforce, the extent to which the Edwards case might apply is unclear. Edwards has been used to find a “no-hire” provision unenforceable, just like a noncompete.82 Prior to Edwards, in Loral Corp. v. Moyes, a California appellate court found that the determinative factor in an anti-raiding covenant that prohibited an employee from “disrupting, damaging, impairing or interfering with his former employer” was its reasonableness evaluated in terms of employer, employee, and the public.83 The duration of the covenant alone was not determinative of its enforceability.
6.
Will the State Enforce a Choice of Law Provision?
Courts will generally apply California law where California employees are involved, finding that section 16600 represents a strong public policy.84 Thus, a choice of another state’s law will not circumvent the application of section 16600.85
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Generally, California courts will not enjoin litigants from pursuing claims in a foreign court.86 However, California courts will issue an injunction in exceptional circumstances.87
7.
Will the State Enforce a Forum Selection Clause?
Yes, unless the party challenging it shows the clause is unreasonable.88
8.
Leading Cases ■
Edwards v. Arthur Andersen, 44 Cal. 4th 937, 949 (2008).
■
Golden v. Cal. Emergency Physicians Med. Group, 782 F.3d 1083 (9th Cir. 2015).
■
Application Grp. v. Hunter Grp., Inc., 61 Cal. App. 4th 881, 885 (1st Dist. 1998).
■
Fillpoint, LLC v. Maas, 208 Cal. App. 4th 1170 (2012).
■
D’Sa v. Playhut, Inc., 85 Cal. App. 4th 927 (2000). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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9.
■
Silguero v. Creteguard, Inc., 187 Cal. App. 4th 60 (2010).
■
Dowell v. Biosense Webster, Inc., 179 Cal. App. 4th 564 (2009).
■
Jones v. Humanscale Corp., 130 Cal. App. 4th 401 (2005).
Specific Approaches - Trade Secrets
There are a number of ways employers in California can still protect proprietary information from being used by former employees, including specifically identifying what information is a trade secret, and obtaining the employee’s agreement that s/he will not use or disclose the information at the end of employment.89 Of course, calling something a trade secret does not make it so: the information must still be a trade secret.90 California has adopted the Uniform Trade Secret Act, so there are statutory remedies also.91 Finally, there are a number of cases in California federal court enforcing choice of forum provisions, and transferring the case to jurisdictions that do enforce restrictive covenants.92 The extent to which California would give full faith and credit in California to a foreign court’s judgment enforcing a noncompete is not clear.93
F.
Colorado
1.
Key Statutes
Colorado Revised Statute § 8-2-113 provides: (1) It shall be unlawful to use force, threats, or other means of intimidation to prevent any person from engaging in any lawful occupation at any place he sees fit. (2) Any covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void, but this subsection (2) shall not apply to: (a) Any contract for the purchase and sale of a business or the assets of a business; (b) Any contract for the protection of trade secrets; (c) Any contractual provision providing for recovery of the expense of educating and training an employee who has served an employer for a period of less than two years;
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20 Fifty State Survey on Covenants Not to Compete
(d) Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel. (3) Any covenant not to compete provision of an employment, partnership, or corporate agreement between physicians which restricts the right of a physician to practice medicine, as defined in section 12-36-106, C.R.S., upon termination of such agreement, shall be void; except that all other provisions of such an agreement enforceable at law, including provisions which require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the agreement, shall be enforceable. Provisions which require the payment of damages upon termination of the agreement may include, but not be limited to, damages related to competition.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. An employer’s continuation of an existing at-will employee’s employment after employee signed a noncompetition agreement constitutes adequate consideration to support the agreement.94 Consideration may take the form of forbearance by one party to refrain from doing something that it is legally entitled to do.95 To the extent an employer enters into a noncompetition agreement with an employee with the intention of terminating the employee immediately afterwards, the agreement may fail for lack of consideration.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Colorado has not definitively decided this issue, but the Colorado Supreme Court has recognized that “any benefit to a promisor or any detriment to a promise at the time of the contract—not matter how slight—constitutes adequate consideration.”96 Except in extreme circumstances like allegations of unconscionability, a court should not judge or attempt to assess the adequacy of consideration. Rather, the court “need only find some consideration, regardless of its relative value, to support a covenant not to compete.”97
3.
Are They Enforceable?
Covenants not to compete are disfavored by statute, except when they fall under certain enumerated exemptions:98 ■
Any contract for the purchase and sale of a business or the assets of a business;
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Any contract for the protection of trade secrets;
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Any contractual provision providing for the recovery of the expense of educating and training an employee who has served an employer for less than two years; and Executive management personnel, and officers and employees who constitute professional staff to executive and management personnel.
Because noncompetition agreements are disfavored, the above exceptions are narrowly construed.99
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
A Colorado court may “blue pencil” or partially enforce the covenant, but this is discretionary and the trial court is not required to do so in order to make the covenant valid.100
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Even if a noncompetition covenant fits within a statutory exception enumerated above and thus is not void, it must also be reasonable in duration and geographic scope, must not impose undue hardship, and must be no wider than necessary to afford the required protection.101 Reasonableness depends on each case’s facts and circumstances, but is generally determined by the degree of hardship imposed on the restricted party, the degree of benefit required for reasonable protection of the party seeking to enforce the covenant and the potentially adverse effect of enforceability on the general public.102 Although rarely mentioned, a covenant not to compete has also been found enforceable when ancillary to another agreement.103
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A trial court has discretion to reform an unreasonable territorial or time restriction, but it is not abuse of discretion to refuse to do so.104 No general rule has emerged from Colorado cases as to what constitutes a reasonable duration or geographic scope. Temporal restrictions have ranged from six months to a perpetual covenant.105 Geographic limitations have come under stricter scrutiny. An analysis of the nature of the business to be protected and the defendant’s former job responsibilities and territory (i.e., area in which the defendant may have an adverse impact on the protected business) is
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22 Fifty State Survey on Covenants Not to Compete
necessary to determine reasonableness.106 Examples of covenants enforced by Colorado courts range in geographic scope from city-or county-wide restrictions to nationwide.107 ■
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A one-year covenant barring a former employee from working for competing companies.108 A three-year covenant restricting the former employee from competing within specific product lines any specific marketing.109 The five-year, one County covenant against a former partner.110 ii.
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6.
Unreasonable
Colorado courts held that covenants with a perpetual duration and world-wide or limitless geographic restriction were void.111 Covenant prohibiting competition within 35 miles of any franchise location.112
Will the State Enforce a Choice of Law Provision?
Colorado courts generally follow Restatement (Second) of Conflict of Laws section 187 in determining whether to apply the law chosen by the parties in the contract. Section 187 provides that the law of the state chosen by the parties to govern their contractual rights and duties will apply unless: (1) the chosen state has no relationship with the parties in the transaction; or (2) the application of the law of the chosen state will be contrary to the fundamental policy of the forum state.113
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
The U.S. Court of Appeals for the 10th Circuit has held that Colorado would apply the Restatement (Second) of Conflict of Laws section 188 in determining which law should apply in the absence of the choice of law provision.114 “The substantive law of another jurisdiction should not apply if application of that law would violate the fundamental policy of [Colorado].”115
7.
Will State Enforce a Forum Selection Clause?
Colorado State courts have not considered a forum selection clause in the noncompetition covenant case. However, Colorado does generally enforce forum selection clauses, so long as they are fair and reasonable.116
8.
Leading Cases ■
Lucht’s Concrete Plumbing, Inc. v. Horner, 255 P.3d 1058 (Colo. 2011).
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G.
Connecticut
1.
Key Statutes
None. Of note, however, Connecticut has adopted a related statute, the Connecticut Uniform Trade Secrets Act or “CUTSA”,117 which defines trade secret broadly,118 and provides injunctive relief for actual or threatened misappropriation as well as damages for the actual loss caused by misappropriation.119
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Possibly. There is a developing trend recognizing that continued employment may provide adequate consideration to support restrictive covenants.120 However, there is contrary authority holding that continued employment is past consideration that cannot support the imposition of new obligations.121
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Possibly. Change in employment status is adequate consideration to support a restrictive covenant.122 Increased commission or compensation constitutes new consideration.123 Changes in terms of non-compete agreements, including additional terms or reduction in duration, constitute adequate consideration.124 However, the Connecticut Appellate Court has recently held that where an employee signed consecutive employment agreements, an ambiguous non-competition restriction in the second employment agreement that was purportedly less restrictive than the clause in the first agreement did not constitute valid consideration; the court ultimately held that the second agreement was unenforceable and did not supersede the first employment agreement.125
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Courts can blue pencil a covenant where the parties have indicated intent to make the terms severable.126 Courts will not strike an unreasonable provision that forms the heart of the agreement.127
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24 Fifty State Survey on Covenants Not to Compete
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Connecticut considers:128 ■
the length of time the restriction is in effect;
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the geographical scope of its restriction;
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the fairness of the protection afforded the employer;
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the extent of the restraint on the employee's ability to pursue his occupation; and
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the extent of any interference with the public interest.
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■
■
■
■
■
■
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Reasonable
Two-year restriction against construction material distributor’s branch manager’s involvement in any similar or competitive business within 100 mile radius of distributor’s central office held to be reasonable.129 Two-year restriction against fitness instructor’s involvement in any similar fitness business within 10 mile radius of any exercise studio owned and operated by employer held to be reasonable.130 One-year prohibitions against equipment sales representative’s competing in any location where he performed services and responsibilities during 24-month period immediately preceding his termination, and soliciting any potential or actual customer of the former employer during his employment for purposes of providing or obtaining a reasonably deemed competitive product or service then offered by the former employer held to be reasonable.131 Two-year, global prohibition against medical device design engineer’s employment, where restriction narrowed to “any geographic area with[in] which any job responsibilities for [employer] were concerned” held to be reasonable.132 Prohibition restricting chief financial officer from direct or indirect involvement with any business relating to the purchase and sale of international voice and data traffic during any period in which he is entitled to severance pay held to be reasonable.133 One-year restriction, without express geographic requirement, prohibiting “rugged computer tablets” senior sales representative from employment with any other computer based company for a position competing for the same customer or product held to be reasonable.134 Two-year prohibition on surgeon against practicing medicine within 15 miles of practice and certain restricted area and against practicing bariatric surgery within any hospital located in certain enumerated cities held to be reasonable.135 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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One-year prohibitions against financial consultant from competing within 25 miles of the employee’s base of operations, and soliciting any customer of the former employer known to the employee through his employment held to be reasonable.136 Two-year prohibition against insurance executive benefits specialist from soliciting clients within the agent had worked during his previous employment held to be reasonable.137 Two-year, 150 mile non-compete prohibition on highly-specialized engineer, particularly in light of nature of employer’s services and that business required employer to travel to customers in other geographical areas to provide on-site services held to be reasonable.138 One-year, 75 mile non-compete prohibition on sales representative held to be reasonable.139 Two-year, 15 mile non-compete and non-solicitation prohibitions against real estate agents pursuant to an independent contractor agreement held to be reasonable.140 ii.
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b.
Unreasonable
Five-year worldwide non-compete not enforceable against emergency trucking customer service representative where damages compensated the company for his illegal competition and employee had been separated from former employer for nearly two years and there was no evidence that he continued to compete or intended to do so.141 Three-year, statewide non-compete prohibition against door installer held not enforceable.142 Two-year non-compete restriction that precluded professional ball room dance instructor from working within 15 miles of any of franchisee’s dance studios or 10 miles of any franchise location held not enforceable.143 50 mile non-compete agreement against a pest control service employee held not enforceable.144 One-year worldwide non-compete effectively barring salespeople from accepting employment with any competitor held not enforceable.145
How Do the Other Factors of Protecting an Employer’s Business and an Employee’s Right to Engage in an Occupation Affect a Reasonableness Determination?
An overly broad agreement that unreasonably restrains an employee’s opportunity to pursue his/her profession may be unenforceable. Factors include the level of the employee’s position, whether the employee possesses unique employer information, the employee’s skills, the nature of the industry at issue, and whether the restriction prevents For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
26 Fifty State Survey on Covenants Not to Compete
employee from employment with comparable opportunities for professional growth and employee benefits.146 In cases upholding covenants not to compete, the party seeking to enforce the restriction most often has sought to protect something more than mere competition, such as the use of customer lists, customer information the employee had acquired, the impairment of good will he had purchased, confidential data or trade secrets, or some other advantage the employee acquired while employed that would make his immediate competition unfair.147 To invalidate an otherwise reasonable covenant, the defendant must prove that its enforcement would substantially damage his or her ability to earn a living.148
6.
Will the State Enforce a Choice of Law Provision?
Generally, yes. Connecticut law enforces choice of law provisions so long as they bear a reasonable relationship to the dispute and were made in good faith.149
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Connecticut follows the “most significant relationship” test of the Restatement (Second) of Conflicts of Laws, which requires courts to select the local law of the state having the most significant relationship to the occurrence and the parties to the dispute.150 In the absence of an effective choice of law by the parties, seven considerations aid courts in determining which state has the most significant relationship to the transaction and the parties. These are:151 ■
the needs of the interstate and international systems;
■
the relevant policies of the forum;
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the relevant policies of other interested states and the relative interests of those states in the determination of the particular issues;
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the protection of justified expectations;
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the basic policies underlying the particular field of law;
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certainty, predictability, and uniformity of result; and
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ease in determination and application of the law.
To determine the law applicable to an issue, courts must consider these five contacts in applying the above principles:152 ■
the place of contracting;
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the place of negotiation of the contract;
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the place of performance;
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the location of the subject matter of the contract; and the domicile, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.153 As a general presumption for all contracts, if the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§189-199 and 203.154
7.
Will the State Enforce a Forum Selection Clause?
Yes. To determine whether to enforce a forum selection clause, courts apply the Second Circuit’s four-step analysis: 155 ■
■
■ ■
8.
whether the clause was reasonably communicated to the party resisting enforcement; whether the clause is mandatory or permissive, i.e., whether the parties are required to bring any dispute to the designated forum or simply permitted to do so; whether the clams and parties involved in the suit are subject to the clause; and whether the resisting party has rebutted the presumption of enforceability by making a sufficiently strong showing that enforcement would be unreasonable or unjust, or that the clause was invalid for reasons such as fraud or overreaching.
Leading Cases ■
Robert S. Weiss & Assocs., Inc. v. Wiederlight, 208 Conn. 525 (1988).
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New Haven Tobacco Co. v. Perrelli, 11 Conn. App. 636 (1987).
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New Haven Tobacco Co. v. Perrelli, 18 Conn. App. 531 (1989).
H.
Delaware
1.
Key Statutes
None.
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28 Fifty State Survey on Covenants Not to Compete
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes, for at-will employees.156
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.157
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Delaware has adopted the reasonable alteration approach, under which a court may reduce the restrictions of a covenant to the extent that is reasonable to do so and then enforce it as modified.158
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement
Yes. In Elite Cleaning Co. v. Capel, the court refused to enforce any portion of a janitorial service’s two year non-compete.159 The court noted that the employee worked in an unskilled position requiring no specialized training, had no access to sensitive information, and received barely more than minimum wage. The court refused to reform the agreement to specify a shorter period because the court found the agreement as a whole to be unenforceable.
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Delaware balances the harm to the employee against the interests of the employer. It considers the employer’s principal economic activity and whether the employee harms the employer by engaging in the activity. The court may also consider any harm to the public.160
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■
A one-year ban against competition.161
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One-year, 50 mile radius ban.162
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■
Three-year, 50 mile radius covenant against a former engineering assistant who became licensed to design systems during her employment.163 Two-year nationwide covenant not to sell lines of products competing with the former employer’s product lines.164 ii.
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■ ■
6.
Reasonable
Unreasonable
2-year agreement executed by an unskilled, untrained, and at will janitorial employee.165 2-year, 5-mile covenant against a former salon employee.166 Geographic restrictions are unenforceable when they include districts, counties, or states in which the employer does not conduct business.167
Will the State Enforce a Choice of Law Provision?
Yes, so long as it satisfies the conditions of Delaware Code section 2708(a): The parties to any contract, agreement or other undertaking, contingent or otherwise, may agree in writing that the contract, agreement or other undertaking shall be governed by or construed under the laws of this State, without regard to principles of conflict of laws, or that the laws of this State shall govern, in whole or in part, any or all of their rights, remedies, liabilities, powers and duties if the parties, either as provided by law or in the manner specified in such writing are, (i) subject to the jurisdiction of the courts of, or arbitration in, Delaware and, (ii) may be served with legal process. The foregoing shall conclusively be presumed to be a significant, material and reasonable relationship with this State and shall be enforced whether or not there are other relationships with this State.
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Delaware applies the law of the state where the agreement was executed and performed.168
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30 Fifty State Survey on Covenants Not to Compete
7.
Will the State Enforce a Forum Selection Clause?
Perhaps. In a forum selection clause designating the Court of Chancery, an employee waives the right to remove to federal court.169
8.
Leading Cases ■
McCann Surveyors v. Evans, 611 A.2d 1, 4 (Del. Chanc. Ct. 1987).
I.
District of Columbia
1.
Key Statutes
None. But see D.C.’s statutory prohibition against the restraint of trade.170,.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Most likely, at least where the employment continues for a substantial period of time afterwards.171 In Ellis, the employee did not sign a covenant until three weeks after commencing employment. However, he had completed an employment application stating that he would need to sign a non-compete covenant as a condition of employment, and was further informed at length about the covenant in his interview.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.172
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
The court will partially enforce an agreement where the employer obtained the agreement in good faith and in accordance with reasonable standards of fair dealing, and did not engage in serious misconduct.173
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5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The court considers: The nature of the business, the character of the service performed by, and the station of the employee, in relation to the area in which the former employee seeks to be protected, bad faith, and whether the employer has a legitimate interest in protecting its sales in a particular area.174
As restraint is easier to justify where it is limited to the taking of a former employer’s customers compared to competition in general.175
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■ ■
■
A two-year, 5-mile covenant by a dentist after a stock purchase.176 One-year covenant barring a former employee from selling commercial chemical products in that employees former area.177 Five-year covenant against a pest control employee.178 ii.
■
6.
Reasonable
Unreasonable
Three-year, six-state customer nonsolicitation clause for nonskilled labor involving no trade secrets.179
Will the State Enforce a Choice of Law Provision?
Yes. Under D.C. law, “courts will give effect to a contractual choice of law clause as long as there is some reasonable relationship with the state specified.”180
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
D.C. has not addressed this issue in a covenant not to compete case. Generally, the court applies a “governmental interest analysis” that requires the court to look at many factors, including the jurisdiction with the most significant relationship to the dispute.181
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7.
Will the State Enforce a Forum Selection Clause?
D.C. has not yet considered the issue.
8.
Leading Cases ■
Ellis v. James v. Hurson Assocs., 565 A.2d 615 (D.C. Ct. App. 1989).
J.
Florida
1.
Key Statute
Fla. Stat. § 542.335: Valid restraints of trade or commerce.-(1) Notwithstanding Fla. Stat. § 542.18 and subsection (2), enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited. In any action concerning enforcement of a restrictive covenant: (a) A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought. (b) The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant. The term “legitimate business interest” includes, but is not limited to: 1. Trade secrets, as defined in Fla. Stat. § 688.002(4). 2. Valuable confidential business or professional information that otherwise does not qualify as trade secrets. 3. Substantial relationships with specific prospective or existing customers, patients, or clients. 4. Customer, patient, or client goodwill associated with: a. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”; b. A specific geographic location; or c. A specific marketing or trade area. Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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5. Extraordinary or specialized training. Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable. (c) A person seeking enforcement of a restrictive covenant also shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction. If a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests. If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests. (d) In determining the reasonableness in time of a post-term restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions: 1. In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of all or a part of: a. The assets of a business or professional practice, or b. The shares of a corporation, or c. A partnership interest, or d. A limited liability company membership, or e. An equity interest, of any other type, in a business or professional practice, a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration. 2. In the case of a restrictive covenant sought to be enforced against a former distributor, dealer, franchisee, or licensee of a trademark or service mark and not associated with the sale of all or a part of: a. The assets of a business or professional practice, or b. The shares of a corporation, or
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34 Fifty State Survey on Covenants Not to Compete
c. A partnership interest, or d. A limited liability company membership, or e. An equity interest, of any other type, in a business or professional practice, a court shall presume reasonable in time any restraint 1 year or less in duration and shall presume unreasonable in time any restraint more than 3 years in duration. 3. In the case of a restrictive covenant sought to be enforced against the seller of all or a part of: a. The assets of a business or professional practice, or b. The shares of a corporation, or c. A partnership interest, or d. A limited liability company membership, or e. An equity interest, of any other type, in a business or professional practice, a court shall presume reasonable in time any restraint 3 years or less in duration and shall presume unreasonable in time any restraint more than 7 years in duration. (e) In determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint of 5 years or less and shall presume unreasonable in time any restraint of more than 10 years. All such presumptions shall be rebuttable presumptions. (f) The court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is a third-party beneficiary of such contract or is an assignee or successor to a party to such contract, provided: 1. In the case of a third-party beneficiary, the restrictive covenant expressly identified the person as a third-party beneficiary of the contract and expressly stated that the restrictive covenant was intended for the benefit of such person. 2. In the case of an assignee or successor, the restrictive covenant expressly authorized enforcement by a party’s assignee or successor. (g) In determining the enforceability of a restrictive covenant, a court:
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1. Shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought. 2. May consider as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant only if such discontinuance of business is not the result of a violation of the restriction. 3. Shall consider all other pertinent legal and equitable defenses. 4. Shall consider the effect of enforcement upon the public health, safety, and welfare. (h) A court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract. (i) No court may refuse enforcement of an otherwise enforceable restrictive covenant on the ground that the contract violates public policy unless such public policy is articulated specifically by the court and the court finds that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests established by the person seeking enforcement of the restraint. (j) A court shall enforce a restrictive covenant by any appropriate and effective remedy, including, but not limited to, temporary and permanent injunctions. The violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant. No temporary injunction shall be entered unless the person seeking enforcement of a restrictive covenant gives a proper bond, and the court shall not enforce any contractual provision waiving the requirement of an injunction bond or limiting the amount of such bond. (k) In the absence of a contractual provision authorizing an award of attorney’s fees and costs to the prevailing party, a court may award attorney’s fees and costs to the prevailing party in any action seeking enforcement of, or challenging the enforceability of, a restrictive covenant. A court shall not enforce any contractual provision limiting the court’s authority under this section.
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36 Fifty State Survey on Covenants Not to Compete
(2) Nothing in this section shall be construed or interpreted to legalize or make enforceable any restraint of trade or commerce otherwise illegal or unenforceable under the laws of the United States or of this state. (3) This act shall apply prospectively, and it shall not apply in actions determining the enforceability of restrictive covenants entered into before July 1, 1996.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.182
Yes.183
3.
Are They Enforceable?
Yes. Even prior to the 1996 enactment of Fla. Stat. § 542.335, the Florida Supreme Court observed that Florida may go further than any other state in enforcing restrictive covenants.184 Section 542.335(1) now expressly provides for contracts that restrict or prohibit competition, “so long as such contracts are reasonable in time, area, and line of business.” There can be no doubt that Section 542.335 was intended to support the enforcement of restrictive covenants, in light of the directions to courts in subsections (h), (i), and (j): (h) A court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract. (i) No court may refuse enforcement of an otherwise enforceable restrictive covenant on the ground that the contract violates public policy unless such public policy is articulated specifically by the court and the court finds that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests established by the person seeking enforcement of the restraint.
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(j) A court shall enforce a restrictive covenant by any appropriate and effective remedy, including, but not limited to, temporary and permanent injunctions…. Courts have consequently recognized that public policy favors enforcement of valid contractual rights, including lawful restrictive covenants.185 The question of what is “reasonable in time, area, and line of business,” is one for the trier of fact.186 The statute also requires the party seeking enforcement to plead and prove the restraint is reasonably necessary to protect “one or more legitimate business interests justifying the restrictive covenant.”187 “Legitimate business interests” include, without limitation, the following:188 ■ ■
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■
Trade secrets, as defined in s. 688.002(4). Valuable confidential business or professional information that otherwise does not qualify as trade secrets. Substantial relationships with specific prospective or existing customers, patients, or clients. Customer, patient, or client goodwill associated with: •
An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;
•
A specific geographic location; or
•
A specific marketing or trade area.
•
Extraordinary or specialized training.
As noted above, a party opposing a restrictive covenant on public policy grounds must ensure the court “articulate[s] specifically” the public policy in issue, and that the court “finds that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests established by the person seeking enforcement of the restraint.”189 Personal economic harm is generally an insufficient basis for challenging a restrictive covenant. Fla. Stat. § 542.335(1)(g) provides, “In determining the enforceability of a restrictive covenant, a court: 1. Shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.” This is consistent with pre-enactment case law.190 Practitioners should note that a common defense to a restrictive covenant is the precedent breach of an agreement – typically, payment of commissions or salary – by the party seeking enforcement of the restrictive covenant. However, Florida law limits this argument to “dependent covenants.” A potential method of precluding this defense is the inclusion For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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of language (in the restrictive covenant agreement) making the covenants independent: “The covenants set forth herein shall be construed as agreements independent of any other provision in any other agreement…and the existence of any claim or cause of action of Employee…whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement of this Agreement.”191
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
In Dorminy v. Frank B. Hall & Co.192, the Florida Supreme Court suggested the trial court may fashion and apply a reasonable time or area limitation. In 1996, the requirement of “blue penciling” was made mandatory in Fla. Stat. § 542.335(1)(c) which provides as follows: If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.193
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Several rebuttable presumptions operate to help define reasonableness of time restrictions with respect to restrictive covenants in Florida. Fla. Stat. § 542.335(d) provides as follows: In determining the reasonableness in time of a postterm restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions: 1. In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of [assets of or equitable interests in a business], a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration. 2. In the case of a restrictive covenant sought to be enforced against a former distributor, dealer, franchisee, or licensee of a trademark or service mark and not associated with the sale of [assets of or equitable interests in a business], a court shall presume reasonable in time any restraint 1 year or less in duration and shall presume unreasonable in time any restraint more than 3 years in duration. 3. In the case of a restrictive covenant sought to be enforced against the seller of [assets of or equitable interests in a business], a court shall presume reasonable in time any restraint 3 years or less in duration and shall presume unreasonable in time any restraint more than 7 years in duration.
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These general guidelines partly codify pre-statute case law holding that in considering time restrictions, Florida courts should consider the level or function performed by the restricted party, such that the more key or important the function performed by the restricted party, the longer the time that can be justified for a restrictive covenant.194 Similarly, Section 542.335(e) provides a longer presumption of reasonableness when the restrictive covenant involves trade secrets: In determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint of 5 years or less and shall presume unreasonable in time any restraint of more than 10 years. All such presumptions shall be rebuttable presumptions.
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Time restrictions found to be reasonable include: ■
■
■
■
■
A three-year noncompete in connection with the sale of a process service business.195 A 10-year restrictive covenant in connection with the sale of a business agreement was held not void and unenforceable as a matter of law; instead, the trial court had authority to modify the restriction to a reasonable time.196 A two-year restrictive covenant was held reasonable, where covenant prohibited solicitation of former employer’s customers with whom former employees dealt or about whom former employees had obtained confidential information.197 A one-year, five-county covenant against competition in office-copying promotion, sale, distribution, or service by a field service technician/manager, on finding that the covenant left the former employee free to enter into competitive employment in any of the remaining 62 counties in the state.198 A two-year covenant that prohibited an insurance salesman from soliciting his past customers, with no express geographic limitation.199 ii.
Unreasonable.
Time restrictions found to be unreasonable include: ■
A three-year restriction prohibiting a commodities broker from contacting former employer’s customers was held unreasonable where no evidence had been offered to rebut the presumption that more than two years was unreasonable, and the appellate court directed entry of two years on remand.200
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■
■
b.
A five-year limitation prohibiting insurance agent from contacting former employer’s customers.201 A three-year restriction prohibiting an accountant from contacting former employer’s customers.202
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
Fla. Stat. § 542.335 does not set forth specific considerations or presumptions with respect to geographic area as it does with respect to time limitations. In determining a reasonable geographic area, courts will generally consider the geographic marketplace of the party seeking to uphold the restriction – specifically, where the party actually does business and where it might reasonably expand.203 The party opposing the restriction can offer a statutory defense if it can show that the restricting party does not actually do business in the specified area.204 Even if a restrictive covenant fails to specify any area at all, the omission may not be fatal, especially where the restrictive covenant precludes contact with specified customers.205
c.
What Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? a.
Reasonable
Geographic restrictions found to be reasonable include: ■
■
■
The United States and Canada, where former employee of management consulting firm admitted his territory included both.206 A 75-mile radius of a former employer (printing services), further limited to a two-county territory actually serviced by the former employee.207 A ten-mile radius of a former employer (hair salon).208 b.
Unreasonable
Geographic restrictions found to be unreasonable include: ■
■ ■
A 75-mile radius of a former employer (paving stone services), where former employer did not have exclusive relationships with its customers and information on customers was obtainable through public means.209 A 30-mile radius of a former employer (equine veterinary services).210 The “entire Palm Beach County area.” Instead, the court ruled, “the reasonable area would be an area from the southernmost boundaries of the City of West Palm Beach north to the Martin County line....”211
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6.
Will the State Enforce a Choice of Law Provision?
Yes. In Florida, as long as there is a reasonable relationship between the contract and the chosen state law, choice of law provisions are deemed presumptively valid and will be enforced unless the law of the chosen forum contravenes the “strong public policy” of Florida.212 “Routine policy considerations” are insufficient to defeat a choice of law.213
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, the enforceability of a restrictive covenant is to be determined by the law of Florida.214
7.
Will the State Enforce a Forum Selection Clause?
Yes. In Manrique v. Fabbri,215 the Florida Supreme Court resolved a conflict among the circuits of the state’s intermediate appellate courts and expressly adopted the view expressed in Maritime Ltd. Partnership v. Greenman Advertising Assocs.216
a.
Preliminary Injunction Bond
A preliminary injunction is “a favored remedy for breaches of restrictive covenants [because] it is ‘inherently difficult’ to determine ‘what damage actually is caused by the employee’s breach of [of a restrictive covenant].’”217 Notwithstanding injunctive relief as a “favored remedy,” Section 542.335(1)(j) provides (in part), “No temporary injunction shall be entered unless the person seeking enforcement of a restrictive covenant gives a proper bond, and the court shall not enforce any contractual provision waiving the requirement of an injunction bond or limiting the amount of such bond.” Before setting an injunction bond amount, a trial court must have some evidentiary basis for the exercise of its discretion.218 “[T]he court may consider factors other than anticipated costs and damages in setting a bond, including the adverse party’s chances of overturning the temporary injunction.”219 The amount of the bond should reflect the foreseeable damages for an improvidentlyentered injunction.220 A wrongfully enjoined party’s damages are generally limited to the bond amount.221
8.
Leading Cases ■
Avalon Legal Info. Servs., Inc. v. Keating, 110 So. 3d 75 (Fla. Dist. Ct. App. 2013)
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DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928 (Fla. Dist. Ct. App. 2012)
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Heiderich v. Florida Equine Veterinary Servs., Inc., 86 So. 3d 527 (Fla. Dist. Ct. App. 2012)
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42 Fifty State Survey on Covenants Not to Compete
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Hilb Rogal & Hobbs of Fla., Inc. v. Grimmel, 48 So. 3d 957 (Fla. Dist. Ct. App. 2010)
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Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009)
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Whitby v. Infinity Radio Inc., 951 So. 2d 890 (Fla. Dist. Ct. App. 2007)
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Litwinczuk v. Palm Beach Cardiovascular Clinic, L.C., 939 So. 2d 268 (Fla. Dist. Ct. App. 2006)
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JonJuan Salon, Inc. v. Acosta, 922 So. 2d 1081 (Fla. Dist. Ct. App. 2006)
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Henao v. Prof’l Shoe Repair, Inc., 929 So. 2d 723 (Fla. Dist. Ct. App. 2006)
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Milner Voice and Data, Inc. v. Tassy, 377 F. Supp. 2d 1209 (S.D. Fla. 2005)
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Open Magnetic Imaging, Inc. v. Nieves-Garcia, 826 So. 2d 415 (Fla. Dist. Ct. App. 2002)
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Shields v. Paving Stone Co., Inc., 796 So. 2d 1267 (Fla. Dist. Ct. App. 2001)
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Capraro v. Lanier Business Prods., Inc., 466 So. 2d 212 (Fla. 1985)
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Dorminy v. Frank B. Hall & Co., 464 So. 2d 154 (Fla. Dist. Ct. App. 1985)
K.
Georgia
1.
Key Statutes
In 2010, Georgia passed a constitutional amendment to allow the Georgia legislature to enact a new statutory scheme dealing with restrictive covenants. That statute, O.C.G.A. § 13-8-50 et seq., applies to restrictive covenants in certain contracts entered into on or after May 11, 2011.222 For restrictive covenants entered into before May 11, 2011, or for restrictive covenants in contracts other than the ones described in the statute, Georgia’s common law would continue to apply.223
Chapter 8 of Title 13 of the Official Code of Georgia Annotated, relating to illegal and void contracts generally, is amended by repealing subsection (a) of Code Section 13–8–2, relating to contracts contravening public policy, and enacting a new subsection (a) to read as follows: O.C.G.A. § 13-8-2 (a) A contract that is against the policy of the law cannot be enforced. Contracts deemed contrary to public policy include but are not limited to: (1) Contracts tending to corrupt legislation or the judiciary;
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(2) Contracts in general restraint of trade, as distinguished from contracts which restrict certain competitive activities, as provided in Article 4 of this chapter; (3) Contracts to evade or oppose the revenue laws of another country; (4) Wagering contracts; or (5) Contracts of maintenance or champerty.” ARTICLE 4 O.C.G.A. § 13-8-50. The General Assembly finds that reasonable restrictive covenants contained in employment and commercial contracts serve the legitimate purpose of protecting legitimate business interests and creating an environment that is favorable to attracting commercial enterprises to Georgia and keeping existing businesses within the state. Further, the General Assembly desires to provide statutory guidance so that all parties to such agreements may be certain of the validity and enforceability of such provisions and may know their rights and duties according to such provisions. § 13-8-51. As used in this article, the term: (1) ‘Affiliate’ means: (A) A person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with another person or entity; (B) Any entity of which a person is an officer, director, or partner or holds an equity interest or ownership position that accounts for 25 percent or more of the voting rights or profit interest of such entity; (C) Any trust or other estate in which the person or entity has a beneficial interest of 25 percent or more or as to which such person or entity serves as trustee or in a similar fiduciary capacity; or (D) The spouse, lineal ancestors, lineal descendants, and siblings of the person, as well as each of their spouses. (2) ‘Business’ means any line of trade or business conducted by the seller or employer, as such terms are defined in this Code section. (3) ‘Confidential information’ means data and information: For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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(A) Relating to the business of the employer, regardless of whether the data or information constitutes a trade secret as that term is defined in Code Section 10–1–761; (B) Disclosed to the employee or of which the employee became aware of as a consequence of the employee's relationship with the employer; (C) Having value to the employer; (D) Not generally known to competitors of the employer; and (E) Which includes trade secrets, methods of operation, names of customers, price lists, financial information and projections, route books, personnel data, and similar information; provided, however, that such term shall not mean data or information (A) which has been voluntarily disclosed to the public by the employer, except where such public disclosure has been made by the employee without authorization from the employer; (B) which has been independently developed and disclosed by others; or (C) which has otherwise entered the public domain through lawful means. (4) ‘Controlling interest’ means any equity interest or ownership participation held by a person or entity with respect to a business that accounts for 25 percent or more of the voting rights or profit interest of the business prior to the sale, alone or in combination with the interest or participation held by affiliates of such person or entity. (5) ‘Employee’ means: (A) An executive employee; (B) Research and development personnel or other persons or entities of an employer, including, without limitation, independent contractors, in possession of confidential information that is important to the business of the employer; (C) Any other person or entity, including an independent contractor, in possession of selective or specialized skills, learning, or abilities or customer contacts, customer information, or confidential information who or that has obtained such skills, learning, abilities, contacts, or information by reason of having worked for an employer; or (D) A franchisee, distributor, lessee, licensee, or party to a partnership agreement or a sales agent, broker, or representative in connection with franchise, distributorship, lease, license, or partnership agreements. Such term shall not include any employee who lacks selective or specialized skills, learning, or abilities or customer contacts, customer information, or confidential information.
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(6) ‘Employer’ means any corporation, partnership, proprietorship, or other business organization, whether for profit or not for profit, including, without limitation, any successor in interest to such an entity, who or that conducts business or any person or entity who or that directly or indirectly owns an equity interest or ownership participation in such an entity accounting for 25 percent or more of the voting rights or profit interest of such entity. Such term also means the buyer or seller of a business organization. (7) ‘Executive employee’ means a member of the board of directors, an officer, a key employee, a manager, or a supervisor of an employer. (8) ‘Key employee’ means an employee who, by reason of the employer's investment of time, training, money, trust, exposure to the public, or exposure to customers, vendors, or other business relationships during the course of the employee's employment with the employer, has gained a high level of notoriety, fame, reputation, or public persona as the employer's representative or spokesperson or has gained a high level of influence or credibility with the employer's customers, vendors, or other business relationships or is intimately involved in the planning for or direction of the business of the employer or a defined unit of the business of the employer. Such term also means an employee in possession of selective or specialized skills, learning, or abilities or customer contacts or customer information who has obtained such skills, learning, abilities, contacts, or information by reason of having worked for the employer. (9) ‘Legitimate business interest’ includes, but is not limited to: (A) Trade secrets, as defined by Code Section 10–1–761; (B) Valuable confidential information that otherwise does not qualify as a trade secret; (C) Substantial relationships with specific prospective or existing customers, patients, vendors, or clients; (D) Customer, patient, or client good will associated with: (i) An ongoing business, commercial, or professional practice, including, but not limited to, by way of trade name, trademark, service mark, or trade dress; (ii) A specific geographic location; or (iii) A specific marketing or trade area; and (E) Extraordinary or specialized training.
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(10) ‘Material contact’ means the contact between an employee and each customer or potential customer: (A) With whom or which the employee dealt on behalf of the employer; (B) Whose dealings with the employer were coordinated or supervised by the employee; (C) About whom the employee obtained confidential information in the ordinary course of business as a result of such employee's association with the employer; or (D) Who receives products or services authorized by the employer, the sale or provision of which results or resulted in compensation, commissions, or earnings for the employee within two years prior to the date of the employee's termination. (11) ‘Modification’ means the limitation of a restrictive covenant to render it reasonable in light of the circumstances in which it was made. Such term shall include: (A) Severing or removing that part of a restrictive covenant that would otherwise make the entire restrictive covenant unenforceable; and (B) Enforcing the provisions of a restrictive covenant to the extent that the provisions are reasonable. (12) ‘Modify’ means to make, to cause, or otherwise to bring about a modification. (13) ‘Products or services’ means anything of commercial value, including, without limitation, goods; personal, real, or intangible property; services; financial products; business opportunities or assistance; or any other object or aspect of business or the conduct thereof. (14) ‘Professional’ means an employee who has as a primary duty the performance of work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction or requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. Such term shall not include employees performing technician work using knowledge acquired through on-the-job and classroom training, rather than by acquiring the knowledge through prolonged academic study, such as might be performed, without limitation, by a mechanic, a manual laborer, or a ministerial employee. (15) ‘Restrictive covenant’ means an agreement between two or more parties that exists to protect the first party's or parties' interest in property, confidential information, customer good will, business relationships, employees, or any other Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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economic advantages that the second party has obtained for the benefit of the first party or parties, to which the second party has gained access in the course of his or her relationship with the first party or parties, or which the first party or parties has acquired from the second party as the result of a sale. Such restrictive covenants may exist within or ancillary to contracts between or among employers and employees, distributors and manufacturers, lessors and lessees, partnerships and partners, employers and independent contractors, franchisors and franchisees, and sellers and purchasers of a business or commercial enterprise and any two or more employers. A restrictive covenant shall not include covenants appurtenant to real property. (16) ‘Sale’ means any sale or transfer of the good will or substantially all of the assets of a business or any sale or transfer of a controlling interest in a business, whether by sale, exchange, redemption, merger, or otherwise. (17) ‘Seller’ means any person or entity, including any successor-in-interest to such an entity, that is: (A) An owner of a controlling interest; (B) An executive employee of the business who receives, at a minimum, consideration in connection with a sale; or (C) An affiliate of a person or entity described in subparagraph (A) of this paragraph; provided, however, that each sale involving a restrictive covenant shall be binding only on the person or entity entering into such covenant, its successors-in-interest, and, if so specified in the covenant, any entity that directly or indirectly through one or more affiliates is controlled by or is under common control of such person or entity. (18) ‘Termination’ means the termination of an employee's engagement with an employer, whether with or without cause, upon the initiative of either party. (19) ‘Trade dress’ means the distinctive packaging or design of a product that promotes the product and distinguishes it from other products in the marketplace. § 13-8-52. (a) The provisions of this article shall be applicable only to contracts and agreements between or among: (1) Employers and employees; (2) Distributors and manufacturers; (3) Lessors and lessees; For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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(4) Partnerships and partners; (5) Franchisors and franchisees; (6) Sellers and purchasers of a business or commercial enterprise; and (7) Two or more employers. (b) The provisions of this article shall not apply to any contract or agreement not described in subsection (a) of this Code section. § 13-8-53. (a) Notwithstanding any other provision of this chapter, enforcement of contracts that restrict competition during the term of a restrictive covenant, so long as such restrictions are reasonable in time, geographic area, and scope of prohibited activities, shall be permitted. However, enforcement of contracts that restrict competition after the term of employment, as distinguished from a customer nonsolicitation provision, as described in subsection (b) of this Code section, or a nondisclosure of confidential information provision, as described in subsection (e) of this Code section, shall not be permitted against any employee who does not, in the course of his or her employment: (1) Customarily and regularly solicit for the employer customers or prospective customers; (2) Customarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others; (3) Perform the following duties: (A) Have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (B) Customarily and regularly direct the work of two or more other employees; and (C) Have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or (4) Perform the duties of a key employee or of a professional. (b) Notwithstanding any other provision of this chapter, an employee may agree in writing for the benefit of an employer to refrain, for a stated period of time following termination, from soliciting, or attempting to solicit, directly or by assisting others, any business from any of such employer’s customers, including actively seeking prospective customers, with Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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whom the employee had material contact during his or her employment for purposes of providing products or services that are competitive with those provided by the employer's business. No express reference to geographic area or the types of products or services considered to be competitive shall be required in order for the restraint to be enforceable. Any reference to a prohibition against “soliciting or attempting to solicit business from customers” or similar language shall be adequate for such purpose and narrowly construed to apply only to: (1) such of the employer's customers, including actively sought prospective customers, with whom the employee had material contact; and (2) products or services that are competitive with those provided by the employer's business. (c) (1) Activities, products, or services that are competitive with the activities, products, or services of an employer shall include activities, products, or services that are the same as or similar to the activities, products, or services of the employer. Whenever a description of activities, products, or services, or geographic areas, is required by this Code section, any description that provides fair notice of the maximum reasonable scope of the restraint shall satisfy such requirement, even if the description is generalized or could possibly be stated more narrowly to exclude extraneous matters. In case of a postemployment covenant entered into prior to termination, any good faith estimate of the activities, products, or services, or geographic areas, that may be applicable at the time of termination shall also satisfy such requirement, even if such estimate is capable of including or ultimately proves to include extraneous activities, products, or services, or geographic areas. The postemployment covenant shall be construed ultimately to cover only so much of such estimate as relates to the activities actually conducted, the products or services actually offered, or the geographic areas actually involved within a reasonable period of time prior to termination. (2) Activities, products, or services shall be considered sufficiently described if a reference to the activities, products, or services is provided and qualified by the phrase “of the type conducted, authorized, offered, or provided within two years prior to termination” or similar language containing the same or a lesser time period. The phrase “the territory where the employee is working at the time of termination” or similar language shall be considered sufficient as a description of geographic areas if the person or entity bound by the restraint can reasonably determine the maximum reasonable scope of the restraint at the time of termination. (d) Any restrictive covenant not in compliance with the provisions of this article is unlawful and is void and unenforceable; provided, however, that a court may modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties. (e) Nothing in this article shall be construed to limit the period of time for which a party may agree to maintain information as confidential or as a trade secret, or to limit the geographic area within which such information must be kept confidential or as a trade For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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secret, for so long as the information or material remains confidential or a trade secret, as applicable. § 13-8-54. (a) A court shall construe a restrictive covenant to comport with the reasonable intent and expectations of the parties to the covenant and in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. (b) In any action concerning enforcement of a restrictive covenant, a court shall not enforce a restrictive covenant unless it is in compliance with the provisions of Code Section 13–8– 53; provided, however, that if a court finds that a contractually specified restraint does not comply with the provisions of Code Section 13–8–53, then the court may modify the restraint provision and grant only the relief reasonably necessary to protect such interest or interests and to achieve the original intent of the contracting parties to the extent possible. § 13-8-55. The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant. If a person seeking enforcement of the restrictive covenant establishes by prima-facie evidence that the restraint is in compliance with the provisions of Code Section 13–8–53, then any person opposing enforcement has the burden of establishing that the contractually specified restraint does not comply with such requirements or that such covenant is unreasonable. § 13-8-56. In determining the reasonableness of a restrictive covenant that limits or restricts competition during or after the term of an employment or business relationship, the court shall make the following presumptions: (1) During the term of the relationship, a time period equal to or measured by duration of the parties' business or commercial relationship is reasonable, provided that the reasonableness of a time period after a term of employment shall be as provided for in Code Section 13–8–57; (2) A geographic territory which includes the areas in which the employer does business at any time during the parties' relationship, even if not known at the time of entry into the restrictive covenant, is reasonable provided that: (A) The total distance encompassed by the provisions of the covenant also is reasonable; (B) The agreement contains a list of particular competitors as prohibited employers for a limited period of time after the term of employment or a business or commercial relationship; or (C) Both subparagraphs (A) and (B) of this paragraph; Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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(3) The scope of competition restricted is measured by the business of the employer or other person or entity in whose favor the restrictive covenant is given; provided, however, that a court shall not refuse to enforce the provisions of a restrictive covenant because the person seeking enforcement establishes evidence that a restrictive covenant has been violated but has not proven that the covenant has been violated as to the entire scope of the prohibited activities of the person seeking enforcement or as to the entire geographic area of the covenant; and (4) Any restriction that operates during the term of an employment relationship, agency relationship, independent contractor relationship, partnership, franchise, distributorship, license, ownership of a stake in a business entity, or other ongoing business relationship shall not be considered unreasonable because it lacks any specific limitation upon scope of activity, duration, or geographic area so long as it promotes or protects the purpose or subject matter of the agreement or relationship or deters any potential conflict of interest. § 13-8-57. (a) In determining the reasonableness in time of a restrictive covenant sought to be enforced after a term of employment, a court shall apply the rebuttable presumptions provided in this Code section. (b) In the case of a restrictive covenant sought to be enforced against a former employee and not associated with the sale or ownership of all or a material part of: (1) The assets of a business, professional practice, or other commercial enterprise; (2) The shares of a corporation; (3) A partnership interest; (4) A limited liability company membership; or (5) An equity interest or profit participation, of any other type, in a business, professional practice, or other commercial enterprise, a court shall presume to be reasonable in time any restraint two years or less in duration and shall presume to be unreasonable in time any restraint more than two years in duration, measured from the date of the termination of the business relationship. (c) In the case of a restrictive covenant sought to be enforced against a current or former distributor, dealer, franchisee, lessee of real or personal property, or licensee of a trademark, trade dress, or service mark and not associated with the sale of all or a part of: (1) The assets of a business, professional practice, or other commercial enterprise; (2) The shares of a corporation;
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(3) A partnership interest; (4) A limited liability company membership; or (5) An equity interest or profit participation, of any other type, in a business, professional practice, or other commercial enterprise, a court shall presume to be reasonable in time any restraint three years or less in duration and shall presume to be unreasonable in time any restraint more than three years in duration, measured from the date of termination of the business relationship. (d) In the case of a restrictive covenant sought to be enforced against the owner or seller of all or a material part of: (1) The assets of a business, professional practice, or other commercial enterprise; (2) The shares of a corporation; (3) A partnership interest; (4) A limited liability company membership; or (5) An equity interest or profit participation, of any other type, in a business, professional practice, or other commercial enterprise, a court shall presume to be reasonable in time any restraint the longer of five years or less in duration or equal to the period of time during which payments are being made to the owner or seller as a result of any sale referred to in this subsection and shall presume to be unreasonable in time any restraint more than the longer of five years in duration or the period of time during which payments are being made to the owner or seller as a result of any sale referred to in this subsection, measured from the date of termination or disposition of such interest. § 13-8-58. (a) A court shall not refuse to enforce a restrictive covenant on the ground that the person seeking enforcement is a third-party beneficiary of such contract or is an assignee or successor to a party to such contract. (b) In determining the enforceability of a restrictive covenant, it is not a defense that the person seeking enforcement no longer continues in business in the scope of the prohibited activities that is the subject of the action to enforce the restrictive covenant if such discontinuance of business is the result of a violation of the restriction. (c) A court shall enforce a restrictive covenant by any appropriate and effective remedy available at law or equity, including, but not limited to, temporary and permanent injunctions.
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(d) In determining the reasonableness of a restrictive covenant between an employer and an employee, as such term is defined in subparagraphs (A) through (C) of paragraph (5) of Code Section 13–8–51, a court may consider the economic hardship imposed upon an employee by enforcement of the covenant; provided, however, that this subsection shall not apply to contracts or agreements between or among those persons or entities listed in paragraphs (2) through (7) of subsection (a) of Code Section 13-8-52. §13-8-59. Nothing in this article shall be construed or interpreted to allow or to make enforceable any restraint of trade or commerce that is otherwise illegal or unenforceable under the laws of the United States or under the Constitution of this state or of the United States.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. Continued employment at-will is sufficient consideration for covenant not to compete.224 Continued employment where the employment is not at-will (i.e., is for a definite term) is not sufficient consideration.225
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, see above.
3.
Are They Enforceable?
Generally, yes. The new Georgia statute establishes a public policy in favor of enforcement of reasonable restrictive covenants. See O.C.G.A. § 13-8-50 (“The General Assembly finds that reasonable restrictive covenants contained in employment and commercial contracts serve the legitimate purpose of protecting legitimate business interests and creating an environment that is favorable to attracting commercial enterprises to Georgia and keeping existing businesses within the state.”). Although much more hostile to restrictive covenants, Georgia common law, which applies to contracts entered into prior to May 11, 2011, also enforced reasonable restrictive covenants, provided that (1) the restraint was reasonable in terms of time, geography, and scope of activity; (2) the covenant was founded upon valuable consideration; (3) the covenant was reasonably necessary to protect the party in whose favor it is imposed; and (4) does not unduly prejudice the interests of the public.226
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Under Georgia common law, covenants not to compete may be enforced if they are reasonable as to time and place and are not overly broad as to the activities proscribed, taking into consideration the interests of individuals in gaining and pursuing a livelihood, of commercial concerns in protecting property, confidential information and relationships, good will and economic advantage, and of the broader public policy favoring individual freedom to enter into contracts and to contract as one will.227 The level of scrutiny applied to a restrictive covenant under Georgia common law depends on the type of agreement at issue. As the Georgia Court of Appeals has explained, there are three types of contracts containing restrictive covenants and three corresponding levels of scrutiny applied by the courts: (1) strict scrutiny, which applies to employment contracts; (2) middle or lesser scrutiny, which applies to professional partnership agreements; and (3) much less scrutiny, which applies to sale of business agreements.228
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Under the new Georgia statute, “a court may modify a covenant that is otherwise void and unenforceable so long as the modification does not render the covenant more restrictive with regard to the employee than as originally drafted by the parties.”229 Under Georgia common law, Georgia courts would not sever, modify, or blue pencil an overbroad noncompete in an employment agreement.230 Importantly, a customer nonsolicitation covenant would “rise and fall” with a noncompete agreement in the employment context. As a result, under the common law, if either a noncompete or a customer nonsolicitation covenant were invalid, then both covenants would be unenforceable.231 However, the “rise and fall” doctrine does not extend to covenants against disclosure or solicitation of employees.232 In the sale of business context, as opposed to the employment context, the Georgia common law would allow for blue penciling of otherwise overbroad restrictive covenants.233 Importantly, the blue pencil “marks, but it does not write. It may limit an area, thus making it reasonable, but it may not rewrite a contract void for vagueness.”234 For example, the Georgia Court of Appeals held that a restrictive covenant that completely omitted a geographic term could not be saved by blue penciling.235
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
See above.
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
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With regard to customer nonsolicitation covenants, O.C.G.A. § 13-8-53(b) provides that a covenant against “soliciting or attempting to solicit business from customers” “shall be adequate” to make an enforceable covenant that will apply only to (1) customers, including actively sought prospective customers, with whom the employee had material contact and (2) products or services that are competitive with those provided by the employer. “Material contact” is specifically defined in the statute as “the contact between an employee and each customer or potential customer (A) with whom or which the employee dealt on behalf of the employer; (B) whose dealings with the employer were coordinated or supervised by the employee; (C) about whom the employee obtained confidential information in the ordinary course of business as a result of such employee’s association with the employer; or (D) who receives products or services authorized by the employer, the sale or provision of which results or resulted in compensation, commissions, or earnings for the employee within two years prior to the date of the employee’s termination.” O.C.G.A. § 13-8-51(10). With regard to the geographic scope of noncompete covenants, O.C.G.A. § 13-8-53(c)(2) provides that the phrase “the territory where the employee is working at the time of termination” “shall be considered sufficient as a description of geographic areas if the person or entity bound by the restraint can reasonably determine the maximum reasonable scope of the restraint at the time of termination.” With regard to the scope of activity limit in a noncompete covenant, O.C.G.A. § 13-853(c)(2) provides that “activities, products, or services shall be considered sufficiently described if a reference to the activities, products, or services is provided and qualified by the phrase ‘of the type conducted, authorized, offered, or provided within two years prior to termination.’” With regard to time limitations, O.C.G.A. § 13-8-57 provides a number of presumptions related to reasonableness. In the employment context, O.C.G.A. § 13-8-57(b) provides that a covenant of two years or less is presumed reasonable and more than two years is presumed unreasonable. In the case of a distributor, dealer, franchisee, lessee, or licensee, O.C.G.A. § 13-8-57(c) provides that a covenant of three years or less is presumed reasonable and more than three years is presumed unreasonable. In the sale of business context, O.C.G.A. § 13-857(d) involves a two-step process. First, the court must determine which time period is longer – five years, or the period of time during which payments from the buyer continue to flow to the seller. Second, the longer of those two time periods becomes the “cutoff” for the court’s reasonableness presumption. A covenant that is shorter than the cutoff is presumed reasonable, and a covenant that is longer is presumed unreasonable. Under Georgia common law, the courts considered several factors in examining the geographic limits, time limits, and scope of activity. The reasonableness of a restriction is a question of law that considers “the nature and extent of the trade or business, the situation of the parties, and all other relevant circumstances.”236 Georgia courts also consider an employee’s right to earn a living and ability to determine with certainty the boundaries of the geographic area.237 Such considerations are balanced against the employer’s interest in the customer relationships its former employee established at work and its right to protect For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
56 Fifty State Survey on Covenants Not to Compete
itself from the risk that the former employee might use those contacts to unfairly appropriate the customers.238 Courts may also consider the role the former employee played in the business, allowing employers to enforce broader covenants against particularly key employees.239 Courts also consider the public’s interest, for example, in having a sufficient number of doctors in a geography, but note that one less doctor in a restricted area is simply one more doctor elsewhere.240 With regard to geography, Georgia courts generally consider valid a territory that is limited to the area where the employee provided services and consider invalid any territory that is broader, whether described as the territory where the employer does business, or in other geographic terms241. As a result, employers cannot under Georgia common law anticipate future changes in the territory, but instead must change the geographic term of their noncompetes whenever an employee’s territory changes during the course of employment242. Notably, no geographic term is required for a customer nonsolicitation covenant, so long as the covenant is limited to customers with whom the employee had actual contact.243 With regard to time limits, there are no time restrictions that are per se unreasonable under Georgia law.244. Yet, the Georgia Supreme Court has suggested that it would consider the length of time required for another salesman to be assigned to the customers serviced by the former employee and develop working relationships with those customers.245 Importantly, nondisclosure covenants must also have time limits to the extent they apply to confidential information that does not rise to the level of a trade secret under the Georgia Trade Secrets Act.246 With regard to scope of activity, Georgia common law emphasized that noncompetes must be limited not just in time and geography, but also in the scope of the activity covered. Thus, Georgia courts have consistently invalidated covenants using broad “in any capacity” language.247 The requirement that a noncompete covenant be limited to the same kinds of services that the employee provided to the former employer does not apply in the professional partnership, “mid-level” scrutiny context.248
a.
What Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
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Reasonable
A two-year noncompete in an employment agreement limited to tax preparation services and the customers serviced by the employee within the employee’s district of employment and a 25-mile radius from the office where the employee worked.249 A two-year covenant customer nonsolicitation covenant limited to customers that the employees actually served and products offered by the employer while employees worked there.250 A two-year, 40-mile covenant by a physician prohibiting participation in any entity that provides dialysis services.251 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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A five-year, 50-mile radius noncompetition and nonsolicitation covenant given by the seller of a business.252 A 36-month, eight-mile covenant executed by a physician, which specified the addresses and offices where the physician worked.253 A five-year, nine-county noncompetition covenant given by the seller of a business.254 A one-year noncompete covenant that prohibited a veterinarian from working as a veterinarian or from managing a veterinary clinic within five miles of the clinic she previously managed.255 An 18-month, 25-mile radius (around 10 cities) covenant not to compete barring employee from providing the same services provided to former employer, a software development company.256 A one-year covenant barring employees of a photocopying equipment company from competing in selling or renting photocopying equipment within specified counties.257 A two-year covenant barring an insurance agency manager from competing in the sale of specified types of insurance of policyholders whose insurance had been placed by the agency.258 A one-year covenant not to compete in a contract of a laundry salesman.259 A two-year covenant barring competitive employment within 10 miles of two cities.260 A 200-mile covenant, in light of the “unusual” nature of the former employer’s business.261 A one-year covenant barring employees of a photocopying equipment company from competing in selling or renting photocopying equipment within specified counties.262 ii.
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Unreasonable
A two-year customer non-solicitation barring direct or indirect customer solicitation on the grounds that a company cannot prevent employees from accepting unsolicited business.263 A one-year covenant purporting to bar a former employee of a pest control service from soliciting or transacting any business with any entity that had done business with the former employer during the 12-month period preceding termination of the employment relationship.264 A covenant barring competition within a 50-mile radius of any city in which a former employee did business.265
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6.
A two-year covenant not to compete in an area greater than that in which the former employee had actually worked.266 A covenant purporting to cover 34 counties, on the ground that the former employer had no business in at least three of those counties.267
Will the State Enforce a Choice of Law Provision?
The Georgia conflict of laws rule for contracts, lex loci contractus, governs employment contracts. Therefore, where the last act required for contract formation occurred in Georgia, Georgia law applies.268
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
Lex loci contractus Under Marketing & Research Counselors v. Booth,269 “restrictive covenants at issue in a Georgia case will be interpreted under Georgia law.”
7.
Will the State Enforce a Forum Selection Clause?
Yes, in Iero v. Mohawk Finishing Products, Inc.,270 the Court of Appeals of Georgia found that forum selection clauses in employment contracts with non-competition and non-disclosure covenants were enforceable.
8.
Leading Cases ■
Cobb Family Dentistry, P.C. v. Reich, 259 Ga. 450 (1989)
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Nat’l Teen-Ager Co. v. Scarborough, 254 Ga. 467 (1985)
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Rollins Protective Servs. Co. v. Palermo, 249 Ga. 138 (1982)
L.
Hawaii
1.
Key Statutes
Haw. Rev. Stat. § 480-4 (1988) (IERM 552:3). Combinations in restraint of trade, price-fixing and limitation of production prohibited. a) Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce in the State, or in any section of this State is illegal. b) Without limiting the generality of the foregoing no person, exclusive of members of a Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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single business entity consisting of a sole proprietorship, partnership, trust, or corporation, shall agree, combine, or conspire with any other person or persons, or enter into, become a member of, or participate in, any understanding, arrangement, pool, or trust, to do, directly or indirectly, any of the following acts, in the State or any section of the State: (1) Fix, control, or maintain, the price of any commodity; (2) Limit, control, or discontinue, the production, manufacture, or sale of any commodity for the purpose or with the result of fixing, controlling or maintaining its price; (3) Fix, control, or maintain, any standard of quality of any commodity for the purpose or with the result of fixing, controlling, or maintaining its price; (4) Refuse to deal with any other person or persons for the purpose of effecting any of the acts described in (1) to (3) of this subsection. (c) Notwithstanding the foregoing subsection (b) and without limiting the application of the foregoing subsection (a) it shall be lawful for a person to enter into any of the following restrictive covenants or agreements ancillary to a legitimate purpose not violative of this chapter, unless the effect thereof may be substantially to lessen competition or to tend to create a monopoly in any line of commerce in any section of the State: (1) A covenant or agreement by the transferor of a business not to compete within a reasonable area and within a reasonable period of time in connection with the sale of the business; (2) A covenant or agreement between partners not to compete with the partnership within a reasonable area and for a reasonable period of time upon the withdrawal of a partner from the partnership; (3) A covenant or agreement of the lessee to be restricted in the use of the leased premises to certain business or agricultural uses, or covenant or agreement of the lessee to be restricted in the use of the leased premises to certain business uses and of the lessor to be restricted in the use of premises reasonably proximate to any such leased premises to certain business uses; (4) A covenant or agreement by an employee or agent not to use the trade secrets of the employer or principal in competition with the employee’s or agent’s employer or principal, during the term of the agency or thereafter, or after the termination of employment, within such time as may be reasonably necessary for the protection of the employer or principal, without imposing undue hardship on the employee or agent.
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2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
This issue has not been decided in Hawaii. However, in Technicolor, Inc. v. Traeger, , the Hawaii Supreme Court referred to the Court of Appeals of Tennessee’s decision in Ramsey v. Mutual Supply Co.271 in saying that employment in itself can be sufficient consideration to support such a contract.272
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Same as above.
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
This issue has not been decided in Hawaii.
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
According to the Supreme Court of Hawaii, courts will find a non-competition provision unreasonable if it is greater than required for the protection of the person for whose benefit it is imposed, if it imposes undue hardship on the person restricted; or its benefit to the covenantee is outweighed by injury to the public.273
a.
What Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
■
Technicolor, Inc. v. Traeger, 57 Haw. 113 (1976) (three years and state of Hawaii).
■
7’s Enters., Inc. v. Del Rosario, 111 Hawai’i 484 (2006) (three years). ii.
Unreasonable
Not applicable.
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6.
Will the State Enforce a Choice of Law Provision?
There is a presumption that Hawaii law applies unless another state’s law would best serve the interests of the states and persons involved.274
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
Hawaii law applies in the absence of a choice of law provision.275
7.
Will the State Enforce a Forum Selection Clause?
This issue has not been decided in Hawaii.
8.
Leading Cases ■
Technicolor, Inc. v. Traeger, 57 Haw. 113 (1976).
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7’s Enters., Inc. v. Del Rosario, 111 Hawai’i 484 (2006).
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UARCO Inc. v. Lam, 18 F. Supp. 2d 1116 (1998).
M.
Idaho
1.
Key Statutes
Idaho Code §§ 44-2701-2704. Effective July 1, 2008, the Idaho legislature amended Title 44 of the Idaho Code by adding a new Chapter 27 to provide for agreements and covenants to protect employer’s “legitimate business interests” with regard to “key” employees and independent contractors. §44-2701. Agreements and Covenants Protecting Legitimate Business Interests. A key employee or key independent contractor may enter into a written agreement or covenant that protects the employer's legitimate business interests and prohibits the key employee or key independent contractor from engaging in employment or a line of business that is in direct competition with the employer's business after termination of employment, and the same shall be enforceable, if the agreement or covenant is reasonable as to its duration, geographical area, type of employment or line of business, and does not impose a greater restraint than is reasonably necessary to protect the employer's legitimate business interests. §44-2702. Definitions.
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For purposes of this section [chapter], the following terms shall have the following meanings: (1) "Key employees" and "key independent contractors" shall include those employees or independent contractors who, by reason of the employer's investment of time, money, trust, exposure to the public, or exposure to technologies, intellectual property, business plans, business processes and methods of operation, customers, vendors or other business relationships during the course of employment, have gained a high level of inside knowledge, influence, credibility, notoriety, fame, reputation or public persona as a representative or spokesperson of the employer, and as a result, have the ability to harm or threaten an employer's legitimate business interests. (2) "Legitimate business interests" shall include, but not be limited to, an employer's goodwill, technologies, intellectual property, business plans, business processes and methods of operation, customers, customer lists, customer contacts and referral sources, vendors and vendor contacts, financial and marketing information, and trade secrets as that term is defined by chapter 8, title 48, Idaho Code. §44-2703. Construction and Enforcement To the extent any such agreement or covenant is found to be unreasonable in any respect, a court shall limit or modify the agreement or covenant as it shall determine necessary to reflect the intent of the parties and render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement or covenant as limited or modified. §44-2704. Restriction of Direct Competition – Rebuttable Presumptions. (1) Under no circumstances shall a provision of such agreement or covenant, as set forth herein, establish a postemployment restriction of direct competition that exceeds a period of eighteen (18) months from the time of the key employee's or key independent contractor's termination unless consideration, in addition to employment or continued employment, is given to a key employee or key independent contractor. Nothing in this chapter shall be construed to limit a party's ability to otherwise protect trade secrets or other information deemed proprietary or confidential. (2) It shall be a rebuttable presumption that an agreement or covenant with a postemployment term of eighteen (18) months or less is reasonable as to duration. (3) It shall be a rebuttable presumption that an agreement or covenant is reasonable as to geographic area if it is restricted to the geographic areas in which the key employee or key independent contractor provided services or had a significant presence or influence. (4) It shall be a rebuttable presumption that an agreement or covenant is reasonable as to type of employment or line of business if it is limited to the type of employment or line of business conducted by the key employee or key independent contractor while working for the employer.
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(5) It shall be a rebuttable presumption that an employee or independent contractor who is among the highest paid five percent (5%) of the employer's employees or independent contractors is a "key employee" or a "key independent contractor." To rebut such presumption, an employee or independent contractor must show that it has no ability to adversely affect the employer's legitimate business interests.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. In Ins. Assocs. Corp. v. Hansen (Hansen I),276 the employee, an insurance agent, entered into a written employment agreement containing a restrictive covenant 1 year and 8 months after beginning employment.277
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
This issue has not been decided in Idaho.
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
If the restrictions in the covenant not to compete are unenforceable because they are overbroad, the courts are permitted to modify the covenant to make the restrictions narrower and to make the covenant enforceable. However, the covenant must not be so lacking in its essential terms relating to area, time, and subject matter limitations that the court itself would have to supply these essential restrictions in order to make the covenant reasonable. By statute since 2008, “To the extent any such agreement or covenant is found to be unreasonable in any respect, a court shall limit or modify the agreement or covenant as it shall determine necessary to reflect the intent of the parties and render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement or covenant as limited or modified.”278 Under pre-statute common law, the courts could blue pencil a non-compete agreement to strike an unreasonable word or two, but would not add any clauses to render a contract reasonable as that would mean that court was “re-writing” the parties’ contract.
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In Freiburger v. J-U-B Engineers, Inc., the Idaho Supreme Court found the covenant not to compete, which prohibited the former employee from providing any services to any former clients to be overbroad.279 In Ins. Ctr. v. Taylor), the court held that it rejects the in toto approach and the “divisibility” concept. Consequently, enforcement varies upon circumstances of each case.280 Rather than choosing between absolute enforcement or not enforcing there will be a wide range of alternatives available to meet the particular facts of the case being tried. However, “a covenant not to compete may not be modified to make it reasonable if the covenant is ‘so lacking in the essential terms which would protect the employee’ such that the trial court is no longer modifying but rewriting the covenant.”281
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Effective July 1, 2008, § 44-2404(2) makes it a rebuttable presumption that an agreement with a key employee or an independent contractor with a restrictive covenant lasting for 18 months or less is reasonable as to duration. Pre-statutory common law suggests that an unlimited temporal element or insufficient definition in terms of what may or may not be done by the covenanted will lead the courts to find the covenant unmodifiably overbroad. The “reasonableness” of a non-compete covenant under the statute is not determined by the plaintiff’s subjective intent or motive, as that is considered irrelevant.282
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
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Reasonable
A give-year non-compete in an asset purchase agreement and a two-year noncompete covenant in a related employment agreement.283 A five-year, 50-mile radius covenant not to engage in direct or indirect competition.284 A one-year covenant, covering “any country in which the former employer conducts business.”285 A one-year covenant against engaging in “any capacity in the truck brokerage business” within a 300-mile radius of Boise, Idaho.286
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A two-year, 25-mile radius covenant.287
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A three-year, 25-mile radius covenant.288
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ii. ■
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6.
Unreasonable
A covenant not to compete in compounding prescriptions in the area of Coeur d’Alene in a business termination agreement was void for being unlimited as to time.289 Two-year covenant barring an independent contractor engineer from offering, selling, or trading his services to past or current customers of the former employer because “services” was insufficiently defined.290 While not necessarily fatal, lack of a temporal restriction can make a noncompete covenant unenforceable under pre-statutory common law.291 A covenant lacking limitation of time, area, and scope of activity.292
Will the State Enforce a Choice of Law Provision?
This issue has not been explicitly decided in Idaho. However, provides that parties to commercial transactions have the power to choose the applicable law governing their transactions.293 The statute states that “when a transaction bears a reasonable relation to this state and also to another state or nation, the parties may agree that the law either of this state or such other state shall cover their rights and duties.” The Idaho Supreme Court has adhered to the parties’ contractual choice of law provision in a noncompete case.294 And more generally, Idaho courts recognize choice-of-law provisions.295 Cerami-Kote v. Energywave Corp. involved the application of a Florida choice-of-law-andforum clause in a licensing contract.296 According to the Idaho Supreme Court, the lower court erred in not applying Florida law expressly to determine the validity of the forums election clause.
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
This issue has not been decided in Idaho. However, in contract cases generally, Idaho courts apply the “most significant relationship” test of the Restatement (Second) of Conflict of Laws to determine which law applies in the absence of a provision in the contract.
7.
Will the State Enforce a Forum Selection Clause?
Yes; however, one of the factors invalidating a forum selection clause in a contract is that the clause would violate strong public policy either in the forum where the suit would be brought or the forum from which the suit has been excluded.297
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8.
Leading Cases ■
Intermountain Eye and Laser Centers, P.L.L.C. v. Miller, 142 Idaho 218 (2005).
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Freiburger v. J-U-B Engineers, Inc., 141 Idaho 415 (2005).
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Dick v. Geist, 107 Idaho 931 (Ct.App. 1985).
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Marshall v. Covington, 81 Idaho 1999 (1959).
N.
Illinois
1.
Key Statutes
Illinois does not have a general statute or regulation governing non-compete agreements. However, there are statutes and regulations for specific industries or professions. Broadcast Industry Free Market Act, 820 Ill. Comp. Stat. 17/10 17/10. Post-employment covenants not to compete are prohibited § 10. Post-employment covenants not to compete are prohibited. (a) No broadcasting industry employer may require in an employment contract that an employee or prospective employee refrain from obtaining employment in a specific geographic area for a specific period of time after termination of employment with that broadcasting industry employer. (b) This Section does not prevent the enforcement of a covenant not to compete during the term of an employment contract or against an employee who breaches an employment contract. Appraisal Management Company Registration Act, 225 Ill. Comp. Stat. 459/165 459/165. Prohibited Activities § 165. Prohibited Activities. (a)No person or entity acting in the capacity of an appraisal management company shall improperly influence or attempt to improperly influence the development, reporting, result, or review of any appraisal by engaging, without limitation, in any of the following: (7)Requiring an appraiser to sign a non-compete clause when not an employee of the entity. Illinois Procurement Code, Procurement Ethics and Disclosures – 30 Ill. Comp. Stat. 500/5025.
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500/50-25. Inducement § 50-25. Inducement. Any person who offers or pays any money or other valuable thing to any person to induce him or her not to bid for a state contract or as recompense for not having bid on a state contract is guilty of a Class 4 felony. Any person who accepts any money or other valuable thing for not bidding for a state contract or who withholds a bid in consideration of the promise for payment of money or other valuable thing is guilty of a Class 4 Felony. Illinois Rules of Professional Conduct Rule 5.6. Restriction on Right to Practice. A lawyer shall not participate in offering or making (a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No, unless the period of employment is two years or more.298 In Fifield, the Illinois Appellate Court held that continued at-will employment does not provide adequate consideration for a covenant not to compete until the employee has been employed for two years. Importantly, Fifield states that this rule applies even if the covenant is signed at or before the start of new employment. The rule expressed in the Fifield case is that when atwill employment serves as the consideration for a covenant not to compete, “there must be at least two years or more of continued employment to constitute adequate consideration in support of the restrictive covenant. This rule is maintained even if the employee resigns on his own instead of being terminated.”299 The Fifield court departed from prior Illinois precedent that no separate consideration needed to be provided for a covenant not to compete at the outset of employment and that substantial continued employment could serve as consideration for a mid-stream covenant not to compete.300
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, as long as the change in the terms of employment provides consideration that is substantial enough not to be considered illusory.301
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3.
Are They Enforceable?
Yes, under certain circumstances. In 2011, the Illinois Supreme Court broadly addressed the enforceability of covenants not to compete in Reliable Fire Equip. Co. v. Arrendondo.302 The court held there that a “restrictive covenant, assuming that it is ancillary to a valid employment relationship, is reasonable only if the covenant:303 ■
Is no greater than is required for the protection of a legitimate business interest of the employer-promisee;
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Does not impose undue hardship on the employee-promisor; and
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Is not injurious to the public.”
With respect to the first prong, the court held that “whether a legitimate business interest exists is based on the totality of the facts and circumstances of the individual case. Factors to be considered in this analysis include, but are not limited to, the near-permanence of customer relationships, the employee’s acquisition of confidential information through his employment, and time and place restrictions. No factor carries any more weight than any other, but rather its importance will depend on the specific facts and circumstances of the individual case.”304
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Under Illinois law, a court must assess three factors to determine whether judicial reformation of a restrictive covenant is proper – even with a contractual provision permitting modification. The court must determine “the fairness of the restraint initially imposed… .”305 “[A] court should refuse to modify an unreasonable restrictive covenant, not merely because it is unreasonable, but where the degree of unreasonableness renders it unfair.”306 Where, the restraint is patently “unfair because of its overbreadth,” a court should refuse to modify the agreement, even if a provision permits it.307 Furthermore, Illinois law permits judicial reformation of a covenant only when the modification is “slight” or “minor.”308 When “significant modification” is necessary in order to make the covenant “conform to legal standards of reasonableness,” judicial reformation is improper.309 Lastly, the employer must establish that the proposed modification renders the covenant reasonable and thus enforceable.310 Indeed, the whole point of a judicial modification of a covenant is to “make it reasonable under the law.”311 Thus, just because an employer is willing to narrow a covenant does not ipso facto make the narrowed version enforceable under Illinois law. The employer still must establish that the proposed modification is narrowly tailored to protect a legitimate business interest.312
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5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
For both time and geographic restrictions, the courts will consider: ■
The length of time for the employer to get new clients, Eichmann v. Nat’l Hosp. and Health Care Servs., Inc., 719 N.E.2d 1141, 1148 (Ill. App. 1st Dist. 1999);
■
Hardship to the employee;313 and
■
The non-compete’s effect upon the public.314
For geographic restrictions, the courts examine whether the restraints are broader than necessary to protect the employer’s interests.315 In specific, the courts will look to whether the restrictive area is coextensive with that in which the employer is doing business.316
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
While the length of time that is reasonable depends upon the facts and circumstances of the particular case, two years often has been deemed reasonable.317 The Illinois courts have upheld various geographical limitations that covered the entire United States, but more typically for a limited radius.318 ii.
Unreasonable
Courts have also found time restrictions of varying lengths to be unreasonable.319 With respect to geographical limitations, in Cambridge Eng’g, Inc. v. Mercury Partners 90 BI, Inc., the court looked to see if the geographic restriction was the same where the employer did business and found covenant overbroad because it covered all of Canada.320 Likewise, in Arpac Corp. v. Murray, a covenant not to compete in the shrink wrap business anywhere in the United States except for four noncontiguous state found unreasonable.321
6.
Will the State Enforce a Choice of Law Provision?
In Illinois, the law of the state chosen by the contracting parties will apply unless (1) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (2) its application would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue.322
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a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
In the absence of a choice of law provision, Illinois courts will apply the “most significant relationship” test of the Second Restatement of Conflict of Laws. Under this test, the court will examine a variety of factors, including the place where the contract was negotiated and formed, the place where performance was to occur, and the location of the parties.323
7.
Will the State Enforce a Forum Selection Clause?
Forum selection clauses generally are enforceable.324
8.
Leading Cases ■
Reliable Fire Equip. Co. v. Arrendondo, 965 N.E.2d 393 (Ill. 2011).
■
House of Vision, Inc. v. Hiyane, 225 N.E.2d 21 (Ill. 1967).
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Fifield v. Premier Dealer Services, Inc., 993 N.E.2d 938 (Ill. App. 1st Dist. 2013).
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■
■
Cambridge Eng’g, Inc. v. Mercury Partners, 90 BI, Inc., 879 N.E.2d 512 (Ill. App. 1st Dist. 2007). Eichmann v. Nat’l Hosp. and Health Care Servs., Inc., 719 N.E.2d 1141 (Ill. App. 1st Dist. 1999). Arpac Corp. v. Murray, 589 N.E.2d 640 (Ill. App. 1st Dist. 1992).
O.
Indiana
1.
Key Statutes
None. However, enforcement of covenants not to compete within the legal profession may be restricted by Indiana’s code of professional responsibility.325
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
This issue has not been addressed by recent, published Indiana case law. However, in 2013, the Indiana Court of Appeals ruled in an unpublished memorandum opinion that (a) “[t]he fact that [the former employee] had been employed for a number of years prior to entering into the employment agreement has no bearing on the consideration exchanged in this case” and that (b) continued at-will employment was sufficient consideration for the former
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employee’s “promise not to compete or divulge confidential information.”326 In so ruling, the court noted that in Ackerman v. Kimball Int’l, Inc., [hereinafter, Ackerman II], the Indiana Supreme Court had previously adopted the portions of an appellate opinion holding that continued employment in the at-will context constituted sufficient consideration.327
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes; although there is no case law directly on point.328
3.
Are They Enforceable?
Yes. Covenants not to compete in the employment context are found reasonable where:329 ■
The restraint is reasonably necessary to protect the employer;
■
The restraint is not unreasonably restrictive of the employee; and
■
The restraint is not against public policy.
“In determining the reasonableness [of a covenant not to compete], factors to be considered are the scope of the legitimate business interests of the employer and the geographic and temporal limits on the restraint.”330 “[W]hether the covenant is unreasonably restrictive of the employee is measured in terms of time, space, and the activity or conduct prohibited.”331 “A covenant not to compete is unreasonable when it is broader than necessary for the protection of a legitimate business interest in terms of the geographical area, time period, and activities restricted.”332 Thus, a “covenant not to compete must be sufficiently specific in scope to coincide with only the legitimate interests of the employer and to allow the employee a clear understanding of what conduct is prohibited.”333
4.
Modification, Severability, and “blue penciling” overbroad agreements.
Indiana courts will “blue pencil” covenants not to compete, but only if the contract’s terms are divisible.334 Indiana courts may only “excise” severable words or terms; they will not rewrite agreements or enforce them only to the extent that such enforcement would be reasonable; rather, “where an agreement contains distinct and readily severable provisions, and where some are valid and others are not, Indiana courts apply the so-called ‘blue pencil’ doctrine and may strike out the invalid provisions and enforce the valid provisions.”335 That is, “[b]lue penciling must be restricted to applying terms which already clearly exist in the contract and the court’s redaction of a contract may not result in the addition of terms that were not originally part of the contract.”336 Thus, “if practicable, unreasonable terms are rendered reasonable by scratching out any offensive clauses to give effect to the parties’ intentions.”337
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a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
As explained above, Indiana courts will modify the agreements only to the extent that unreasonable provisions can be excised.338 It should be noted that courts are not compelled to blue pencil, and may do so at their discretion.339 And the blue pencil rule will not save an otherwise unreasonably broad covenant not to compete.340 Where a covenant not to compete in an employment contract states that the temporal restriction shall be extended upon and for as long as a violation specified in another part of the contract, a court, in granting a preliminary injunction, shall not modify the contract by applying the specified addition in granting a preliminary injunction.341
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
A covenant indefinite as to time but very narrowly limited in geographic area can be enforceable.342 Where no trade secrets are at issue, lack of both time and geographical limitations renders a covenant void as against public policy.343 “[A] covenant not to compete that contains no geographic limitation is presumptively void,” though it “may be reasonable if its reach is adequately limited by other means.”344 Thus, Indiana courts also have allowed a customer restriction to substitute for a geographic restriction where the covenant lists a specific class of persons with whom contact is prohibited because “as the specificity of limitation regarding the class of persons with whom contact is prohibited increases, the need for limitation expressed in territorial terms decreases.”345 In determining whether the geographic restrictions in the covenant are reasonable, the court considers whether the geographic restriction is no broader than the employee’s (not the employer’s) geographic area of work because “[w]hether a geographic scope is reasonable depends on the interest of the employer that the restriction serves.”346 However, “[w]here individuals travel to obtain offered services, an employer may have a protectable interest extending over a greater geographical area than that previously serviced by the employee.”347
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Temporal restrictions: Indiana courts generally affirm covenants for terms of one-three years after employment ends.348
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Covenants for five year terms are occasionally upheld.349 In one instance, a 10-year restrictive sales covenant relating to the eastern half of the U.S. and Canada was upheld, on the basis that the two business were sophisticated parties with equal bargaining power (unlike in an employment context).350 Geographic restrictions: Some geographic restrictions that the Indiana courts have found to be reasonable include: ■ ■
■
■ ■
■
A two-year, 25-mile radius restriction against doctor;351 A three-year, 50-mile radius restriction against physicians and an incorporated physicians group;352 A two-year, 25-mile covenant not to “own, manage, or materially participate in any business substantially similar to” the plaintiff’s housekeeping service;353 A one-year, seven-county restriction for a bank officer;354 A two-year, 50-mile radius restriction against franchisee of tax preparation service,;355 and A three-year covenant against competition in the former sales territory.356 ii.
Unreasonable
Some geographic restrictions that the Indiana courts have found to be unreasonable include: ■
■
■
■
A geographic restriction restricting the employee from working in a competitive capacity within an area that extends to working for the competitor in any state in which that competitor does business, as well as any other entity providing competitive services in the employer’s county, any contiguous counties, any county in the state in which employer had at least one customer, the state as a whole, and within a 50-mile radius of employer’s principle office.357 A three-year restrictive covenant encompassing the “continental United States” where the employer’s legitimate interests were minimal.358 A restrictive covenant whose provision “extends indefinitely and has no geographic limitation whatsoever.”359 Application of a restrictive covenant to new facility that did not exist at the time the employee resigned from the job where restrictive covenant generally applied to any medical facility in a 25-mile radius;360 A nation-wide restriction on a former employee was found unreasonable where the evidence indicated that the services he provide for the former employer did not extend throughout the entire nation;361
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■
■
■
6.
A restrictive covenant covering 32 states in which employer conducts business was found unreasonable where former employee had contact with customers and vendors in only 19 states;362 A three-state radius covering the area served by the branch where the employees worked was unreasonable because it was broader than the geographic scope in which the employees, personally, worked;363 and A covenant restricting competition in entire state of Indiana was unreasonable where the employee primarily worked in only northern Indiana and there was no proof that he worked in “every area” of the State.364
Will the State Enforce a Choice of Law Provision?
Indiana courts generally allow the parties to determine which state’s law is to govern their agreements, although Indiana courts will not apply the law of another state if Indiana’s public policy interests outweigh those of the state chosen by the parties.365
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Indiana uses the “most intimate contacts” test in the absence of an express choice of law. In determining which state has the most intimate contacts, Indiana courts “consider a number of factors, including the place of contracting and negotiation, the place of performance, the location of the subject matter and the parties’ place of business.366
7.
Will the State Enforce a Forum Selection Clause?
Yes. Indiana courts recognize “that forum selection provisions are enforceable if reasonable and just.”367 It is “incumbent on the party seeking to escape his contract to show that trial in the forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court.”368
8.
Leading Cases ■ ■
■
■
Central Ind. Podiatry, P.C. v. Kruger, 882 N.E.2d 723 (Ind. 2008). Dicen v. New Sesco, Inc.,839 N.E.2d 684 (Ind. 2005), aff’g in part 639 N.E.2d 633 (Ind. Ct. App. 2004). Ackerman v. Kimball Int’l, Inc., 652 N.E.2d 507 (Ind. 1995), aff’g 634 N.E.2d 778 Ind. Ct. App. 1994). Licocci v. Cardinal Assocs., 445 N.E.2d 556 (Ind. 1983).
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P.
Iowa
1.
Key Statutes
None. However, note that restrictions on the enforcement of covenants not to compete within the legal profession may be imposed by the state’s code of professional responsibility.369
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.370 However, the court may still weigh the consideration to determine whether it is grossly disproportionate to the injury that enforcement of the covenant would cause or to the benefit that would accrue from its enforcement.371
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
While this issue has not been expressly decided in Iowa, in Iowa Glass Depot v. Jindrich, the employee had been promoted approximately one year before he signed the covenant at issue.372 In holding that mere continued employment was insufficient consideration in light of the “grossly disproportionate” harm that enforcing the covenant would have on the former employee, the court noted that the employee, on signing the covenant, “did not receive any additional compensation, security, promises or other benefits” and that he was “not required to sign it and no adverse action would probably have been taken if he refused to do so.”373 The implication is that changes in the terms and conditions of employment in favor of the employee would have supplied the required consideration.
3.
Are They Enforceable?
Yes. Restrictive covenants are generally enforceable.374 However, the “restriction must be no greater than necessary to protect the employer. Moreover, the covenant must not be oppressive or create hardships on the employee out of proportion to the benefits the employer may be expected to gain.”375 Thus, courts consider whether such restrictions are: ■
reasonably necessary for the protection of the employer’s business;
■
unreasonably restrictive of the employee’s rights; and
■
prejudicial to the public interest.376
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However, restrictive covenants that are unlimited as to time or area are unreasonable and unenforceable.377
4.
Modification, Severability, and “blue penciling” overbroad agreements.
So long as the facts and circumstances do not indicate bad faith on the part of the employer, Iowa courts may modify restrictions in or partially enforce an otherwise unenforceable covenant not to compete.378
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
No. As explained above, the Iowa courts’ ability to modify the agreements means that the courts need not strike down the entire agreement; however, the issue of whether a covenant not to compete could have been partially enforced will not be considered on appeal if it was not properly raised in the trial court below.379
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Courts applying Iowa law consider, among other things, whether the former employee enjoys “relative youth” and whether the former employer has made a “significant investment” in the development of its unique processes.380 “Where a question is raised as to the territorial scope of a noncompetition agreement, it should be fairly enforced in view of the objects and purposes of the parties.”381 Thus, most cases “establishing geographic zones wherein competition is prohibited have protected locations within a specified radius of some business situs of the covenant obligor.”382
a.
What Geographic or Time Restrictions Have the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Iowa courts tend to approve ranges from two to three years, but restrictive covenants beyond five years appear not to have been enforced.383 Geographical restrictions that courts applying Iowa law have approved include: ■ ■
a three-year, 25-mile radius restriction from a single city;384 one-year, 250-mile radius restriction from former employer’s facility or satellite office against embryo-transplant specialist where former employee “would routinely travel distances up to 250 miles in order to service certain customers”;385
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■
■
■
a one-year non-solicitation restriction in the area in which the former employee had actually worked for the former employer,;386 a two-year covenant barring sales to eight identified customers with whom the former employee actually did business during their last year of employment, but not from sales to other, less significant accounts, ;387 and a two-year nationwide restriction against working “at any business involved in the biodiesel or renewable fuel industry in the nation” where the former employee sought to work not “just at any biodiesel producer, but to work for one of the few plants in the country that produces biodiesel using the same methods as [the plaintiff].”388 ii.
Unreasonable
Geographical restrictions that courts have found unreasonable include: 100-mile radius of employer’s Iowa offices where the employer’s having a large number of offices resulted in a prohibition of competition in essentially the entire state;389 and a 1-year covenant purporting to bar work “in any capacity for any computer-related company anywhere in the world.”390
6.
Will the State Enforce a Choice of Law Provision?
Iowa courts generally follow the Restatement (Second) of Conflict of Laws § 187, whereby the law of the chosen state will generally be applied unless that state “has no substantial relationship to the parties or the transaction” and “there is no other reasonable basis for the parties’ choice.”391 Iowa courts will also refuse to enforce a choice of law provision if they find that application of the chosen state’s law would contradict the public policy of a state that has a materially greater interest in the dispute than the chosen state.392 While claims for breach of covenant not to compete are generally analyzed under the above-rubric, claims for breach of covenant not to disclose trade secrets are treated as torts, and therefore the “most significant relationship” test under Restatement (Second) of Conflict of Laws § 145(1) applies.393
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, Iowa courts generally follow the “most significant relationship” test under Restatement (Second) of Conflict of Laws § 188.394 The factors to be considered include the needs of the interstate and international systems; the relevant policies of other interested states and the relative interests of those states; the protection of justified expectations; the basic policies underlying the particular field of law; and the certainty, predictability, uniformity and ease in the determination and application of the law to be applied.395
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7.
Will the State Enforce a Forum Selection Clause?
It appears that Iowa has not yet evaluated a forum selection clause in the context of a covenant case. However, as with other types of cases, venue is proper in the judicial district in which a substantial part of the events giving rise to a dispute occurred.396
8.
Leading Cases ■
Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C., 728 N.W.2d 832 (Iowa 2007).
■
Presto-X-Co. v. Ewing, 442 N.W.2d 85 (Iowa 1989).
■
Casey’s Gen. Stores v. Campbell Oil, 441 N.W.2d 758, 761 (Iowa 1989).
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Lamp v. Am. Prosthetics, 379 N.W.2d 909 (Iowa 1986).
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Iowa Glass Depot v. Jindrich, 338 N.W.2d 376 (Iowa 1983).
■
Ehlers v. Iowa Warehouse Co., 118 N.E.2d 368 (Iowa 1971), modified at 190 N.W.2d 413 (Iowa 1971).
Q.
Kansas
1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.397 Continuing employment could be adequate consideration and was in this case where employee defendant was retained, promoted and entrusted with company secrets for a significant period of time (seven years) after signing the contract containing a noncompete. Moreover, the plaintiff employer expressly advised the employee that signing the agreement was a condition of continued employment.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.398
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3.
Are They Enforceable?
Yes. Kansas law recognizes the enforceability of noncompetes.399 A noncompetition clause is valid if it is ancillary to a lawful contract, but it is subject to the test of reasonableness and whether it is inimical to public welfare.400 If the sole purpose is to avoid ordinary competition, it is unreasonable and unenforceable.401 A covenant not to compete is to be strictly construed against the employer.402
4.
Modification, Severability, and “blue penciling” overbroad agreements.
Where the territory designated in a contract is found to be more extensive than necessary to provide reasonable protection against professional encroachment, courts of equity have the power to reduce such territory to the extent reasonably necessary to insure protection. It is the duty of court to sustain the legality of contracts in whole or in part when fairly entered into, when reasonably possible to do so, rather than to seek loopholes and technical legal grounds for defeating their intended purpose.403
a.
Indicate Whether the Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
No. Courts are free to modify agreements. “Equity should not permit an injustice which might result from total rejection of the covenant merely because the court disagrees with an employer’s judgment as to what restriction is necessary to protect his business. “404
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
“To be reasonable, the geographic and temporal restrictions must be no greater than necessary to protect the employer’s interest.”405 When deciding what is reasonable, a court must look to the facts and circumstances of the case.406
a.
What Geographic or Time Restrictions Have the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
In Idbeis v. Wichita Surgical Specialists, the Supreme Court of Kansas upheld a two year restrictive covenant for surgeons.407 In Weber, the Supreme Court of Kansas upheld a two year restriction which prevented a dermatologist from practicing within a 30 mile radius of his former employer’s office.408 In Varney Bus. Servs., Inc. v. Pottroff,409 the Supreme Court of Kansas upheld a provision requiring an employee who left the firm to compensate the firm for those clients the employee provided services for in the subsequent five years. In Foltz v. Struxness, , the Supreme Court of Kansas upheld a non-compete effective from 10 years from the date that the agreement was signed; when the employee separated from the For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
80 Fifty State Survey on Covenants Not to Compete
company, there were eight years remaining on the noncompete.410 The court upheld a three year noncompete.411 ii. ■
■
6.
Unreasonable
Eastern Dist., 222 Kan. 666 (reducing 50 mile geographic restriction to four specific counties). Bruce D. Graham, 31 Kan. App. 2d at 571 (reduced area restriction prohibiting physician form opening office within 25 miles of employer’s office where there was a dearth of specialists in the area and the restriction would have established a monopoly on the Kansas side for the employer).
Will Kansas Enforce a Choice of Law Provision?
Yes.412 “Kansas courts permit choice of law provisions to control if the transaction at issue has a ‘reasonable relation’ to that state.”413
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In contract actions, Kansas courts follow the general rule that the place where the contract is made controls interpretation. The contract is “made” where the last act necessary for its formation is performed.414
7.
Will the State Enforce a Forum Selection Clause?
Yes.415
8.
Leading Cases ■
Weber v. Tillman, 259 Kan. 457 (1996).
■
Idebis v. Wichita Surgical Specialists, P.A., 279 Kan. 755 (2005).
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Puritan-Bennett Corp. v. Richter, 235 Kan. 251 (1984).
■
Eastern Dist. Co., Inc. v. Flynn, 222 Kan. 666 (1977).
■
Foltz v. Struxness, 168 Kan. 714 (1950).
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R.
Kentucky
1.
Key Statutes
Kentucky has no state statute of general applicability that governs the enforceability of covenants not to compete. Ky. Rev. Stat. § 311.285, declaring against public policy and unenforceable noncompetition clauses between health care providers that purport to last for one year or more, was repealed by 1996 Kentucky Laws Ch. 371 (S.B. 343). However, restrictions on the enforcement of covenants not to compete within the legal profession may be imposed by the state’s code of professional responsibility.
2.
Consideration Required
Yes.416 When the covenant is part of the agreement from the outset, and not an afterthought covenant later added to the agreement, the doctrine of mutuality only requires that both parties to the contract be bound to perform.417
a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes, provided the employer continues to employ employee for an appreciable length of time after they sign the covenant, and the employee then leaves voluntarily.418 Continued employment is not the only factor the courts consider in determining the sufficiency of consideration.419
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, but there must be a showing of “an additional mutuality of obligation” for the added covenant.420 A non-competition agreement signed 16 years after the employment began was held not to be supported by consideration because it was not part of an employment contract at the outset and did not modify the terms of employment relationship (such as acquisition of specialized knowledge or training or salary increase); changes in job responsibilities arguably constituted demotion rather than promotion.421
3.
Are They Enforceable?
Yes, Kentucky rejects the notion that employee non-compete agreements are against public policy, and thus they are clearly enforceable.422 Kentucky courts would enforce a covenant that is “reasonable in scope and purpose.”423 However, dictum in Higdon Food Serv. v. Walker & Kesterson Meat Co. , suggests that circumstances surrounding the employment termination may be an factor in deciding whether or not a restrictive covenant should be For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
82 Fifty State Survey on Covenants Not to Compete
enforceable.424 The court characterized the requirement to discharge only “in good faith” as an important factor in finding consideration.425 Furthermore, in Orion Broadcasting, Inc. v. Forsythe, , the court, relying on principles of mutuality, determined that non-competition agreements are unenforceable in at will employment situations when employee is fired; it noted, however, that it would enforce the non-competition agreement against an at will employee who voluntarily severed his or her employment.426
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
In Kentucky, the blue pencil rule extends to all provisions of a non-competition agreement, and courts are empowered to reform or amend restrictions if they are overly broad or burdensome.427 In Hammons v. Big Sandy Claims Serv.428, the court said that “[w]here the covenant, as originally drawn has been found too broad, courts have no difficulty in restricting it to its proper sphere and enforcing it only to that extent. This rule has been applied in Kentucky.”429
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
The Kentucky courts’ ability to modify the agreements generally means that the courts need not strike down the entire agreement.
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
The factors include nature/character of the business, potential damage to the former employer’s business by former employee’s competition, and the hardship on the covenantee and the public.430 Non-compete agreements lasting about two years are reasonable “so long as there [are] no facts indicating that the duration [is] substantially longer than necessary to protect a company’s ability to compete in a field.”431
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Kentucky courts consistently uphold agreements for one or two years.432 On occasion, Kentucky courts have upheld longer temporal restrictions.433 An oral covenant not to engage in a competing business, not specific as to time or territory, has been found unreasonable.434
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a.
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
The factors include nature or character of the business, potential damage to the former employer’s business by former employee’s competition, and the hardship on the covenantee and the public.435 “Kentucky courts take into account the geographic reach of the employer’s business when assessing the reasonableness of geographic restrictions in a non-compete clause.”436
b.
What Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Kentucky courts generally find those geographic restrictions reasonable which include the place or location of an employment site, or up to 200 mile radius of a specific site, where the employee worked.437 Kentucky courts also enforce nationwide non-compete agreements if employer conducts business nationwide or employee’s duties involve work on nationwide scale.438 An oral covenant not to engage in a competing business, not specific as to time or territory, has been found unreasonable.439
6.
Will the State Enforce a Choice of Law Provision?
No reported Kentucky case has considered a choice of law provision in a covenant not to compete case. However, Kentucky follows Restatement (Second) of Conflict of Laws §188 in contract cases. In Breeding v. Massachusetts Indem. & Life Ins. Co., the Kentucky Supreme Court relied on the “most significant relationship” test of Section 188 and refused to apply a choice of law provision in an insurance policy contract.440
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
No reported Kentucky case has addressed this issue in a covenant not to compete case. However, Kentucky courts follow Restatement (Second) of Conflict of Laws §188 in contract cases and apply the law of the state with the most significant relationship to the parties.441
7.
Will the State Enforce a Forum Selection Clause?
No reported Kentucky opinion addressed this issue. However, Kentucky courts generally will enforce forum selection or consent to jurisdiction clauses in contract actions, so long as the provisions are reasonable.442
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8.
Leading Cases ■
Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345 (Ky. 2014).
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Higdon Food Serv. v. Walker & Kesterson Meat Co., 641 S.W.2d 750 (Ky. 1982).
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Lareau v. O’Nan, 355 S.W.2d 679 (Ky. 1962).
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Ceresia v. Mitchell, 242 S.W.2d 359 (Ky. 1951).
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Kegel v. Tillotson, 297 S.W.3d 908, 911 (Ky. Ct. App. 2009)
■
Central Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681 (Ky. Ct. App. 1981).
■
Hammons v. Big Sandy Claims Serv., 567 S.W.2d 313, 315 (Ky. Ct. App. 1978).
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Hall v. Willard & Woolsey P.S.C., 471 S.W.2d 316 (Ky. Ct. App. 1971).
S.
Louisiana
1.
Key Statutes
La. Rev. Stat. Ann. § 23:921 provides: A.(1) Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable. (2) The provisions of every employment contract or agreement, or provisions thereof, by which any foreign or domestic employer or any other person or entity includes a choice of forum clause or choice of law clause in an employee’s contract of employment or collective bargaining agreement, or attempts to enforce either a choice of forum clause or choice of law clause in any civil or administrative action involving an employee, shall be null and void except where the choice of forum clause or choice of law clause is expressly, knowingly, and voluntarily agreed to and ratified by the employee after the occurrence of the incident which is the subject of the civil or administrative action. B. Any person, including a corporation and the individual shareholders of such corporation, who sells the goodwill of a business may agree with the buyer that the seller or other interested party in the transaction, will refrain from carrying on or engaging in a business similar to the business being sold or from soliciting customers of the business being sold within a specified parish or parishes, or municipality or municipalities, or parts thereof, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, not to exceed a period of two years from the date of sale. C. Any person, including a corporation and the individual shareholders of such corporation, who is employed as an agent, servant, or employee may agree with his employer to refrain from carrying on or engaging in a business similar to that of the Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment. An independent contractor, whose work is performed pursuant to a written contract, may enter into an agreement to refrain from carrying on or engaging in a business similar to the business of the person with whom the independent contractor has contracted, on the same basis as if the independent contractor were an employee, for a period not to exceed two years from the date of the last work performed under the written contract. D. For the purposes of Subsections B and C, a person who becomes employed by a competing business, regardless of whether or not that person is an owner or equity interest holder of that competing business, may be deemed to be carrying on or engaging in a business similar to that of the party having a contractual right to prevent that person from competing. E. Upon or in anticipation of a dissolution of the partnership, the partnership and the individual partners, including a corporation and the individual shareholders if the corporation is a partner, may agree that none of the partners will carry on a similar business within the same parish or parishes, or municipality or municipalities, or within specified parts thereof, where the partnership business has been transacted, not to exceed a period of two years from the date of dissolution. F.(1) Parties to a franchise may agree that: (a) The franchisor shall refrain from selling, distributing, or granting additional franchises to sell or distribute, within defined geographic territory, those products or services which are the subject of the franchise. (b) The franchisee shall: (i) During the term of the franchise, refrain from competing with the franchisor or other franchisees of the franchisor or engaging in any other business similar to that which is the subject of the franchise. (ii) For a period not to exceed two years following severance of the franchise relationship, refrain from engaging in any other business similar to that which is the subject of the franchise and from competing with or soliciting the customers of the franchisor or other franchisees of the franchisor. (c) The employee if employed by a franchisor shall: (i) During the term of his employment by the franchisor, refrain from competing with his employer or any of the franchisees of his employer or engaging in any other business similar to that which is the subject of the franchise.
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86 Fifty State Survey on Covenants Not to Compete
(ii) For a period not to exceed two years following severance of the employment relationship between the franchisor and the employee, refrain from engaging in any other business similar to that which is the subject of the franchise between the franchisor and its franchisees and from competing with or soliciting the customers of his employer or the franchisees of his employer. (2) As used in this Subsection: (a) “Franchise” means any continuing commercial relationship created by any arrangement or arrangements as defined in 16 Code of Federal Regulations 436.2(a). (b) “Franchisee” means any person who participates in a franchise relationship as a franchisee, partner, shareholder with at least a ten percent interest in the franchisee, executive officer of the franchisee, or a person to whom an interest in a franchise is sold, as defined in 16 Code of Federal Regulations 436.2(d), provided that no person shall be included in this definition unless he has signed an agreement expressly binding him to the provisions thereof. (c) “Franchisor” means any person who participates in a franchise relationship as a franchisor as defined in 16 Code of Federal Regulations 436.2(c). G.(1) An employee may at any time enter into an agreement with his employer that, for a period not to exceed two years from the date of the termination of employment, he will refrain from engaging in any work or activity to design, write, modify, or implement any computer program that directly competes with any confidential computer program owned, licensed, or marketed by the employer, and to which the employee had direct access during the term of his employment or services. (2) As used in this Subsection, “confidential” means that which: (a) Is not generally known to and not readily ascertainable by other persons. (b) Is the subject of reasonable efforts under the circumstances to maintain its secrecy. (3) As used in this Subsection, “computer program” means a plan, routine, or set of statements or instructions, including any subset, subroutine, or portion of instructions, regardless of format or medium, which are capable, when incorporated into a machinereadable medium, of causing a computer to perform a particular task or function or achieve a particular result. (4) As used in this Subsection, “employee” shall mean any individual, corporation, partnership, or any other entity which contracts or agrees with an employer to perform, provide, or furnish any services to, for, or on behalf of such employer. H. Any agreement covered by Subsection B, C, E, F, G, J, K, or L of this Section shall be considered an obligation not to do, and failure to perform may entitle the obligee to recover Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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damages for the loss sustained and the profit of which he has been deprived. In addition, upon proof of the obligor’s failure to perform, and without the necessity of proving irreparable injury, a court of competent jurisdiction shall order injunctive relief enforcing the terms of the agreement. Any agreement covered by Subsection J, K, or L of this Section shall be null and void if it is determined that members of the agreement were engaged in ultra vires acts. Nothing in Subsection J, K, or L of this Section shall prohibit the transfer, sale, or purchase of stock or interest in publicly traded entities. I.(1) There shall be no contract or agreement or provision entered into by an automobile salesman and his employer restraining him from selling automobiles. (2)(a) For the purposes of this Subsection, “automobile” means any new or used motor-driven car, van, or truck required to be registered which is used, or is designed to be used, for the transporting of passengers or goods for public, private, commercial, or for-hire purposes. (b) For the purposes of this Subsection, “salesman” means any person with a salesman’s license issued by the Louisiana Motor Vehicle Commission or the Used Motor Vehicle and Parts Commission, other than a person who owns a proprietary or equity interest in a new or used car dealership in Louisiana. J. A corporation and the individual shareholders of such corporation may agree that such shareholders will refrain from carrying on or engaging in a business similar to that of the corporation and from soliciting customers of the corporation within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the corporation carries on a similar business therein, not to exceed a period of two years from the date such shareholder ceases to be a shareholder of the corporation. A violation of this Subsection shall be enforceable in accordance with Subsection H of this Section. K. A partnership and the individual partners of such partnership may agree that such partners will refrain from carrying on or engaging in a business similar to that of the partnership and from soliciting customers of the partnership within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the partnership carries on a similar business therein, not to exceed a period of two years from the date such partner ceases to be a partner. A violation of this Subsection shall be enforceable in accordance with Subsection H of this Section. L. A limited liability company and the individual members of such limited liability company may agree that such members will refrain from carrying on or engaging in a business similar to that of the limited liability company and from soliciting customers of the limited liability company within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the limited liability company carries on a similar business therein, not to exceed a period of two years from the date such member ceases to be a member. A violation of this Subsection shall be enforceable in accordance with Subsection H of this Section.
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2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. Continued employment provides sufficient consideration to support a non-compete agreement entered into after employment has begun, even where employee must sign the agreement under threat of termination.443
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. A beneficial change in the terms of employment can constitute consideration to support a non-compete agreement entered into after the inception of employment.444
3.
Are They Enforceable?
Yes. Non-compete agreements are enforceable so long as they comply with La. Rev. Stat. Ann. § 23:921.445 La. Rev. Stat. Ann. § 23:921(A)(1) provides: Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Generally, no. The majority of Louisiana courts decline to save invalid non-competition provisions through reformation.446 However, Louisiana courts will allow non-competition agreements to be reformed to fit within La. Rev. Stat. Ann. § 23:921(C) if the employment contract contains a severability clause.447 Generally, a court will strike down a covenant for geographic restrictions. Louisiana courts will not reform overbroad geographic restrictions.448
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5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
La. Rev. Stat. Ann. § 23:921(C) dictates the applicable time restrictions on non-compete agreements, which cannot exceed two years from the termination of employment (for employees) or the date of the last work performed under the written contract (for independent contractors).449 La. Rev. Stat. Ann. 23:921(C) also dictates the applicable geographic limitations on noncompete agreements, which limits the enforceability of to a geographic area “within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein.”450
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Louisiana courts have often held two-year covenants to be enforceable.451 Courts strictly construe La. Rev. Stat. Ann. § 23:921(C) and require the parish or municipality (including counties in other states) be explicitly referenced in the non-compete agreement and that the non-compete restriction is enforceable only for those parishes or municipalities in which the employer competes.452
6.
Will the State Enforce a Choice of Law Provision?
No, unless the employee ratifies the choice of law provision after the incident that is the subject of the underlying action. La. Rev. Stat. Ann. § 23:921(A)(2) provides: The provisions of every employment contract or agreement, or provisions thereof, by which any foreign or domestic employer or any other person or entity includes a choice of forum clause or choice of law clause in an employee’s contract of employment or collective bargaining agreement, or attempts to enforce either a choice of forum clause or choice of law clause in any civil or administrative action involving an employee, shall be null and void except where the choice of forum clause or choice of law clause is expressly, knowingly, and voluntarily agreed to and ratified by the employee after the occurrence of the incident which is the subject of the civil or administrative action.
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence or derogation of a contractual choice of law provision, Louisiana courts apply Louisiana law where the contract was entered into and performed in Louisiana.453
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Where the agreement involves contacts with other states, Louisiana courts look to Articles 3515 and 3537 of the Louisiana Civil Code.454 Article 3515 provides: Except as otherwise provided in this Book, an issue in a case having contacts with other states is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue. That state is determined by evaluating the strength and pertinence of the relevant policies of all involved states in the light of: (1) the relationship of each state to the parties and the dispute; and (2) the policies and needs of the interstate and international systems, including the policies of upholding the justified expectations of parties and of minimizing the adverse consequences that might follow from subjecting a party to the law of more than one state. Article 3537 provides that the court is to:455 Evaluat[e] the strength and pertinence of the relevant policies of the involved states in the light of: (1) the pertinent contacts of each state to the parties and the transaction, including the place of negotiation, formation, and performance of the contract, the location of the object of the contract, and the place of domicile, habitual residence, or business of the parties; (2) the nature, type, and purpose of the contract; and (3) the policies referred to in Article 3515, as well as the policies of facilitating the orderly planning of transactions, of promoting multistate commercial intercourse, and of protecting one party from undue imposition by the other.
7.
Will the State Enforce a Forum Selection Clause?
No, unless the employee ratifies the forum selection clause after the incident that is the subject of the underlying action. La. Rev. Stat. Ann. § 23:921(A)(2) provides: The provisions of every employment contract or agreement, or provisions thereof, by which any foreign or domestic employer or any other person or entity includes a choice of forum clause or choice of law clause in an employee’s contract of employment or collective bargaining agreement, or attempts to enforce either a choice of forum clause or choice of law clause in any civil or administrative action involving an employee, shall be null and void except where the choice of forum clause or choice of law clause is expressly, knowingly, and voluntarily agreed to and ratified by the employee after the occurrence of the incident which is the subject of the civil or administrative action. v. ■
Leading Cases.
SWAT 24 Shreveport Bossier, Inc. v. Bond, 808 So.2d 294 (La. 2001). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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La. Smoked Prods., Inc. v. Savoie’s Sausage & Food Prods., Inc., 696 So.2d 1373 (La. 1997).
T.
Maine
1.
Key Statutes
None, but note, 26 Me. Rev. Stat. § 599 (broadcasting industry contracts presumptively unreasonable).
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.456
Most likely. The court in Lord v. Lord, suggested that where the parties have freely consented, the covenant will be enforced.457
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Yes, overbroad covenants may be more narrowly enforced.458
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The covenant must “sweep no wider than necessary to protect the business interests in issue.”459
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92 Fifty State Survey on Covenants Not to Compete
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? ii.
■
■
A one-year covenant prohibiting 10 year employees from selling or servicing in the largest county in Maine.460 A 16-month, two mile agreement not to compete in optometry.461 i.
■
6.
Reasonable
Unreasonable
A five-year covenant prohibiting a former employee from acting as a real estate agent in numerous cities.462
Will the State Enforce a Choice of Law Provision?
Yes.463
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
While this has not been addressed in a noncompete case, Maine generally follows the Restatement (Second) of Conflict of Laws.464
7.
Will State Enforce a Forum Selection Clause?
Yes.465
8.
Leading Cases ■
Chapman & Drake v. Harrington, 545 A.2d 645, 647 (Me. 1988).
U.
Maryland
1.
Key Statutes
None.
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2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.466
Yes.467
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Some courts have allowed blue penciling.468 Other courts have applied the following two part inquiry:469 ■
■
Does the restrictive covenant as a whole evidence a deliberate intent by the employer to place unreasonable and oppressive restrictions on the employee/covenantee? If so, then the entire covenant is invalidated, whether severable or not. If the agreement, although unreasonable, satisfies the test in part 1, then the court should modify the express terms so as to align the reasonable expectations of the parties to the reasonable expectations of the law.
The Court of Appeals on certiorari found that the provision was severable on a client-byclient basis.470 However, it did not adopt the lower court’s flexible approach as good law.
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Restrictions must be “confined within limits which are no wider . . . than are reasonably necessary for protection of the business of the employer and do not impose undue hardship on the employee or disregard the public interest.”471
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94 Fifty State Survey on Covenants Not to Compete
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■ ■
■
An 18-month, 50-mile radius agreement. 472 A two-year covenant prohibiting the former subcontractor from contacting clients with whom he had contact.473 A two-year covenant prohibiting a former franchisee from operating a pizza store within 10 miles of the franchise location was likely enforceable.474 ii.
■
6.
Reasonable
Unreasonable
Two-year covenant without geographical limitation prohibiting two former employees from engaging in any activity in competition with the company.475
Will the State Enforce a Choice of Law Provision?
Yes. Maryland follows the Restatement (Second) of Conflict of Laws § 187(2). Under Maryland law, a court construing restrictive covenants should presume that the parties' choice of law is enforceable.476 Section 187 of the Restatement provides that the law of the state chosen by the parties to govern their contractual rights and duties will apply unless the chosen state has no relationship with the parties and the transaction, or unless the application of the law of the chosen state will be contrary to the fundamental policy of the forum state.477 .
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Generally, the courts look to the law of the state where the contract was made.478
7.
Will the State Enforce a Forum Selection Clause?
The issue has not been addressed in a noncompete case, however, courts have applied forum selection clauses in other contexts.479
8.
Leading Cases ■
Faw, Casson & Co. v. Everngam, 94 Md. App. 129 (1992).
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V.
Massachusetts
1.
Key Statutes
There is no legislation of general applicability; however, the following statutes or rules prohibit noncompetition agreements for certain professions: Mass. Gen. Laws. ch. 112, § 12X (Physicians), Mass. Gen. Laws. ch. 112, § 74D (Nurses), Mass. Gen. Laws. ch. 112, § 135C (Social Workers), Mass. Gen. Laws. ch. 149, § 186 (Broadcasting Industry); and Mass. R. Prof. Conduct 5.6 (lawyers).
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
The Massachusetts Appeals Court has determined continued employment alone may constitute sufficient consideration for a noncompetiton agreement,480 although lower courts and the federal court have come to different conclusions on the issue.481
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
See Section 2.a. above regarding continued employment. An employer, however, may not be able to enforce a noncompetition agreement after a material change in the terms of employment unless the employee executes another non-competition agreement.482
3.
Are They Enforceable?
Yes, to the extent the convent is reasonable to protect an employer’s legitimate business interest, including, without limitation, goodwill, reputation, and confidential information; however, a Massachusetts court will not enforce an agreement designed to protect against ordinary competition and an employee may carry away and use the general skills and knowledge obtained from its former employer during the course of employment.483
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Massachusetts courts have not adopted a “blue penciling”approach; however, courts will reform and enforce an overbroad agreement to the extent the modification makes the agreement reasonable.484
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96 Fifty State Survey on Covenants Not to Compete
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The court finds covenants that prohibit an employee from earning a living over a significant amount of time to be unreasonable.485 Courts have found that time restrictions as long as five years are unreasonable; however, “[w]hat is reasonable depends on the facts in each case.”486
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
■
A one-year, 40-mile restriction from former employee’s offices.487
■
A one year covenant with a hairstylist, within the market area of the salon.488
■
■
■
Three-year restriction against a real estate salesman within the 14 towns that the company operated.489 A restriction covering 100 miles around Boston reasonable and noting that a five year restriction may be troublesome.490 Geographic scope covering the entire United States was reasonable considering the narrow field of employment. 491 Agreements containing restrictions in areas in which a former employee’s former employer operates and those that extent one or two years commonaly are found reasoanble.492 ii.
6.
Reasonable
Unreasonable
■
Covenants lacking geographical terms.493
■
Covenants where radius seemed arbitrarily selected.494
■
Agreements designed to protect against ordinary competition.495
Will the State Enforce a Choice of Law Provision?
Yes, unless application would violate public policy, which may be the public policy of a state other than Massachusetts.496 1.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Massachusetts follows the Restatement (Second) of Conflict of Laws and applies the substantive law of the state which has the most significant relationship to the transaction when no choice of law clause is found in a contract.497
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7.
Will the State Enforce a Forum Selection Clause?
Yes, unless they are unreasonable or unfair.498
8.
Leading Cases ■
Boulanger v. Dunkin’ Donuts, Inc., 442 Mass. 635 (2004).
■
Packaging Indus. Grp., Inc. v. Cheney, 405 N.E.2d 106, 112 (Mass. 1980)).
■
Marine Contractors Co., Inc. v. Hurley, 365 Mass. 280 (1974).
■
All Stainless, Inc. v. Colby, 364 Mass. 773 (1974).
■
F. A. Bartlett Tree Expert Company v. Barrington , 353 Mass. 585 (1968).
■
My Bread Baking Co. v. Jesi, 214 N.E.2d 53, 54 (Mass. 1966).
■
Genzyme Corp. v. Laidlaw, 3 N.E.3d 110 (Mass. App. Ct. 2014).
■
■ ■
■
Wilkinson v. QCC, Inc., No. 99-P-1854, 53 Mass. App. Ct. 1109 (Mass. App. Ct. Dec. 21, 2001). Kroeger v. Stop & Shop Cos., 432 N.E.2d 566, 568 (Mass. App. Ct. 1982). Dynamics Research Corp. v. Analytic Science Corp., 400 N.E.2d 1274, 1282 (Mass. App. Ct. 1980)). Marcam Corp. v. Orchard, 885 F. Supp. 294 (D. Mass. 1995).
W.
Michigan
1.
Key Statutes
Mich. Comp. Laws § 445.774a provides: Section 4a. (1) An employer may obtain from an employee an agreement or covenant which protects an employer’s reasonable competitive business interests and expressly prohibits an employee from engaging in employment or a line of business after termination of employment if the agreement or covenant is reasonable as to its duration, geographical area, and the type of employment or line of business. To the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.
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2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. Continued employment is sufficient consideration to support an agreement not to compete.499
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. There is “sufficient consideration if continuation of their employment hinged on signing the [non-compete] agreement.”500
3.
Are They Enforceable?
Yes. Mich. Comp. Laws § 445.774a expressly provides that non-compete agreements are enforceable. “Noncompetition agreements are in principle enforceable in Michigan, because contracts are generally presumed to be valid and proper.”501 However, “noncompetition agreements are disfavored as restraints on commerce.”502 Enforceability of non-compete provisions is determined by their reasonableness.503 To be reasonable in relation to an employer’s competitive business interest, a restrictive covenant must protect against the employee’s gaining some unfair advantage in competition with the employer, but not prohibit the employee from using general knowledge or skill.504
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Courts are explicitly empowered by statute to reform a noncompetition agreement between an employer and an employee to make them reasonable. Mich. Comp. Laws § 445.774a provides that “[t]o the extent any such agreement or covenant is found to be unreasonable in any respect, a court may limit the agreement to render it reasonable in light of the circumstances in which it was made and specifically enforce the agreement as limited.”505
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Enforceability of both time and geography restrictions of non-compete agreements is determined by the reasonableness of the restriction.506 “For geographic scope, the guiding principle is that such geographic limitations must be tailored so that the scope of the agreement is no greater than reasonably necessary to protect the employer’s legitimate business interests.”507 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Courts have held time restrictions up to five years to be reasonable.508 ii.
Unreasonable
Non-compete agreements with no geographic limitation are generally unreasonable unless the employer actually has legitimate business interests throughout the world and the restriction is limited in business scope.509
6.
Will the State Enforce a Choice of Law Provision?
Yes. Michigan follows the approach of the Restatement (Second) of Conflict of Laws, in which parties’ contractual choice of law will be binding unless either:510 ■
■
a.
The chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or Application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which would be the state of applicable law in the absence of an effective choice of law by the parties.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Michigan has adopted the approach of the Restatement (Second) of Conflict of Laws, which provides that in the absence of an effective choice of law by the parties, the contacts to be taken into account to determine applicable law include the place of contracting; the place of contract negotiation; the place of performance; the location of the contract subject matter; and the domicile, residence, nationality, place of incorporation and business of the parties. 511
7.
Will the State Enforce a Forum Selection Clause?
Yes. Michigan courts generally enforce contractual forum-selection clauses pursuant to the requirements and exceptions set forth in Mich. Comp. Laws § 600.745.512 Mich. Comp. Laws § 600.745 provides: (2) If the parties agreed in writing that an action … may be brought in this state and the agreement provides the only basis for the exercise of jurisdiction, a court of this state shall entertain the action if all the following occur: For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
100 Fifty State Survey on Covenants Not to Compete
(a) The court has power under the law of this state to entertain the action. (b) This state is a reasonably convenient place for the trial... (c) The agreement as to the place of the action is not obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means. (d) The defendant is served with process as provided by court rules. Michigan courts, however, will not enforce venue selection agreements.513
8.
Leading Cases ■
■
Rory v. Continental Ins. Co., 703 N.W.2d 23, 34 n.32 (Mich. 2005) (noting Mich. Comp. Laws § 445.774a expressly grants the judiciary the responsibility of assessing the reasonableness of non-compete agreements between employer and employee). Chrysler Corp. v. Skyline Industrial Services, Inc., 528 N.W.2d 698 (Mich. 1995) (adopting the Restatement (Second) of Conflict of Laws approach).
X.
Minnesota
1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No, without more, continued employment does not provide adequate consideration to support a covenant not to compete because “the adequacy of consideration for such restrictive covenant depends on the facts of each case.”514 Thus, “[p]roof of continued employment is not enough to show sufficient consideration for a noncompetition agreement [entered into subsequent to agreement for employment].”515 That is, “[c]ontinuation of employment alone can be used to uphold coercive agreements, but the agreement must be bargained for and provide the employee with real advantages.”516
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b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, if the changes constitute “adequate consideration to support the noncompetition agreement.”517 Thus, for example, Minnesota courts have held that “a promotion serves as consideration for a non-compete agreement at the time when the terms of the promotion have been defined and the promotion has been formally offered and accepted in writing,”518 but such promotions and salary increases must be “tied to the [execution of the] noncompetition agreement” and “attributable to [some]thing other than the performance that was expected of [the employee] under the initial employment agreement” or else they will not constitute the “independent consideration” needed.519
3.
Are They Enforceable?
Yes, but they are disfavored because they are considered partial restraints on trade; as such, they are enforced only to the extent they are reasonably necessary to protect an interest of the employer and can be enforced without imposing an unnecessary hardship on the employee’s livelihood.520
4.
Modification, Severability, and “blue penciling” overbroad agreements.
Minnesota courts “may take an overly broad restriction and enforce it to the extent the restriction is reasonable.”521 Courts may limit the geographic area to the employer’s customers or to a reasonable geographic area.522 “Although it is within the court’s discretion to make [ ] modification, . . . [w]hen a court blue-pencils a contract between the parties, it must provide an explanation of why the revision is warranted.”523
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Minnesota courts apply two alternate standards when determining the reasonableness of time restrictions: (1) the length of time necessary to obliterate the identification between the employer and the employee in the minds of the employer’s customers; and (2) the length of time necessary for a replacement to learn the business and obtain any licenses.524 Geographic limitations are required but are based on the facts of each case and should be limited to area of former employer.525 Courts may limit the geographic area to the employer’s customers or to a reasonable geographic area.526
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? ii.
Reasonable
Periods which courts applying Minnesota law have found reasonable include: 1-year client and vendor-referral-source non-solicitation where “it takes over a year for . . . [an] employee in [the former employee’s] position to fully develop customer relationships,”;527 a one-year restriction where customer renewal periods for several former clients had not yet occurred on grounds that the one year period was reasonably necessary to ensure the employer had the “opportunity to work with each client through its renewal period,”;528 18month non-competes executed by regional sales managers.529 Geographic restrictions which courts applying Minnesota law have found reasonable include: ■
Nine-month restriction for personal trainer covering a five mile radius from any gym location and there were five locations in the former employee’s home state;530
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A one-year nationwide restriction on a marketing account executive;531
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A two-year restriction covering the former employee’s sales territory532; and
■
A one-year restriction in the former employees’ sales area.533 ii.
Unreasonable
Periods which courts applying Minnesota law have found unreasonable include: five years, Davies, 298 N.W.2d at 130-31 (reducing five-year restriction to one year from date of last active employment); IKON Office Solutions, Inc. v. Dale, 170 F. Supp. 892 (D. Minn. 2001) (reducing five-year restriction to three years), aff’d at 22 Fed. App’x 647, 648-49, 2001 WL 1269994 (8th Cir. Oct. 24, 2001) (unpublished decision). The absence of a geographic limitation makes a covenant unenforceable, but the court has discretion to modify such unreasonable provisions.534
5.
Will the State Enforce a Choice of Law Provision?
Yes. Minnesota courts generally respect choice of law of parties to a contract.535
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, Minnesota courts apply a three part analysis.536 First, courts ask whether there is a conflict between the laws of the states at issue. A true conflict exists where applying the law of one state will produce an outcome different than would result from application of the other law.537 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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Second, courts ask whether it is constitutionally permissible to apply such a state’s law. This question looks to whether there are enough “contacts” with the state such that application of its substantive law would not be either arbitrary or fundamentally unfair.538 Third, if there is a true conflict and it is constitutional to apply more than one state’s law, courts apply the “choice of influencing considerations” test, which has five factors: “(1) predictability of result; (2) maintenance of interstate and international order; (3) simplification of the judicial task; (4) advancement of the form’s governmental interest; and (5) application of the better rule of law.539
6.
Will the State Enforce a Forum Selection Clause?
Minnesota courts generally honor forum selection clauses.540 To avoid such an agreement, a party must show that giving effect to the agreement “would be unfair or unreasonable.”541 A forum selection clause is “unreasonable” where “(1) the chosen forum is a seriously inconvenient place for trial; (2) the choice of forum agreement is one of adhesion; [or] (3) the agreement is otherwise unreasonable.”542 A forum is “seriously inconvenient” only if it would effectively deprive one of the parties of its meaningful day in court.543 Nonetheless, although a party “cannot be heard to complain about inconvenience resulting from an agreement it freely entered into,” the court will not apply the forum selection clause if the clause is one of adhesion.544 To determine adhesion, courts will look to a number of factors, including whether the clause was boilerplate, which party drafted the clause, the extent of disparity in bargaining power, and the extent and opportunity for negotiation.545 v.
Leading Cases.
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Freeman v. Duluth Clinic, 334 N.W.2d 626 (Minn. 1983).
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Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127 (Minn. 1980).
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Hime v. State Farm Fire & Cas. Co., 284 N.W.2d 829 (Minn. 1979).
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Bess v. Bothman, 257 N.W.2d 791 (Minn. 1977).
Y.
Mississippi
1.
Key Statutes
None.
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104 Fifty State Survey on Covenants Not to Compete
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.546 The Raines court relied heavily on Frierson v. Sheppard Building Supply Co., 247 Miss. 157 (1963), which indicated that an employee would need to be employed for a significant amount of time for continued employment to constitute adequate consideration.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete? Are They Enforceable?
Yes.547
3.
Are They Enforceable?
Yes. Although contracts which contain noncompete agreements have been viewed by Mississippi courts as contracts that restrict trade and individual freedom that are disfavored, courts nonetheless have upheld such agreements provided they are reasonable and valid.548 Generally there are three aspects that are examined to determine the enforceability of a noncompete agreement: (1) the rights of the employer; (2) the rights of the employee; and (3) the rights of the public.549 “The primary right of the employer is that of ‘protecting the business from loss of customers by the activities of the former employees who have peculiar knowledge of and relationships with the employer’s customers.”550 The employer has the burden of proving the restrictive covenants’ reasonableness, which must be determined from the facts of each case.551
4.
Modification, Severability, and “blue penciling” overbroad agreements.
The Mississippi Supreme Court decided to follow the majority of jurisdictions and modify overbroad agreements, holding that although the modification “unquestionably varied the contract as written between the parties,” modification “seems to be in accord with the majority of modern cases.”552
a.
Indicate Whether the Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
No. Instead of voiding an agreement with an overbroad provision, Mississippi courts “may reform the scope of the agreement to cover a reasonable area wherein the restraint is not supported by economic justification and is therefore unreasonable.”553
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5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Mississippi courts strive to “maintain a reasonable balance in this area. This ‘requires us to recognize that there is such thing as unfair competition by an ex-employee as well as unreasonable oppression by an employer.’ The circumstances of each case will be carefully scrutinized to determine whether it falls within or without the boundary of enforceability.”554 Reasonableness as to time and space limitations must be determined by the fats of each case.555
a.
What Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Parker, 194 So. 2d at 889–90 (holding that two-year restriction was reasonable); Banks, 91 So. 3d at 11 (one year restriction on competition was reasonable); Herring, 813 F. Supp. at 1246 (finding that 72-month restriction associated with sale of shares and termination of employment was reasonable).
6.
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
Mississippi courts strive to “maintain a reasonable balance in this area. This ‘requires us to recognize that there is such thing as unfair competition by an ex-employee as well as unreasonable oppression by an employer.’ The circumstances of each case will be carefully scrutinized to determine whether it falls within or without the boundary of enforceability.”556 Reasonableness as to time and space limitations must be determined by the fats of each case.557
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Parker, 194 So. 2d at 889 (overruling lower court decision that covenant restricting former employee from competing “within a radius of 100 miles of any city, town, or village in the United States in which Employee has worked for Employer” was unreasonable); Banks, 91 So. 3d at 11 (holding that restriction prohibiting former employee from competition only in the areas where former employer had offices was reasonable); Union Nat‘l Life Ins. Co. v. Tillman, 143 F. Supp. 2d 638, 643 (N.D. Miss. 2000) (finding that restriction prohibiting former employee from working with customers with whom he previously worked while employed in part of a two-county area in Northeastern Mississippi was likely to be reasonable).
7.
Will the State Enforce a Choice of Law Provision?
Yes.558 For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
“Mississippi’s choice of law test consists of the following three steps: (1) determine whether the laws at issue are substantive or procedural; (2) if substantive, classify the laws as either tort, property, or contract: and (3) look to the relevant section of the Restatement (Second) of Conflict of Laws.”559 The specific factors to be applied in contract cases, “as set forth in [section] 188 of the Restatement, . . . include (a) the place of contracting; (b) the place of negotiating the contract; (c) the location of the subject matter of the contract; and (d) the domicil[e], residence, nationality, place of incorporation and place of business of the parties.560
8.
Will the State Enforce a Forum Selection Clause?
“Under Fifth Circuit precedent, when determining whether a forum selection clause in a contract will require the parties to litigate in the named forum, a two-step inquiry is undertaken.”561 The court inquires (1) whether the forum selection clause is mandatory or permissive; and (2) if mandatory, is it enforceable.562 Generally, to be mandatory, the language in the forum selection clause must contain language interpreted so as to expressly exclude litigation in other forums.563 Forum selection clauses are prima facie valid, and should be enforced unless enforcement is shown by the resisting party to be unreasonable under the circumstances.564 The Mississippi Supreme Court adopted the Fifth Circuit’s reasoning in determining the enforceability of a forum selection clause in Titan Indemnity Co. v. Hood, 895 So. 2d 138, 145– 46 (Miss. 2004). Thus, Mississippi state courts also must first determine if a forum selection clause is mandatory or permissive, and upon determining it is mandatory, must then decide if it is enforceable.565
9.
Leading Cases ■
Frierson v. Sheppard Bldg. Supply Co., 247 Miss. 157 (1963).
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Texas Rd. Boring Co. of La. –Miss. v. Parker, 194 So. 2d 885 (Miss. 1967).
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Redd Pest Control Co. v. Heatherly, 248 Miss. 34 (1963).
Z.
Missouri
1.
Key Statutes
Mo. Stat. Ann. §431.202 (effective July 1, 2001) provides: 1. A reasonable covenant in writing promising not to solicit, recruit, hire or otherwise interfere with the employment of one or more employees shall be Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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enforceable and not a restraint of trade pursuant to subsection 1 of section 416.031 if: (1) Between two or more corporations or other business entities seeking to preserve workforce stability (which shall be deemed to be among the protectable interests of each corporation or business entity) during, and for a reasonable period following, negotiations between such corporations or entities for the acquisition of all or a part of one or more of such corporations or entities; (2) Between two or more corporations or business entities engaged in a joint venture or other legally permissible business arrangement where such covenant seeks to protect against possible misuse of confidential or trade secret business information shared or to be shared between or among such corporations or entities; (3) Between an employer and one or more employees seeking on the part of the employer to protect: (a) Confidential or trade secret business information; or (b) Customer or supplier relationships, goodwill or loyalty, which shall be deemed to be among the protectable interests of the employer; or (4) Between an employer and one or more employees, notwithstanding the absence of the protectable interests described in subdivision (3) of this subsection, so long as such covenant does not continue for more than one year following the employee's employment; provided, however, that this subdivision shall not apply to covenants signed by employees who provide only secretarial or clerical services. 2. Whether a covenant covered by this section is reasonable shall be determined based upon the facts and circumstances pertaining to such covenant, but a covenant covered exclusively by subdivision (3) or (4) of subsection 1 of this section shall be conclusively presumed to be reasonable if its postemployment duration is no more than one year. 3. Nothing in subdivision (3) or (4) of subsection 1 of this section is intended to create, or to affect the validity or enforceability of, employer-employee covenants not to compete. 4. Nothing in this section shall preclude a covenant described in subsection 1 of this section from being enforceable in circumstances other than those described in subdivisions (1) to (4) of subsection 1 of this section, where such covenant is reasonably necessary to protect a party's legally permissible business interests. For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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5. Nothing is this section shall be construed to limit an employee's ability to seek or accept employment with another employer immediately upon, or at any time subsequent to, termination of employment, whether said termination was voluntary or nonvoluntary. 6. This section shall have retrospective as well as prospective effect. In addition, restrictions on the enforcement of covenants not to compete within the legal profession may be imposed by the state’s code of professional responsibility. In the absence of a covenant not to compete, a former employee who works for a competitor will not be liable for soliciting business from former customers.566
2.
Consideration Required
Yes, a contract containing a restrictive covenant must be supported by consideration.567 Signing of a covenant not to compete at the inception of the employment relationship provides sufficient consideration to support the covenant.568 Continued at-will employment constitutes consideration for a non-compete agreement where the employer allows the employee by virtue of the employment to have continued access to its protectable assets and relationships.569 However, if the covenant is not part of an employment contract, additional consideration must be given.570
a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Generally, yes.571
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. Salary increases, promotions, promotions with added responsibilities, and transfers that constitute promotions provide sufficient consideration needed for a covenant executed after employment has begun.572
3.
Are They Enforceable?
Yes. Missouri courts generally enforce a non-compete agreement if it is demonstratively reasonable.573 Although considered restraints on trade, restrictive covenants are enforceable in the employment context because the employer has a proprietary right in its stock of clients and their goodwill.574 In order to be valid and enforceable, restrictive covenants that limit a person’s pursuit of his or her occupation must be reasonable and narrowly tailored as to time and space.575 Restraints that are temporally and spatially limited are enforceable if they are reasonable under all attending circumstances and if enforcement serves the legitimate interests of the employer, such as “unfair competition” of its former employees.576 Missouri courts recognize two legitimate interests of the employer: its trade Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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secrets and customers.577 Under Mo. Stat. Ann. §431.202, an employer also has a covenantprotectable interest in protecting the stability of its workforce. Covenants not to compete may also be enforced against independent contractors.578 However, an employer that has materially breached an employment contract before an employee has violated a covenant not to compete may not enforce the covenant.579 In asset sale or merger context, a subsequent employer may not be able to enforce covenants not to compete against former employees of previous employer without such employees’ contemporaneous consent to assignment of the covenant not to compete in connection with the asset sale or merger.580
4.
Modification, severability, and “blue penciling” overbroad agreements.
Missouri courts may enforce an overly broad covenant not to compete in a more restricted geographic area or for a shorter duration than specified by the covenant.581 However, the power to modify is completely discretionary and the courts are not compelled “to take action to modify an agreement it finds broader than necessary.”582 In reforming overbroad covenants, Missouri follows an approach which is less strict than “blue pencil” approach. The courts “recognized that an unreasonable restriction against competition in a contract may be modified and enforced to the extent that is reasonable, regardless of the covenant’s form of wording.”583
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
The Missouri courts’ ability to modify the agreements generally means that the courts need not strike down the entire agreement. However, no partial enforcement is possible where the former employer has failed to establish a protectable interest in any part of the area described by a covenant that is geographically overbroad as written.584
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Missouri courts generally consider the subject matter of the covenant, the purpose it serves, the situation of the parties, the limits of the restraint, and the nature of the business, as well as other elements, such as consideration supporting the covenant, the threatened danger to the employer and the economic hardship imposed on the employee in the absence of such an agreement, and conformity with public interest.585 More specifically, Missouri courts consider “the technical and competitive nature of a particular field, along with sensitive information gained by the employee.”586 Mo. Stat. Ann. §431.202.1(4) (effective July 1, 2001) authorizes postemployment covenants, “notwithstanding the absence of the protectable interests described in subdivision (3) of this subsection, so long as such covenant does not continue for more than one year following
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the employee's employment; provided, however, that this subdivision shall not apply to covenants signed by employees who provide only secretarial or clerical services.” Factors calling for a shorter period of restriction include any indications of employee’s diminished or dissipated special influence over the former employer’s customers, the former employer’s failure to prevent customer solicitation, and the former employee’s “inability to demand as much consideration for his promise not to compete as would the typical seller of business.”587 Conversely, a longer period of restriction is justified where the former employee was intimately involved in the day-to-day operations of the business and had a higher stake in its successful operation.588 However, the period of the restraint should not exceed the length of “vulnerability period” during which the covenantee’s goodwill is subject to appropriation by the covenantor.589
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Missouri courts and federal courts applying state law tend to approve temporal restrictions lasting from one to three years.590 Occasionally, Missouri courts have approved restrictive covenants with restrictions lasting for up to five years.591 There appear to be “no Missouri cases holding that a 10-year restraint is reasonable against a terminated employee-at-will.”592 Missouri courts have found some restrictive covenants unreasonable – majority lasting for two years – due to the covenants’ geographic overbreadth, vagueness, or merely lack of protectable interest.593 In one instance, a 180-day restrictive covenant was found unreasonable for lack of protectable interest.594 courts also reduced temporal restrictions on a number of occasions.595
6.
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
Missouri courts consider the subject matter of the covenant, the purpose it serves, the situation of the parties, the limits of the restraint, and the nature of the business, as well as other elements, such as consideration supporting the covenant, the threatened danger to the employer and the economic hardship imposed on the employee in the absence of such an agreement, and conformity with public interest.596 More specifically, Missouri courts consider “the technical and competitive nature of a particular field, along with sensitive information gained by the employee.”597 The standard for determining whether the geographic scope of a restrictive covenant is reasonable is whether it is no greater than fairly required for protection.598 A non-compete can be rendered unenforceable for lack of a geographic limitation without accompaniment by any specificity of limitation on the class with whom contact is limited.599 A restrictive Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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covenant without geographic limitations, however, is not per se unreasonable if the prohibition is against the solicitation of the employer’s customers or clients.600 Thus, Missouri courts have held that restrictive covenants prohibiting the solicitation of the employer’s clients or customers, without any geographic restriction, are reasonable.601 In addition, the reasonableness of geographic limitations “depends upon whether the employer possessed a stock of customers located co-extensively with those geographic limits.”602
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Geographical restrictions that courts applying Missouri law have approved include: specific sites, Ballesteros v. Johnson, 812 S.W.2d 217, 223 (Mo. Ct. App. 1991) (restriction from delivering services at specified services); a 35-mile restriction, Shelbina Veterinary Clinic v. Holthaus, 892 S.W.2d 803, 804-06 (Mo. Ct. App. 1995); a 75-mile restriction, Silvers, Asher, Sher & McLaren, M.D.s Neurology, P.C. v. Batchu, 16 S.W.3d 340, 344 (Mo. App. 2000); a 100mile restriction, Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604 (Mo. 2006); a 125-mile restriction, Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613, 617 (Mo. App. 1988) (also noting that territorial restrictions of 125 to 350 miles not unreasonable in highly technical field); a statewide restriction, Osage Glass, Inc. v. Donovan, 693 S.W.2d 71 (Mo. 1985); and a geographically unlimited restriction, A.B. Chance Co. v. Schmidt, 719 S.W.2d 854 (Mo. Ct. App. 1986). Federal courts have also enforced restrictive covenants limited to specific work sites or sales or services territories.603 Geographical restrictions that courts have found unreasonable include: a 24-state restrictive covenant, Easy Returns Midwest, Inc. v. Schultz, 964 S.W.2d 450, 453-54 (Mo. Ct. App. 1998) (finding that former employer could not show former employee’s ability to influence customer in any part of the area for which protection was sought); a restriction prohibiting the employee from competing in any business that is in competition with the employer and within a 50 mile radius of the employer’s business, which would result in prohibition of competition throughout the entire state, Payroll Advance, Inc. v. Yates, 270 S.W.3d 428, 436 (Mo. Ct. App. 2008); a 300-mile radius, Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613, 616 (Mo. Ct. App. 1988) (reduced to 125 miles); a 200-mile radius, Orchard Container Corp. v. Orchard, 601 S.W.2d 299 (Mo. Ct. App. 1980) (reduced to 125 miles).
7.
Will the State Enforce a Choice of Law Provision?
Missouri courts apply Section 187 of the Restatement (Second) of Conflict of Laws in contract actions involving covenants not to compete.604 Missouri courts generally will enforce a choice of law provision, as long as application of the chosen law would not violate a fundamental public policy of Missouri.605 In accordance with Section 187 of the Restatement, Missouri courts will defer to the parties’ choice of law, as long as there is not a state with a “materially greater interest in the controversy.”606 For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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In JTL Consulting, LLC v. Shanahan, a nonsolicitation clause of an employment agreement contained a choice of law providing that Delaware law governed.607 However, the parties only cited Missouri law. The court held that the parties, by not citing any Delaware law on customer nonsolicitation clauses, effectively waived the choice of law clause and applied Missouri law to analyze nonsolicitation clause.
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, Missouri courts generally follow and perform their analyses in line with Section 188 of the Restatement (Second) of Conflict of Laws, although in some instances the courts have failed to apply the interest analysis provisions in Section 6.608
8.
Will the State Enforce a Forum Selection Clause?
Yes. Forum selection clauses designating Missouri or a particular court within the state as the exclusive forum are enforceable if not unfair and not unreasonable. To be enforceable, “the clause must have been obtained through freely negotiated agreements absent fraud and overreaching and its enforcement must not be unreasonable and unjust.”609 The fact that an employment contract is a prerequisite to employment (or continued employment) does not necessarily force the employee to accept it – the employee has an option of not accepting the contract if the terms are not satisfactory.610 Furthermore, in N.I.S. Corp. v. Swindle, a federal court has found consent to jurisdiction clause to be binding.611
9.
Leading Cases
Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012). Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604 (Mo. 2006). Osage Glass, Inc. v. Donovan, 693 S.W.2d 71 (Mo. 1985). Nat’l Motor Club of Mo. v. Noe, 475 S.W.2d 16 (Mo. 1972). JumboSack Corp. v. Buyck, 407 S.W.3d 51 (Mo. Ct. App. 2013). Payroll Advance, Inc. v. Yates, 270 S.W.3d 428 (Mo. Ct. App. 2008). Silvers, Asher, Sher & McLaren, M.D.s Neurology, P.C. v. Batchu, 16 S.W.3d 340 (Mo. Ct. App. 2000). Easy Returns Midwest, Inc. v. Schultz, 964 S.W.2d 450 (Mo. Ct. App. 1998). Schott v. Beussink, 950 S.W.2d 621 (Mo. Ct. App. 1997).
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Sturgis Equip. Co. v. Falcon Indus. Sales Co., 930 S.W.2d 14 (Mo. Ct. App. 1996). Superior Gearbox Co. v. Edwards, 869 S.W.2d 239 (Mo. Ct. App. 1993). Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613 (Mo. Ct. App. 1988). USA Chem., Inc. v. Lewis, 557 S.W.2d 15 (Mo. Ct. App. 1977).
AA. Montana 1.
Key Statutes
Mont. Code Ann. §§ 28-2-703-705, which applies to the sale of a business and the dissolution of a partnership.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
In Access Organics, Inc. v. Hernandez, the Montana Supreme Court declined to “broadly hold that continued employment may never serve as sufficient consideration.”612 For example, when an at-will employee is specifically guaranteed a definite period of continued employment, the employee receives consideration in the form of contracted-for job security. However, in Access Organics, the at-will employee did not receive any additional job security or extended term of employment in exchange for signing a noncompete. Under that factual scenario, the continued employment could not serve as sufficient consideration.613
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. The Montana Supreme Court held that changes in the terms of employment such as a guarantee in employment for a specific period of time, a promotion, a raise, access to confidential information, or additional training may constitute sufficient consideration to support a noncompete after the inception of employment.614
3.
Are They Enforceable?
Montana law strongly disfavors covenants not to compete, and will construe them strictly.615 Montana has a statute that prohibits the enforceability of noncompetes in situations involving the sale of goodwill of a business and the dissolution of a For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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partnership.616 That language notwithstanding, Montana courts have upheld covenants not to compete in certain limited circumstances that do not fall within that statutory construction. Montana courts read covenants in the light most favorable to the employee.617 Full restraints on trade are prohibited, and partial restraints are scrutinized for reasonableness.618 A covenant that restrains trade only partially and that does not fall under one of the statutory exceptions noted above must meet the following three elements in order to be considered reasonable: (1) the covenant should be limited in operation either as to time or place; (2) the covenant should be based on some good consideration; (3) the covenant should afford reasonable protection for, and not impose an unreasonable burden upon, the employer, the employee, or the public.619 Generally, noncompetes are not enforceable when the employer terminates the employment relationship.620
4.
Modification, Severability, and “blue penciling” overbroad agreements.
In Dumont v. Tucker, the Montana Supreme Court affirmed the propriety of limiting a noncompetition covenant instead of voiding the contract entirely.621
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
In addition to the narrow statutory exceptions set forth in Mont. Ann. Code §§28-2-704 and 28-2-705, the courts have held that unreasonable restraints on trade are void.622 The three prong test requires the restraint to satisfy the following elements: (1) it must be partial or restricted in its operation in respect to either time or place; (2) it must be based on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests 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.623
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Dobbins, DeGuire & Tucker, P.C. v. Rutherford, MacDonald & Olson, 218 Mont. 392 (1985) (holding that provision requiring former employees to pay fee to former employer if former employee obtained clients from former employer within 12 months of separating did not violate Mont. Ann. C. § 28-2-703); Am. Nat‘l Prop. & Cas. Co. v. Camp, No. CV 11-101, 2011 WL 4036148, at *2 (D. Mont. Sept. 12, 2011) (holding that one year restrictive covenant was reasonable; H & R Block Tax Servs. v. Kutzman, 681 F. Supp. 2d 1248, 1251 (D. Mont. 2010).
b.
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
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The city where the principal office of the business is located; The county where the principal office of the business is located; A city in any county adjacent to the county in which the principal office of the business is located; Any county adjacent to the county in which the principal office of the business is located; or Any combination of the areas above.
For those restrictive covenants falling outside of the statutory exceptions, the courts have held that unreasonable restraints on trade are void.624 . The three prong test requires the restraint to satisfy the following elements: (1) it must be partial or restricted in its operation in respect to either time or place; (2) it must be based on some good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests 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.625
c.
What Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Treasure Chem., Inc. v. Team Lab. Chem. Corp., 187 Mont. 200, 205 (Mont. 1980) (limiting geographic restriction to Billings so as to be consistent with Mont. Ann. C. § 28-2-704(2) in sale of business); Camp, 2011 WL 4036148, at *2 (finding geographic restriction within 25 miles of Missoula reasonable); H & R Block, 681 F. Supp. 2d at 1251 (finding 45-mile geographic restriction reasonable).
6.
Will the State Enforce a Choice of Law Provision?
Yes. In Montana, if a contract contains a choice of law provision, the law of the chosen state governs any dispute arising from the contract unless either of the following two exceptions from the Restatement (Second) of Conflicts of Laws § 187(2) apply. A court will not apply the state law chosen by the parties if (1) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice; or (2) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of a particular issue and which, under section 188, would be the state of the applicable law in the absence of an effective choice of law by the parties.626 Montana courts refuse to apply the law of the state chosen by the parties when: (1) but for the choice of law provision, Montana law would apply under Section 188 of the Restatement; (2) Montana has a materially greater interest in the particular issue than the parties’ chosen state; and (3) application of the chosen state’s law would contravene a fundamental Montana policy.627
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a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of an effective choice of law provision, Montana courts consider the following five factors described in section 188(2) of the Restatement (Second) of Conflicts of Law: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties.628 In addition, Section 28-3-102, MCA, provides that “[a] contract is to be interpreted according to the law and usage of the place where it is to be performed, or if it does not indicate a place of performance, according to the law and usage of the place where it is made.629
7.
Will the State Enforce a Forum Selection Clause?
Forum selection clauses are prima facie valid and will be enforced unless the resisting party can show that the clause is unreasonable under the circumstances.630 A forum selection clause is unreasonable and unenforceable if the agreement is not “deliberately and understandingly made,” and if the contractual language does not “clearly, unequivocally and unambiguously express a waiver” of personal jurisdiction.631 In Milanovich, the court upheld a forum selection clause in an employment agreement whereby the parties consented to resolve all disputes in Montana because the contract was not an adhesion contract, was unambiguous, and was “deliberately and understandingly made.”632
8.
Leading Cases
Access Organics, Inc. v. Hernandez, 341 Mont. 73, 80 (2008). Dumont v. Tucker, 250 Mont. 417 (1991). Dobbins, De Guire & Tucker, P.C. v. Rutherford, MacDonald & Olson, 218 Mont 392 (1985).
BB. Nebraska 1.
Key Statutes
Neb. Rev. Stat. § 59-801 provides: Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, within this state, is hereby declared to be illegal.
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2.
Consideration required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
The offer of initial or continued employment is sufficient consideration in exchange for employee’s agreeing to not compete with the employer if the employment relationship terminates.633
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Sufficient consideration for an agreement will be found if there is some benefit to one of the parties or a detriment to the other.634 Nebraska courts will uphold a covenant not to compete entered into after the employment relationship has begun where the covenant is supported by a change in the terms and conditions of employment.635
3.
Are They Enforceable?
Yes.636 In determining whether a covenant not to compete is valid, Nebraska courts consider whether the restriction is: (1)Reasonable in the sense that it is not injurious to the public, (2)Not greater than is reasonably necessary to protect the employer in some legitimate business interest, and (3)Not unduly harsh and oppressive on the employee. Nebraska case law recognizes an employer’s legitimate interest in protection against “improper and unfair competition” by a former employee where an employee has substantial personal contact with the employer’s customers, develops goodwill with such customers, and siphons away the goodwill under circumstances where the goodwill properly belongs to the employer, the employee’s resultant competition is unfair and the employer has a legitimate need for protection against the employee’s competition.637 Nebraska courts are generally more willing to uphold promises to refrain from competition made in the context of the sale of the goodwill of the business than those made in connection with employment contracts.638
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4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
No blue-penciling even with the presence of a clause expressly allowing a court to reform an overbroad covenant. The court will not modify or strike the offending language to make the agreement lawful. “It is not the function of courts to reform unreasonable covenants not to compete solely for the purpose of making them legally enforceable.”639 Accordingly, Nebraska courts have consistently ruled that if any part of an agreement is unreasonable, the entire agreement is invalid.640
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Nebraska courts focus first on restrictions on particular activities and then turn to geographic and temporal limitations. The agreements are analyzed on a case-by case basis directed at the relationship between the restrictions and the protected interest.641 The considerations to be balanced are: ■
The degree of inequality in bargaining power;
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The risk of the covenantee losing customers;
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The extent of respective participation by the parties in securing and retaining customers; The good faith of the covenantee; The existence of sources or general knowledge pertaining to the identity of the customers;
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The nature and extent of the business position held by the covenantor;
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The covenantor’s training, health, education and needs of his family;
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The current conditions of employment;
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The necessity of the covenantor changing his calling or residence; and
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The correspondence of the restraint with the need for protecting legitimate interests of the covenantee.
The covenant must only restrict the former employee “from working for or soliciting the former employer’s clients or accounts with whom the former employee actually did business and has personal contact.642”
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable?
As to area, the Nebraska Supreme Court has held that the area covered by a covenant not to compete must be no greater than the area in which the employee worked for the employer (Polly v. Ray D. Hilderman & Co., 225 Neb. 662 (1987)) and must not be so broad that it is
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“similar to having no territorial restriction at all” (Unlimited Opportunity, Inc. v. Waadah, 290 Neb. 629 (2015)). Depriving the entire state of Nebraska of the services of a highly specialized physician, an interventional cardiologist, is certainly arguably injurious to the public, particularly to someone who needs his specialized skills.643 Court held non-compete prohibiting employees from being concerned, directly or indirectly, in any manner with any company in competition and from providing contract cleaning services within one hundred miles to any entity having business dealings with former employer was overbroad and unenforceable.644 Court held non-compete agreement was overly broad where it was not limited to clients with whom the former employee actually did business or personally contacted.645 Court held non-compete agreement was overly broad where it prohibited the former employee from entering into insurance business within 50 miles and was not limited to the former employer’s clients with whom the former employee did business and had personal contact.646 The fact that this court and others have upheld a covenant not to compete with duration of 10 years or more does not automatically lead us to the conclusion that the 10-year restraint contained in the covenant at issue in the instant case was reasonable. Rather, we must look to the record for evidence which establishes that a 10-year restraint was a reasonable and necessary means of protecting the legitimate business interest.”647 A two-year customer non-solicitation covenant barring an insurance account executive from having any business contact with those customers with whom he had enjoyed personal business dealings during the last two years of his employment with the plaintiff was considered reasonable.648
6.
Will the State Enforce a Choice of Law Provision?
Yes.649 In deciding choice-of-law questions, Nebraska follows the Restatement (Second) of Conflict of Laws (Restatement). Restatement §187(1) provides “[t]he law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue.” Restatement §187(2) provides the parties’ contractual choice of law will apply unless (1) “the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice,” or (2) “application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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greater interest than the chosen state in the determination of the particular issue and which ... would be the state of the applicable law in the absence of an effective choice of law by the parties.”
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
If Nebraska has a greater material interest in the agreement, Nebraska law applies. In cases regarding non-compete agreements, Nebraska possesses a direct and substantial interest in the employment of its citizens.650
7.
Will the State Enforce a Forum Selection Clause?
Yes. Nebraska has adopted the Model Uniform Choice of Forum Act. Neb. Rev. Stat. § 25415 provides: If the parties have agreed in writing that an action on a controversy shall be brought only in another state and it is brought in a court of this state, the court will dismiss or stay the action, as appropriate, unless: (1) The court is required by statute to entertain the action; (2) The plaintiff cannot secure effective relief in the other state, for reasons other than delay in bringing the action; (3) The other state would be a substantially less convenient place for the trial of the action than this state; (4) The agreement as to the place of the action was obtained by misrepresentation, duress, the abuse of economic power, or other unconscionable means; or (5) It would for some other reason be unfair or unreasonable to enforce the agreement.
8.
Leading Cases ■
Mertz v. Pharmacists Mut. Ins. Co., 261 Neb. 704 (2001).
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Prof’l Bus. Servs. Co. v. Rosno, 589 N.W.2d 826, 831 (Neb. 1991).
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H & R Block Tax Servs. v. Circle A Enters., 269 Neb. 411 (2005).
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Schuelke v. Wilson, 255 Neb. 726 (1998).
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CC. Nevada 1.
Key Statutes
Nev. Rev. Stat. § 613.200. Prevention of employment of person who has been discharged or who terminates employment unlawful; criminal and administrative penalties; exception. 1. Except as otherwise provided in this section, any person, association, company or corporation within this State, or any agent or officer on behalf of the person, association, company or corporation, who willfully does anything intended to prevent any person who for any cause left or was discharged from his, her or its employ from obtaining employment elsewhere in this State is guilty of a gross misdemeanor and shall be punished by a fine of not more than $5,000. 2. In addition to any other remedy or penalty, the Labor Commissioner may impose against each culpable party an administrative penalty of not more than $5,000 for each such violation. 3. If a fine or an administrative penalty is imposed pursuant to this section, the costs of the proceeding, including investigative costs and attorney's fees, may be recovered by the Labor Commissioner. 4. The provisions of this section do not prohibit a person, association, company, corporation, agent or officer from negotiating, executing and enforcing an agreement with an employee of the person, association, company or corporation which, upon termination of the employment, prohibits the employee from: (a) Pursuing a similar vocation in competition with or becoming employed by a competitor of the person, association, company or corporation; or (b) Disclosing any trade secrets, business methods, lists of customers, secret formulas or processes or confidential information learned or obtained during the course of his or her employment with the person, association, company or corporation, if the agreement is supported by valuable consideration and is otherwise reasonable in its scope and duration.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.651
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b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Nevada has not addressed this issue directly. The reasoning, however, of Camco, Inc. v. Baker, is based on a desire to avoid the situation when an employer might feel it necessary to terminate an at-will employee who is not subject to a covenant not to compete and only then to rehire the same employee subject to a covenant not to compete.652 Nevada rejects such form over substance and instead permits enforcement of covenants not to compete that are agreed to after the initial hire date. Accordingly, it seems certain that Nevada courts would enforce a covenant not to compete that resulted from a promotion or other change in employment terms.
3.
Are They Enforceable?
Yes, so long as they are supported by consideration and are reasonable.653
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
The court will modify an overbroad agreement.654
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
While the length of time and geographical expanse are important factors that the court will consider, Hansen v. Edwards, “[t]here is no inflexible formula for deciding the ubiquitous question of reasonableness.655 However, because the loss of a person’s livelihood is a serious matter, post-employment anti-competitive covenants are scrutinized with greater care . . . .”656
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Court imposed against a podiatrist a one-year convent not to compete within the City of Reno when the actual covenant had no time limit and was applicable within a 100 mile radius of Reno.657 A one-year covenant limited to the area served by the office of the former employer where employee had worked was reasonable.658 Two-year covenant not to compete in the practice of medicine in the City of Elko was found reasonable as to the general practice of medicine. However, court found the covenant unreasonable and thus unenforceable as to the doctor’s specialty in orthopedic surgery.659
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Ii.
Unreasonable
Noncompete agreements barring former employees from competing for two years within 50 miles of any existing store, any store under construction or any location targeted for corporate expansion was unreasonable. To be reasonable a territorial restriction should be limited to the territory in which the former employee had customer contacts and good will.660 A five year, 100 mile radius covenant was held per se unreasonable.661
6.
Will the State Enforce a Choice of Law Provision?
Yes.662 However, the parties must be acting in good faith and not for the purpose of evading the law of the real situs of the contract.663
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Nevada courts have not addressed the issue. In general contract cases, Nevada would apply substantial relationship test found in the Restatement (Second) of Conflict of Laws section 188, requiring consideration of five factors: (1) the place of contracting; (2) the place of negotiation of the contract; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties.664
7.
Will the State Enforce a Forum Selection Clause?
Nevada courts have not considered enforcement of a forum selection clause in a covenant not to compete case. However, in general, forum selection clauses must be freely negotiated, and not unreasonable or unjust.665
8.
Leading Cases ■
Hansen v. Edwards, 83 Nev. 189 (1967).
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Ellis v. McDaniel, 95 Nev. 455 (1979).
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Las Vegas Novelty v. Fernandez, 106 Nev. 113 (1990).
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Jones v. Deeter, 112 Nev. 291 (1996).
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Camco, Inc. v. Baker, 113 Nev. 512 (1997).
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Farmer Bros. Co. v. Albrecht, No. 2:11–CV–01371–PMP–CWH, 2011 WL 4736858, at *1 (D. Nev. Oct. 6, 2011).
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DD. New Hampshire 1.
Key Statutes
N.H. Rev. Stat. Ann. (“NHRS”) § 275.70 provides: Prior to or concurrent with making an offer of change in job classification or an offer of employment, every employer shall provide a copy of any noncompete or non-piracy agreement that is part of the employment agreement to the employee or potential employee. Any contract that is not in compliance with this section shall be void and unenforceable.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. Continued employment after signing an employment contract constitutes sufficient consideration to support a non-compete agreement contained therein.666
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Likely yes. Although this issue has not been decided by the New Hampshire courts, NHRS § 275.70 supports the principle that a change in the terms and conditions of employment provides sufficient consideration to support a covenant not to compete entered into after the employment relationship has begun.667
3.
Are They Enforceable?
Yes. Non-compete agreements are enforceable so long as they (1) comply with NHRS § 275.70, and (2) the restraints are reasonable, given the particular circumstances of the case.668
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Yes. Although New Hampshire courts do not subscribe to the “blue pencil” rule, they do have the power to partially enforce or reform overly broad restrictive covenants not to compete if the former employer demonstrates that it acted in good faith in the execution of the underlying employment contract.669 Simply pointing to a lack of evidence of an employer’s bad faith does not equal proof of good faith for purposes of the court’s inquiry.670 . Rather, a court’s inquiry into good faith Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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includes examining the circumstances under which the covenant was obtained and whether the employer has drafted unjustifiably broad provisions.671 For example, in Maddog, the employer failed to meet its burden where it “offered no explanation whatsoever” for its geographic restriction, and “failed to explain any legitimate business reason” for a three year restriction.672 Similarly, in Merrimack, the trial court declined to reform a restrictive covenant where the employer “did not discuss the salesman agreement or the restrictive covenants with the [employee] during his interview, and that the [employee] was not presented with the agreement until six months after he started working.”673 Further, when the agreement was presented to the Merrimack employee, “he was informed his ability to retain his position was contingent upon signing the agreement [which] he was in no position to decline.”674
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
Generally no. New Hampshire courts follow Restatement (Second) of Contracts §§183 and 184 (1979), and thus may engage in (1) partial enforcement, if the employer acted in good faith in obtaining the covenant; or (2) severance, where multiple terms are involved, even in the absence of a severability clause.675 Further, as discussed above, courts may reform overly broad restrictive covenants not to compete if the former employer demonstrates that it acted in good faith in the execution of the underlying employment contract.676
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Generally, courts will undergo a three-prong test: the restraint (1) must be no greater than necessary to protect the employer’s legitimate interest, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public interest.677 Geographic limits must not exceed the area “in which the employee had client contact,” or the “sphere of the employee’s influence.”678 Temporal limits must not exceed the time necessary to “redevelop rapport” with those clients with whom the former employee had contact.679
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A two-year restriction on solicitation and competition, without geographic limitation, where the employee was in charge of world-wide sales in a relatively small, niche market.680
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A two-year, 25-mile restriction from competing for business from individuals that were existing patients of the employer at the time of termination.681 ii.
Unreasonable
A three-year restriction, without geographic limitation, where the former employee’s business was insignificant in relation to the employer’s business, and the restriction extend to individuals that were not the employer’s clients at the time of termination.682 A three-year restriction on solicitation of the employer’s customers, within any of the territories the employer serviced, where the restriction extended to individuals that were not the employer’s clients at the time of termination.683
6.
Will the State Enforce a Choice of Law Provision?
Yes, if the contract bears any significant relationship to the chosen jurisdiction.684
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
Although New Hampshire courts have not ruled on this issue with respect to covenants not to compete, the Supreme Court of New Hampshire stated that, “in the absence of an express choice of law validly made by the parties, the contract is to be governed, both as to validity and performance, by the law of the state with which the contact has its most significant relationship.”685
7.
Will the State Enforce a Forum Selection Clause?
New Hampshire has not considered forum selection clauses with respect to covenants not to compete.
8.
Leading Cases
Smith, Batchelder & Rugg v. Foster, 119 N.H. 679 (1979). ACAS Acquisitions (Precitech) Inc. v. Hobert, 155 N.H. 381 (2007). Syncom Indus., Inc. v. Wood, 155 N.H. 73 (2007). Merrimack Valley Wood Prods., Inc. v. Near, 152 N.H. 192 (2005). Tech. Aid Corp. v. Allen, 134 N.H. 1 (1991).
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EE.
New Jersey
1.
Key Statutes
There are no New Jersey statutes governing non-compete agreements generally. However, there are profession-specific statutes and rules. N.J.R.P.C. 5.6 provides: A lawyer shall not participate in offering or making: (a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (b) an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a controversy between private parties. N.J.A.C. 13:42-10.16 addresses agreements for psychologists licensed by the New Jersey Board of Psychological Examiners: A licensee shall not enter into any business agreement that interferes with or restricts the ability of a client to see or continue to see his or her therapist of choice.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. Consideration for a covenant not to compete can be based on the continuation of employment.686
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.
3.
Are They Enforceable?
Yes. The seminal cases Solari Indus., Inc. v. Malady, 55 N.J. 571 (1970), and Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (1971), provide that a covenant not to compete is enforceable so long as it is “reasonable under the circumstances.” In determining whether an agreement is For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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reasonable and enforceable, New Jersey courts consider whether it “protects the legitimate interests of the employer, imposes no undue hardship on the employee and is not injurious to the public.”687
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
The Courts will modify an agreement, as long as the modification is reasonable.688 New Jersey Courts have adopted a variation of the “blue pencil” doctrine, thereby permitting total or partial enforcement of noncompetition agreements to the extent reasonable under the circumstances.689 However, if there is credible evidence to sustain a finding that a covenant is deliberately unreasonable or oppressive, the blue pencil doctrine will not be applied.690
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
New Jersey Courts look to the legitimate interests of the employer, undue hardship on the employee, and any injury to the public. Regarding the first criteria, a “covenant will be unenforceable beyond the period of time which the employer needs to protect his practice.”691
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36, 59 (2005) (two-year restriction on neurosurgeon was deemed reasonable as an acceptable period of time for hospital to replace and train a doctor to assume neurosurgeon’s prior role). J.H. Renarde, Inc. v. Sims, 312 N.J. Super. 195, 202 (Ch. Div. 1998) (nine-month period deemed reasonable). A.T. Hudson & Co., Inc. v. Donovan, 216 N.J. Super. 426 (App. Div. 1987) (two-year noncompete agreement restricted to former employer’s customers was enforceable). Karlin v. Weinberg, 77 N.J. 408, 423 (1978) (five-year restriction on dermatologist was reasonable).
6.
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
The same standard applies, considering legitimate interests of the employer, undue hardship on the employee, and any injury to the public. A covenant will not “be enforceable beyond the geographical area needed to protect the employer’s practice.”692 Courts will also “look to the likelihood of the employee finding work in his field Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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elsewhere.”693 Finally, courts will consider the “demand for the services rendered by the employee and the likelihood that those services could be provided by other[s] already practicing in the area.”694
a. ■
■
■
7.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36, 61-62 (2005) (finding restriction on neurosurgeon of practicing within thirty miles from hospital was against public interest as it could adversely affect patients who either needed emergency care or could not travel outside of the geographic area, which had a shortage of neurosurgeons). J.H. Renarde, Inc. v. Sims, 312 N.J. Super. 195, 202 (Ch. Div. 1998) (nine-mile radius deemed reasonable). Karlin v. Weinberg, 77 N.J. 408, 423 (1978) (10-mile radius on dermatologist deemed reasonable).
Will the State Enforce a Choice of Law Provision?
Yes. New Jersey courts will usually uphold choice of law provisions unless the chosen state’s law violates New Jersey public policy.695 Courts also consider whether there is a “significant difference between” New Jersey’s and another jurisdiction’s laws.696 The fact that the parties contractually agreed to use New Jersey law will not always prove dispositive, as New Jersey law may violate the public policy of another jurisdiction, and another jurisdiction may have a materially greater interest in the underlying dispute than New Jersey.697
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
New Jersey adopted the “most significant relationship” standard, under which choice-oflaw assessments encompass an evaluation of important contacts, as well as consideration of the state policies affected by, and governmental interest in, the outcome of the controversy. In the absence of a specific contractual clause expressing the parties’ clear intent regarding which state’s law should apply, it must be determined which state has the most significant contacts with the parties and the transaction. The test calls for an evaluation, according to relative importance, of relevant contacts such as the domicile of the parties and the place of contracting and performing. General considerations germane to conflict of law analysis include: (1) the needs of the interstate and international system, (2) the relevant policies of the forum, (3) the relevant policies of the other affected states in the determination of the particular issue, (4) the protection of justified expectations, (5) the basic policies underlying the particular field of law, (6) certainty, predictability, and uniformity of result, and (7) the ease in the determination of and application of the law to be applied.698
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8.
Will the State Enforce a Forum Selection Clause?
Yes. New Jersey will enforce a forum selection clause unless “(1) the clause is a result of fraud or overweening bargaining power, or (2) the enforcement in a foreign forum would violate strong public policy of the local forum, or (3) enforcement would be seriously inconvenient for the trial.”699
ix.
Leading Supreme Court Cases
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Solari Indus., Inc. v. Malady, 55 N.J. 571 (1970).
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Whitmyer Bros., Inc. v. Doyle, 58 N.J. 25 (1971).
FF.
New Mexico
1.
Key Statutes
None specifically governing covenants not to compete.700
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Likely yes. Although New Mexico courts have not expressly addressed the issue, the New Mexico Supreme Court has upheld noncompetition agreements that were not entered into until after the employee began working.701
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
This remains an open issue in New Mexico.
3.
Are They Enforceable?
Yes. Non-compete agreements are enforceable so long as they: (1) have sufficient consideration; (2) contain restrictions no larger or wider than is needed to protect the employer’s interest; (3) are not against public policy; and (4) any detriment to the public interest and possible loss of the employee’s services is more than offset by the public benefit arising out of the preservation of the freedom of contract.702
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4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Yes, courts may amend any provision of a noncompete agreement that the court finds to be “overbroad or otherwise unenforceable,” at least when the employment agreement between the parties specifically provides that the agreement may be amended if found unenforceable by a court.703
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Generally, the restrictive covenant must been “within reasonable limits of time and space.”704 In determining reasonableness, courts will consider such factors as: (1) the nature of the business; (2) its location; (3) the parties involved; (4) the purchase price; and (5) the main object of the restriction. Id.
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
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Reasonable
A 15-year restriction on competition in the insurance and real estate business within a 15 mile radius of Carlsbad, New Mexico, where the noncompetition agreement was part of a sales contract for the purchase of an insurance business.705 A one-year noncompetition agreement limited to the town where the employee was employed.706 A one-year restriction with a 30 mile radius of the previous employer was found reasonable.707 A three-year restriction on a doctor was also held to be reasonable and enforceable.708 ii.
Unreasonable
New Mexico courts have not explicitly found a particular covenant not to compete invalid because its terms are unreasonable.
6.
Will the State Enforce a Choice of Law Provision?
Yes, unless it offends the public policy of New Mexico.709 This freedom of choice is explicitly recognized in N.M. Stat. Ann. § 50A-1-105(1) (1953). If a transaction bears a reasonable relation to more than one state or nation, the parties to the contract can choose the law that will govern their agreement.710
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a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
New Mexico has not addressed this question in the context of a covenant not to compete case. However, “New Mexico follows the traditional conflicts of law analysis in determining the choice of law applicable to contracts.711 “The place where the final act is done determines the applicable law for the interpretation of the contract.”712
7.
Will the State Enforce a Forum Selection Clause?
New Mexico has not considered forum selection clauses with respect to covenants not to compete.
8.
Leading Cases ■
Lovelace Clinic v. Murphy, 417 P.2d 450 (N.M. 1966).
■
Manuel Lujan Ins. v. Jordan, 673 P.2d 1306 (N.M. 1983).
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Bowen v. Carlsbad Ins. & Real Estate, Inc., 724 P.2d 223 (N.M. 1986).
GG. New York 1.
Key Statutes
There are no New York statutes governing non-compete agreements generally. However, there are profession-specific statutes and rules. The New York Rules of Professional Conduct, 22 N.Y. Comp. Codes R. & Regs. Part 1200.0, Rule 5.6(a), provides: (a) A lawyer shall not participate in offering or making: (1) a partnership, shareholder, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (2) an agreement in which a restriction on a lawyer’s right to practice is part of the settlement of a client controversy. The New York Labor Law also protects persons employed in the broadcast industry. The statute provides:713 1. For the purposes of this section:
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(a) “Broadcasting industry employer” includes television stations or networks, radio stations or networks, cable stations or networks, internet or satellite-based services similar to a broadcast station or network, any broadcast entities affiliated with any of the employers of this paragraph, or any other entity that provides broadcasting services such as news, weather, traffic, sports, or entertainment reports or programming. (b) “Broadcast employee” means any on-air employee or off-air employee of a broadcasting industry employer, excluding management employees. 2. A broadcasting industry employer shall not require as a condition of employment, whether in an employment contract or otherwise, that a broadcast employee or prospective broadcast employee refrain from obtaining employment: (a) in any specified geographic area; (b) for a specific period of time; or (c) with any particular employer or in any particular industry; after the conclusion of employment with such broadcasting industry employer. This section shall not apply to preventing the enforcement of such a covenant during the term of an employment contract. 3. Any person who violates this section shall be civilly liable to a broadcast employee for damages, attorney's fees and costs. Additionally, pursuant to Financial Regulatory Authority (FINRA) Rules 2140 and 11870, a non-compete agreement is not enforceable if it prevents customers from continuing to retain a FINRA registered representative if the representative leaves one FINRA firm to join another.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. Continued employment “for a substantial period after the covenant is given” is sufficient consideration to enforce the agreement.714
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.
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3.
Are They Enforceable?
Yes. In New York, “negative covenants restricting competition are enforceable only to the extent that they satisfy the overriding requirement of reasonableness,” and covenants between an employer and employee will invoke “a stricter standard of reasonableness.”715 “In this context a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.”716
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
New York courts may modify a covenant not-to-compete if it is overbroad.717 “[I]f the employer demonstrates an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct, but has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing, partial enforcement may be justified.”718 New York courts may strike down an entire agreement rather than “blue pencil” it.719 “Factors weighing against partial enforcement are the imposition of the covenant in connection with hiring or continued employment—as opposed to, for example, imposition in connection with a promotion to a position of responsibility and trust—the existence of coercion or a general plan of the employer to forestall competition, and the employer’s knowledge that the covenant was overly broad.”720
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
New York courts consider the facts and circumstances of each particular case.721
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Periods of six to 12 months have generally been found acceptable.722 However, New York courts have also considered the nature of the employment when determining whether a covenant’s duration is reasonable.723 Covenants will not be struck down merely because they have no time limit or are of an unlimited duration.724
6.
What Factors Will the Court Consider in Determining Whether Geographic Restrictions in the Covenant Are Reasonable?
New York courts make a fact-sensitive, case-by-case inquiry.725 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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a. ■
■
■
■
7.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? Karpinski v. Ingrasci, 28 N.Y.2d 45 (1971) (five counties specified in agreement were deemed reasonable given employee’s profession). Genesis II Hair Replacement Studio, Ltd. v. Vallar, 674 N.Y.S.2d 207 (App. Div. 1998) (50-mile radius deemed unreasonable). Muller v. N.Y. Heart Ctr. Cadiovascular Specialists P.C., 656 N.Y.S.2d 464 (App. Div. 1997) (limitation to Syracuse-area hospitals was unreasonable). Unisource Worldwide, Inc. v. Valenti, 196 F. Supp. 2d. 269, 277 (E.D.N.Y. 2002) (limitation was unreasonable when it applied to all of New York City, any area within 100 miles of New York City, and anywhere within any other marketing area serviced by employer or that would later come under employee’s supervision and responsibility).
Will the State Enforce a Choice of Law Provision?
Yes. New York courts will uphold choice of law provisions if the selected forum has a substantial relationship to the parties or the transaction, or if the application of the selected forum’s law does not contravene a fundamental policy of a state with materially greater interest than the forum state.726
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
New York has long recognized the use of “center of gravity” or “grouping of contacts” as the appropriate analytical approach to choice of law questions in contract cases.727 The purpose of grouping contacts is to establish which state has the most significant relationship to the transaction and the parties. The “grouping of contacts” theory to choiceof-law disputes gives the jurisdiction having the most interest paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the particular litigation.
8.
Will the State Enforce a Forum Selection Clause?
Yes.728
9.
Leading Cases ■
Reed, Roberts v. Strauman, 40 NY2d 677 (1976).
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BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 394 (1999).
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Morris v. Schroder Capital Mgmt. Int’l, 7 N.Y.3d 616 (2006).
HH. North Carolina 1.
Key Statutes
N.C. Gen. Stat. § 75-1.1 provides: a) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are declared unlawful. b) For purposes of this section, “commerce” includes all business activities, however denominated, but does not include professional services rendered by a member of a learned profession. c) Nothing in this section shall apply to acts done by the publisher, owner, agent, or employee of a newspaper, periodical or radio or television station, or other advertising medium in the publication or dissemination of an advertisement, when the owner, agent or employee did not have knowledge of the false, misleading or deceptive character of the advertisement and when the newspaper, periodical or radio or television station, or other advertising medium did not have a direct financial interest in the sale or distribution of the advertised product or service. d) Any party claiming to be exempt from the provisions of this section shall have the burden of proof with respect to such claim. (1969, c. 833;
1977, c. 747, ss. 1, 2.) N.C. Gen. Stat. § 75-4 provides: No contract or agreement hereafter made, limiting the rights of any person to do business anywhere in the State of North Carolina shall be enforceable unless such agreement is in writing duly signed by the party who agrees not to enter into any such business within such territory: Provided, nothing herein shall be construed to legalize any contract or agreement not to enter into business in the State of North Carolina, or at any point in the State of North Carolina, which contract is now illegal, or which contract is made illegal by any other section of this Chapter. (1913, c. 41, s. 4; C.S., s. 2562.) Case law provides:729 Restrictive covenants between an employer and employee are valid and enforceable if they are: (1) In writing; Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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(2) Made part of a contract of employment; (3) Based on valuable consideration; (4) Reasonable both as to time and territory; and (5) Not against public policy.
2.
Consideration Required
Non-competition clauses will be upheld if the covenants are supported by valuable consideration, reasonably necessary to protect the interests of the covenantee, and not against public policy.730 If non-competition covenant is entered into when an employee is hired for a job, mutual promises of employer and employee are consider to furnish valuable considerations each to the other for the contract.731
a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.732 When the restrictive covenant is entered into after an already existing employment relationship, the covenant must be supported by “new consideration.”733
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.734
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling”
A court at most may choose not to enforce a distinctly separable part of a covenant in order to render the provision reasonable. It may not otherwise revise or rewrite the covenant.735
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The reasonableness of a non-compete agreement is a matter of law for the court to decide.736
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In evaluating reasonableness as to time and territory restrictions, courts must consider each element in tandem--the two requirements are not independent and unrelated.737 Although either the time or the territory restriction, standing alone, may be reasonable, the combined effect of the two may be unreasonable. A longer period of time is acceptable where the geographic restriction is relatively small, and vice versa.738 To prove that a geographic restriction in a non-compete provision is reasonable, an employer must first show where its customers are located and that the geographic scope of the covenant is necessary to maintain those customer relationships. The employer must show that the territory embraced by the covenant is no more than necessary to secure the protection of its business or good will.739 Six-part test to determine whether the geographic scope of a covenant not to compete is reasonable:740 (1) The area or scope of the restriction; (2) The area assigned to the employee; (3) The area where the employee actually worked; (4) The area in which the employer operated; (5) The nature of the business involved; and (6) The nature of the employee’s duty and his knowledge of the employer’s business operation.
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable?
“A five-year time restriction is the outer boundary which our courts have considered reasonable, and even so, five-year restrictions are not favored.”741 A two-year non-compete agreement containing non-solicitation language and a “look back” provision extending the scope of the agreement to the three years immediately preceding the employee’s termination.742 Court refused to enforce covenant that prohibited former employee from competing anywhere in the United States.743 Court held a two-year non-compete covenant restricting a former employee from competing with the former employer in any county in which he had worked over the course of a two-year period prior to termination and in any location within 100 miles of the boundaries of those counties as reasonable.744
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A covenant not to compete prohibiting a general surgeon from practicing within 25 miles of his former hospital for a period of two years following termination of his employment was upheld.745 Noncompetes that prevent employees from being able to work may be against public policy and held unenforceable.746 Evidence that the noncompetition agreement was intended to and actually did prohibit the former employee from working for the new employee in any capacity, including as a custodian, demonstrated that the noncompete was too broad and generally not enforceable as the restrictions clearly exceeded those necessary to protect the employer's legitimate business interests.747 Restrictive covenants are unenforceable where they prohibit the employee (or franchisee) from engaging in future work that is distinct from the duties actually performed by the employee or do not include a geographic scope.748
6.
Will the State Enforce a Choice of Law Provision?
Yes. A choice of law provision is generally binding, “as long as [the contracting parties] had a reasonable basis for their choice and the law of the chosen State does not violate a fundamental public policy of the state [where the lawsuit is pending].”749 Where parties to a contract have agreed that a given jurisdiction’s substantive law shall govern the interpretation of the contract, such contractual provision will be given effect.750 N.C. Gen. Stat. § 25-5-116. Choice of Law and Forum. a) The liability of an issuer, nominated person, or adviser for action or omission is governed by the law of the jurisdiction chosen by an agreement in the form of a record signed or otherwise authenticated by the affected parties in the manner provided in G.S. 25-5-104 or by a provision in the person’s letter of credit, confirmation, or other undertaking. The jurisdiction whose law is chosen need not bear any relation to the transaction. b) Unless subsection (a) of this section applies, the liability of an issuer, nominated person, or adviser for action or omission is governed by the law of the jurisdiction in which the person is located. The person is considered to be located at the address indicated in the person’s undertaking. If more than one address is indicated, the person is considered to be located at the address from which the person’s undertaking was issued. For the purpose of jurisdiction, choice of law, and recognition of interbranch letters of credit, but not enforcement of a judgment, all branches of a bank are considered separate juridical entities and a bank is considered to be located at the place where its relevant branch is considered to be located under this subsection.
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140 Fifty State Survey on Covenants Not to Compete
c) Except as otherwise provided in this subsection, the liability of an issuer, nominated person, or adviser is governed by any rules of custom or practice, such as the Uniform Customs and Practice for Documentary Credits, to which the letter of credit, confirmation, or other undertaking is expressly made subject. If (i) this Article would govern the liability of an issuer, nominated person, or adviser under subsection (a) or (b) of this section, (ii) the relevant undertaking incorporates rules of custom or practice, and (iii) there is conflict between this Article and those rules as applied to that undertaking, those rules govern except to the extent of any conflict with the non-variable provisions specified in G.S. 25-5-103(c). d) If there is conflict between this Article and Article 3, 4, 4A, or 9 of this Chapter, this Article governs. e) Notwithstanding G.S. 22B-3, the forum for settling disputes arising out of an undertaking within this Article may be chosen in the manner and with the binding effect hat governing law may be chosen in accordance with subsection (a) of this section. (1999-73, s. 1.)
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, courts apply North Carolina law when the contract was entered into and performed in North Carolina. The place of formation is the place where the last act essential to a meeting of the minds was done by either party.751
7.
Will the State Enforce a Forum Selection Clause?
Yes, but there may be exceptions. The court may consider the forum selection clause void based on fraud, unequal bargaining power or against public policy under: N.C. Gen. Stat. § 22B-3 provides:
Except as otherwise provided in this section, any provision in a contract entered into in North Carolina that requires the prosecution of any action or the arbitration of any dispute that arises from the contract to be instituted or heard in another state is against public policy and is void and unenforceable. This prohibition shall not apply to non-consumer loan transactions or to any action or arbitration of a dispute that is commenced in another state pursuant to a forum selection provision with the consent of all parties to the contract at the time that the dispute arises. (1993, c. 436, s. 2; 1995, c. 100, s. 1.) To be recognized by North Carolina appellate courts, mandatory forum selection clauses must contain words such as “exclusive” or “sole” or “only” which indicate that the contracting parties intended to make jurisdiction exclusive.752
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A forum selection clause cannot deprive a court of jurisdiction that is recognized by statute; venue statute required that action had to be tried in county in which former employer or former employee resided, and there was no indication that former employee or former employer resided in county that was identified in clause.753
9.
Leading Cases
Asheville Assocs. v. Miller, 255 N.C. 400 (1961). A.E.P. Indus., v. McClure, 308 N.C. 393 (1983). United Labs., Inc. v. Kuykendall, 322 N.C. 643 (1988). Milner Airco, Inc. v. Morris, 111 N.C. App. 866 (1993). Hartman v. W.H. Odell & Assocs., Inc., 117 N. C. App. 307 (1994). Farr Assocs. v. Baskin, 138 N.C. App 276 (2000). Kennedy, D.D.S., P.A. v. Kennedy, 160 N.C. App. 1 (2002). Phelps Staffing, LLC v. C.T. Phelps, Inc., 740 S.E.2d 923 (N.C. Ct. App. 2013).
II.
North Dakota
1.
Key Statutes
N.D. Cent. Code §§ 9-08-06 provides: Every contract by which anyone is restrained from exercising a lawful profession, trade, or business of any kind is to that extent void, except: (1) One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or a part of either, so long as the buyer or any person deriving title to the goodwill from the buyer carries on a like business therein. (2) Partners, upon or in anticipation of a dissolution of the partnership, may agree that all or any number of them will not carry on a similar business within the same city where the partnership business has been transacted, or within a specified part thereof. N.D. Cent. Code §§ 9-05-01 provides:
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142 Fifty State Survey on Covenants Not to Compete
Any benefit conferred or agreed to be conferred upon the promisor by any other person to which the promisor is not entitled lawfully, or any prejudice suffered or agreed to be suffered by such person, other than such as that person, at the time of consent, is lawfully bound to suffer as an inducement to the promisor, is a good consideration for a promise. The North Dakota Supreme Court determined that agreements prohibiting the postemployment solicitation of customers are invalid pursuant to this statute.754 The North Dakota Supreme Court recognized the statute invalidates provisions in employment contracts prohibiting an employee from working for a competitor after completion of his employment or imposing a penalty if he does so.755 North Dakota Courts may use opinions from California courts in their deliberations because California statutes contain the same provision from the Field Code as N.D. Cent. Code §§ 9-08-06.
2.
Consideration Required
Not Applicable.
3.
Are They Enforceable?
Not generally. Courts have geographically narrowed covenants in the sale-of-business context.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former owner or partner’s ability to start up a new business. As the North Dakota Supreme Court has noted, “it is well settled that if an unreasonable restraining clause can be separated leaving a reasonable agreement, it is valid to do so.”756
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of work or line of business being restricted. Covenants must be geographically limited to “a specified county, city or part of either.”757
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable?
North Dakota courts have not directly addressed the reasonableness of the duration of a restrictive covenant. In Lire, Inc. v. Bob’s Pizza Inn Rests., Inc., the court upheld a covenant not to sell Italian-type products for a period of five years following the sale of a restaurant. 758 In cases involving sale of a business, non-compete covenant is enforceable only within specified county, city or a part of either determined by courts on a case-by-case basis. In Mandan-Bismarck Livestock Auction v. Kist, the North Dakota Supreme Court held that an entire contract which contained a non-competition clause covering a two-county area was void.759 That case, however, was distinguished in Igoe v. Atlas Ready-Mix, Inc., where the court held that a contract containing a non-competition agreement covering both Mandan and Bismarck could be enforced in Bismarck.760 The court “blue penciled” out Mandan and held the agreement enforceable in Bismarck because the contract had been performed and, also, because Bismarck served as the place of business for the seller. The restrictive covenant in this case lasted 10 years. The court held that a restriction against an insurance agent from accepting or writing any policy that replaced a policy written by the former employer insurance agency was void because it would constitute a restraint of trade.761 The court held that non-compete agreement was valid because it was connected with the sale of the goodwill of a business but only in Burleigh County where the restaurant was located, not the whole “state of North Dakota.”762
6.
Will the State Enforce a Choice of Law Provision?
The N.D. Supreme Court adopted the “significant contacts” test in Issendorf v. Olson, 194 N.W.2d 750, 756 (1972) as it was applied by the New York Court of Appeals in the landmark tort case Babcock v. Jackson, 191 N.E.2d 279 (N.Y. 1963). Choice of Law two-pronged analysis: ■
■
First, determine all of the relevant contacts which might logically influence the decision of which law to apply. 194 N.W.2d at 755; Second, apply Leflar’s five choice-influencing factors to determine which jurisdiction has the more significant interest with the issues in the case. Id. at 754– 55. Leflar’s “choice-influencing” factors are: •
Predictability of results;
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a.
•
Maintenance of interstate and international order;
•
Simplification of the judicial task;
•
Advancement of the forum’s governmental interests;
•
Application of the better rule of law.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, courts apply the “significant-contact” test in §188 of the Restatement (Second) of Conflict of Laws.763 Courts will consider the predictability of results, maintenance of interstate and international order, the simplification of judicial task, the advancement of the forum’s governmental interests, and the application of the better rule of law.764
7.
Will the State Enforce a Forum Selection Clause?
Yes, but the language of the forum selection clause must be clear/non-ambiguous regarding the parties’ intent and location.765 A forum-selection clause will be enforced unless the party opposing enforcement clearly shows that one or more of the following is true:766 (1) Enforcement would be unreasonable or unjust; (2) The clause is invalid for reasons of fraud or overreaching; (3) Enforcement would contravene a strong public policy of the forum where the suit was brought; or (4) The selected forum would be seriously inconvenient for trial. i.
Leading Cases.
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Mandan-Bismarck Livestock Auction v. Kist, 84 N.W.2d 297 (N.D. 1957).
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Igoe v. Atlas Ready-Mix, Inc., 134 N.W.2d 511 (N.D. 1965).
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Hawkins Chem., Inc. v. McNea, 321 N.W.2d 918 (N.D. 1982).
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Herman v. Newman Signs, Inc., 417 N.W.2d 179, 181 (N.D. 1987).
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Werlinger v. Mut. Serv. Cas. Ins. Co., 496 N.W.2d 26 (N.D. 1993).
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Earthworks, Inc. v. Sehn, 553 N.W.2d 490 (N.D. 1996).
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Daley v. Am. States Preferred Ins. Co., 1998 ND 225, 587 N.W.2d 159 (1998).
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JJ.
Ohio
1.
Key Statutes
Ohio Rev. Code Ann. § 1331.02 (West 2015). No person shall issue or own trust certificates, and no person shall enter into a combination, contract, or agreement, the purpose and effect of which is to place the management or control of such combination, or the product or service thereof, in the hands of a trustee with the intent to limit or fix the price or lessen the production or sale of an article or service of commerce, use, or consumption, to prevent, restrict, or diminish the manufacture or output of such article or service, or refuse to buy from, sell to, or trade with any person because such person appears on a blacklist issued by, or is being boycotted by, any foreign corporate or governmental entity.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.767 However, courts will enforce such a covenant only if it is reasonable. To be reasonable, the covenant must: (1) not be greater than is required for the protection of the employer; (2) not impose an undue hardship on the employee, and (3) not be injurious to the public.768
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. Courts have found that receiving better and higher priority job assignments, increased salary, and additional job-related privileges is sufficient consideration to support a covenant not to compete.769 Courts also found that an employer’s promise to terminate an employee only for cause is sufficient consideration for a covenant not to compete.770
3.
Are They Enforceable?
Yes.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Courts will modify an agreement to protect the employer’s legitimate interest and then enforce the covenant as modified.771 For example, Lexis-Nexis v. Beer, the court modified the terms of the otherwise overbroad non-compete provision to restrict the former For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
146 Fifty State Survey on Covenants Not to Compete
employee from working in a sales position for a direct competitor when the sales position involves contact with the former employer’s customers and prospective customers in the territory in which the former employee previously worked.772
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Courts will consider the totality of the circumstances in determining whether time restrictions are reasonable.773 A covenant not to compete which imposes unreasonable restrictions upon an employee will be enforced to the extent necessary to protect an employer’s legitimate interests.774 One of the factors to be considered in determining the reasonableness of a covenant not to compete is whether the restriction seeks to eliminate unfair competition or merely ordinary competition.775 In determining whether the restrictions are reasonable, the following factors should be considered:776 The absence or presence of limitations as to time and space, whether the employee represents the sole contact with the customer; whether the employee is possessed with confidential information or trade secrets; whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition; whether the covenant seeks to stifle the inherent skill and experience of the employee; whether the benefit to the employer is disproportional to the detriment to the employee; whether the covenant operates as a bar to the employee’s sole means of support; whether the employee’s talent which the employer seeks to suppress was actually developed during the period of employment; and whether the forbidden employment is merely incidental to the main employment.
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
The court in Murray v. Accounting Ctr. & Tax Servs., Inc. found a 24-month prohibition on a former employee doing work for her former employer’s customers to be unreasonable where for 16 years, former employee had supported herself, in whole or in part, by doing tax-preparation work for her former employer and by working on her own.777 A two-year, worldwide ban on a former sales manager accepting any employments with 30 competititors where the manager’s territory was limited to two states was found to be unreasonable.778 A one-year time period for a covenant not to compete is reasonable.779
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One year non-competition agreement for stenographer throughout Franklin County was reasonable.780 Two year non-competition agreement for bonding agent in Cuyahoga and adjacent counties reasonable.781
b.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
A court found a nationwide covenant not to compete reasonable in the context of the “expedited freight industry” which the court found to be “a fiercely competitive, niche industry” in a “multistate industry.”782 A court found a covenant prohibiting a former sales account manager from working in any capacity for an employer who engages in “programming, designing, or marketing computerized information retrieval systems, system components” anywhere in the United States, the United Kingdom, Canada, France, or any other country in which the employer offered services or products to the public to be unreasonable.783 A court modified a covenant to prohibit a former employee from selling competing products in only one county.784 A court found reasonable geographic restrictions in a covenant that precluded a nurse from working within a 25-mile radius for one year where the nurse had the option to buy out the covenant for $50,000.785 A court enforced a covenant not to compete for the entire state for two years where an employer provided medical equipment throughout the state and a client list source was difficult to develop.786 A covenant not to compete within 200 miles of Cleveland found to be unreasonable where the employer’s business extended only within a 60-mile radius of Cleveland.787 A 14-year, 139-county covenant barring a former salesman from competing found to be unreasonable where it included not only former customers, but anyone the salesman had ever contacted during his employment.788
6.
Will the State Enforce a Choice of Law Provision?
Yes, generally. Ohio courts will enforce a choice of law provision unless:789 ■
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The chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice; or Application of the law of the chosen state would be contrary to the fundamental policy of the state having a greater material interest in the issue.
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a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
In the absence of a choice of law provision, Ohio courts will apply the law of the state with the most significant relationship to the contract.
7.
Will the State Enforce a Forum Selection Clause?
Yes. Ohio courts have found that “[m]ere distance, mere expense, or mere hardship to an individual litigant is insufficient to invalidate a forum selection clause.”790
8.
Leading Cases ■
Rogers v. Runfola & Assocs., Inc., 57 Ohio St. 3d 5 (1991).
■
Raimonde v. Van Vlerah, 42 Ohio St. 2d 21 (1975).
KK. Oklahoma 1.
Key Statutes
§15-217. Restraint of trade. Every contract by which any one is restrained from exercising a lawful profession, trade or business of any kind, otherwise than as provided by Sections 218 and 219 of this title, or otherwise than as provided by Section 2 of this act, is to that extent void. §15-218. Restraint of trade Exception as to sale of goodwill. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within a specified county and any county or counties contiguous thereto, or a specified city or town or any part thereof, so long as the buyer, or any person deriving title to the goodwill from him carries on a like business therein. Provided, that any such agreement which is otherwise lawful but which exceeds the territorial limitations specified by this section may be deemed valid, but only within the county comprising the primary place of the conduct of the subject business and within any counties contiguous thereto. §15-219. Restraint of trade Exception as to partners. Partners may, upon or in anticipation of a dissolution of the partnership, agree that none of them will carry on a similar business within a specified county and any county or counties contiguous thereto, or a specified city or town or any part thereof. Provided, that any such agreement which is otherwise lawful but which exceeds the territorial limitations specified by this section may be deemed valid, but only within the county comprising the primary Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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place of the conduct of the business of the subject partnership and within any counties contiguous thereto. §15-219A. Noncompetition agreements. A. A person who makes an agreement with an employer, whether in writing or verbally, not to compete with the employer after the employment relationship has been terminated, shall be permitted to engage in the same business as that conducted by the former employer or in a similar business as that conducted by the former employer as long as the former employee does not directly solicit the sale of goods, services or a combination of goods and services from the established customers of the former employer. B. Any provision in a contract between an employer and an employee in conflict with the provisions of this section shall be void and unenforceable.
2.
Consideration Required a.
Will Continued Employment or a Change in Terms of Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Recent cases have not discussed this issue. However, §15-115 places the burden of showing a want of consideration sufficient to support an instrument on the party seeking to invalidate or avoid it.
3.
Are They Enforceable?
Yes, however an employer may only contractually protect itself from unfair competition and not from the ordinary fair competition that the statute is intended to foster.791 Competition becomes unfair when a former employee improperly uses some business advantage or opportunity gained through employment.792
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Oklahoma courts will modify a covenant not to compete to make it reasonable provided the court is not required to supply essential elements of a contract.793
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
To cure an overly broad and thus unreasonable restraint of trade, an Oklahoma court may impose reasonable limitations concerning the activities embraced, time or geographical limitations, but it will refuse to supply material terms of the contract.794 For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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5.
What Factors Will the Court Consider in Determining Whether Time or Geographical Restrictions in the Covenant Are Reasonable?
The court will use a reasonableness standard to determine whether time restrictions are broader than necessary to protect the legitimate interest of the party enforcing the restrictions.795 “In order for a contract to be found illegal because it unreasonably restrains trade, the reasonableness of the restraint must be judged by assessing the restraint against the public’s or individual’s need and entitlement to free commerce and the right to earn a livelihood by employment, and the necessity of the restraint to protect and effectuate the basic transaction.”796
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
Two years was unreasonable where party seeking to enforce restriction testified it would be unlikely that someone could stay in the community for two years, not practice, and then have a viable practice at the end of two years.797
b.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
One court found that a 20-mile radius was unreasonable where, in fact, the only hospitals outside the 20-mile radius at which the former employee could work were all at least 100 miles from the hospital seeking to impose the restriction.798
6.
Will the State Enforce a Choice of Law Provision?
Yes, a choice of law provision will be upheld so long as the underlying agreement does not violate Oklahoma public policy.799
a.
In the Absence of a Choice-of Law-Provision What Rule Does the State Apply?
Courts are inclined to apply the “most significant relationship” test found in the Restatement (Second) of Conflicts, § 188 where there is no effective choice of law provision. The factors the Restatement contemplates under this section are the places of contracting, negotiation, performance and subject matter, along with the parties’ “domicile, residence, nationality, place of incorporation and place of business.”800
7.
Will the State Enforce a Forum Selection Clause?
Yes, parties to a contract in Oklahoma may choose the jurisdiction in which all actions arising from their transaction shall be heard.801 However, the forum selected by the parties must bear a reasonable relationship to the transaction and the contract must not have been entered into by fraud or duress.802 A party bringing suit in a forum other than the selected Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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forum bears the burden of persuading the court that enforcement of the forum clause would be unfair or unreasonable.803 Absent compelling reasons otherwise, forum selection clauses are enforceable.804
8.
Leading Cases ■
Loewen Group Acquisition Corp. v. Matthews, 12 P.3d 977 (Okla. Civ. App. 2000).
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Cardiovascular Surgical Specialists, Corp. v. Mammana, 61 P.3d 210 (Okla. 2002).
LL.
Oregon
1.
Key Statutes
Effective January 1, 2008, Oregon Revised Statute section 653.295 provides:805 (1) A noncompetition agreement entered into between an employer and employee is voidable and may not be enforced by a court of this state unless: (a)(A) The employer informs the employee in a written employment offer received by the employee at least two weeks before the first day of the employee's employment that a noncompetition agreement is required as a condition of employment; or (B) The noncompetition agreement is entered into upon a subsequent bona fide advancement of the employee by the employer; (b) The employee is a person described in ORS 653.020(3); (c) The employer has a protectable interest. As used in this paragraph, an employer has a protectable interest when the employee: (A) Has access to trade secrets, as that term is defined in ORS 646.461; (B) Has access to competitively sensitive confidential business or professional information that otherwise would not qualify as a trade secret, including product development plans, product launch plans, marketing strategy or sales plans; or (C) Is employed as an on-air talent by an employer in the business of broadcasting and the employer: (i) In the year preceding the termination of the employee's employment, expended resources equal to or exceeding 10 percent of the employee's annual salary to develop, improve, train or publicly promote the employee, For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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provided that the resources expended by the employer were expended on media that the employer does not own or control; and (ii) Provides the employee, for the time the employee is restricted from working, the greater of compensation equal to at least 50 percent of the employee's annual gross base salary and commissions at the time of the employee's termination or 50 percent of the median family income for a fourperson family, as determined by the United States Census Bureau for the most recent year available at the time of the employee's termination; and (d) The total amount of the employee's annual gross salary and commissions, calculated on an annual basis, at the time of the employee's termination exceeds the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee's termination. This paragraph does not apply to an employee described in paragraph (c)(C) of this subsection. (2) The term of a noncompetition agreement may not exceed two years from the date of the employee's termination. The remainder of a term of a noncompetition agreement in excess of two years is voidable and may not be enforced by a court of this state. (3) Subsections (1) and (2) of this section apply only to noncompetition agreements made in the context of an employment relationship or contract and not otherwise. (4) Subsections (1) and (2) of this section do not apply to: (a) Bonus restriction agreements, which are lawful agreements that may be enforced by the courts in this state; or (b) A covenant not to solicit employees of the employer or solicit or transact business with customers of the employer. (5) Nothing in this section restricts the right of any person to protect trade secrets or other proprietary information by injunction or any other lawful means under other applicable laws. (6) Notwithstanding subsection (1)(b) and (d) of this section, a noncompetition agreement is enforceable for the full term of the agreement, for up to two years, if the employer provides the employee, for the time the employee is restricted from working, the greater of: (a) Compensation equal to at least 50 percent of the employee's annual gross base salary and commissions at the time of the employee's termination; or
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(b) Fifty percent of the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee's termination. (7) As used in this section: (a) “Bonus restriction agreement” means an agreement, written or oral, express or implied, between an employer and employee under which: (A) Competition by the employee with the employer is limited or restrained after termination of employment, but the restraint is limited to a period of time, a geographic area and specified activities, all of which are reasonable in relation to the services described in subparagraph (B) of this paragraph; (B) The services performed by the employee pursuant to the agreement include substantial involvement in management of the employer's business, personal contact with customers, knowledge of customer requirements related to the employer's business or knowledge of trade secrets or other proprietary information of the employer; and (C) The penalty imposed on the employee for competition against the employer is limited to forfeiture of profit sharing or other bonus compensation that has not yet been paid to the employee. (b) “Broadcasting” means the activity of transmitting of any one-way electronic signal by radio waves, microwaves, wires, coaxial cables, wave guides or other conduits of communications. (c) “Employee” and “employer” have the meanings given those terms in ORS 652.310. (d) “Noncompetition agreement” means an agreement, written or oral, express or implied, between an employer and employee under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes or services that are similar to the employer's products, processes or services for a period of time or within a specified geographic area after termination of employment. Oregon Revised Statute section 653.020(3) defines the employee a noncompetition agreement applies to as follows:806 An individual engaged in administrative, executive or professional work who: (a) Performs predominantly intellectual, managerial or creative tasks;
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(b) Exercises discretion and independent judgment; and (c) Earns a salary and is paid on a salary basis. Of note in the Oregon statute is the requirement that an employer notify a prospective employee in writing at least two weeks before the first day of employment that a noncompetition agreement is required as a condition of employment.807 Further, existing employees entering into a noncompetition agreement must receive “subsequent bona fide advancement.”808
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No. As noted, for existing employees, a noncompetition agreement is voidable unless it is “entered into upon a subsequent bona fide advancement of the employee by the employer.”809
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. Provided the employee receives a “subsequent bona fide advancement . . . by the employer.”810 The Oregon Supreme Court has not yet addressed the meaning of “bona fide advancement.”811 The Ninth Circuit examined the text and context of the statute and concluded that “it is apparent that the legislature intended to permit employers to require existing employees to agree to a noncompete agreement, so long as the employee’s job content and responsibilities materially increased and the employee’s status within the company likewise improved.”812 Oregon federal courts have further described a “bona fide advancement” as being more than an increase in salary and including a substantive promotion:813 [T]he legislative history specifically contemplates an actual change in job status or responsibilities justifying the imposition of a noncompetition restriction. Thus, an employer who hires an employee and assigns that employee to perform tasks that involve client contacts and access to other employees' sales records must impose any restrictive covenants at the outset of that employee's hiring or forfeit such rights. What the legislature sought to preclude was a change in restrictions mid-stream in an employee's tenure. The focus of the legislative change was upon the employee's job duties, not upon the consideration otherwise proffered by the employer.
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3.
Are They Enforceable?
Yes. The court considers three factors when assessing the validity of a noncompetition provision in an employment contract, which is considered a covenant in restraint of trade:814 Three things are essential to the validity of a contract in restraint of trade[:] (1) it must be partial or restricted in its operation in respect either to time or place; (2) it must come on good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests 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.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Oregon courts can modify an overbroad agreement.815
5.
What Factors Will the Court Consider in Determining Whether Time or Geographical Restrictions in the Covenant Are Reasonable?
Oregon Revised Statute section 653.295(2) provides that “[t]he term of a noncompetition agreement may not exceed two years from the date of the employee’s termination. The remainder of a term of a noncompetition agreement in excess of two years is voidable and may not be enforced by a court of this state.” All relevant factors will be considered by the court.816
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A one-year covenant preventing a regional sales manager from working for any competitor, wherever located.817 A two-year covenant preventing an employee from directly or indirectly carrying on a business similar to the employer in the State of Oregon.818 A two-year covenant restricting the employee from engaging in or associating with others in competition with the employer within the State of Oregon or within 200 air miles of Portland, Oregon and becoming employed by, or associated with, or purchase from, or sell to, the employer’s regular suppliers or customers.819
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ii.
Unreasonable
A three-year non-compete agreement not restricted as to location that prohibited an employee “from working, in any capacity, in the sole business, and in the sole location, [the employee] has worked in the past 20 years.”820 A covenant not to compete barring an employee “from working for any of [the employer’s] competitors for a period of three years within 300 miles of any place where [the employer], or a subsidiary, engaged in business” is “unreasonable as to the space within which the restraint applies” because it “would prohibit [the employee] from working at his vocation in almost any major population center in the United States.”821
6.
Will the State Enforce a Choice of Law Provision?
Oregon courts have not addressed this question in the context of a covenant not to compete agreement.822
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
Oregon courts have not addressed this question in the context of a covenant not to compete agreement. However, Oregon courts have stated that “[i]n deciding choice of law issues in contract actions, Oregon applies the law of the state which has the most significant relationship to the parties and to the transaction.”823
7.
Will the State Enforce a Forum Selection Clause?
Oregon courts have not addressed this question in the context of a covenant not to compete agreement. The Supreme Court of Oregon has held that a contractual provision that any litigation arising out of the contract would be brought in another state is enforceable.824 However, “a contractual clause agreeing on an exclusive forum will not be enforced if it is determined to be unfair or unreasonable.”825
8.
Leading Court Cases ■
Eldridge v. Johnston, 195 Or. 379 (1952).
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Kelite Prods., Inc. v. Brandt, 206 Or. 636 (1956).
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N. Pac. Lumber Co. v. Moore, 275 Or. 359 (1976).
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MM. Pennsylvania 1.
Key Statutes
No statute governing covenants not to compete. Pennsylvania, however, has adopted the Uniform Trade Secrets Act, 12 Pa. Cons. Stat. §§ 5301 et seq. Trade secrets defined: 12 Pa. C.S. § 5302 (2004).
2.
Consideration Required
Yes, adequate consideration is required for the enforceability of a covenant not to compete.826
a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No. The mere continuation of at-will employment is insufficient consideration to support a covenant not to compete executed after the inception of employment.827 Instead, when an employee enters into an employment contract containing a covenant not to compete subsequent to employment, the covenant “must be supported by new consideration which could be in the form of a corresponding benefit to the employee or a beneficial change in his employment status.” Additional value to an existing employee must be provided in exchange for the Non-Compete. This could be more money, new job responsibilities and titles, new benefits, or a change from "at-will" to "contract-employee" status. While the additional consideration does not have to be of tremendous value, it must provide a real benefit that the employee was not otherwise entitled to receive. In other words, the restrictive covenant must be an auxiliary part of the taking of employment and not a later attempt to impose additional restrictions on an unsuspecting employee.828
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, a change in the beneficial terms of employment may be adequate consideration to support enforcement of a covenant not to compete.829
3.
Are They Enforceable?
Yes. The inquiry to determine whether or not a covenant is enforceable is whether the covenant is reasonably necessary to protect the legitimate business interests of the employer.830 Under Pennsylvania law, to be enforceable, restrictive covenants not to compete, including both non-solicitation and non-compete provisions, must satisfy four requirements:831
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Related to the employment or ancillary to the taking of employment;
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Supported by adequate consideration;
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Reasonably limited in time and geographic scope; and
Reasonably designed to safeguard a legitimate interest of the former employer. “In determining whether to enforce a non-competition covenant, this Court requires the application of a balancing test whereby the court balances the employer’s protectable business interests against the interest of the employee in earning a living in his or her chosen profession, trade or occupation, and then balances the result against the interest of the public.”832 In this balancing test, the Pennsylvania court may consider the circumstances surrounding the employee’s separation or termination from employment as a factor that must be considered to determine if the non-compete restriction should be enforced.833 Two trends emerge from these cases. First, companies that terminate an employee’s employment for poor performance relative to the company’s legitimate business interests are prevented from turning around and preventing that former employee from competing with them. Second, an employee terminated for misconduct or disloyalty will not be able to avoid his obligations under a non-compete.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Yes, the court has discretion to modify and “blue line” overly broad restrictions.834
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement
It is well-established that a court of equity has the authority to reform a noncompetition covenant in order to enforce only those provisions that are reasonably necessary for the protection of the employer.835
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The general rule is that the duration and geographic scope of the agreement should not exceed the time reasonably necessary to protect the employer’s legitimate business interests. What is considered "reasonable" varies from business to business, and requires a specific consideration of the facts and circumstances surrounding the agreement.836
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
AAMCO Transmissions, Inc. v. Romano, 42 F. Supp. 3d 700 (E.D.Pa. 2014) (10-mile radius is reasonable); Hess v. Gebhard & Co., Inc., 570 Pa. 148, 162-63 & n.7 (2002) (25 miles and five years found reasonable); John G. Bryant Co., Inc. v. Sling Testing & Repair, Inc., 471 Pa. 1 (1977) (covenant involving list of 560 customer contacts, limited to areas of three states, Southern New Jersey, Eastern Pennsylvania. and the State of Delaware, held reasonable); Harris Calorific Co. v. Marra, 345 Pa. 464, 29 A.2d 64 (1942) (covenant not to compete involving a customer list of 800 names of manufacturing companies, and covering a radius of approximately200 miles, that would leave the employee free to sell his own tips to many customers even within that area, held enforceable). Seligman & Latz of Pittsburgh, Inc. v. Vemillo, 382 Pa. 161, 163 (1955) (one mile geographic scope was reasonable and enforceable—beauty salon); Wainright’s Travel Servs., Inc. v. Scmolk, 347 Pa. Super. 199, 205– 06 (1985) (non-compete covenant spanning five states held reasonable and enforceable so as to encompass Wrainright’s primary business area; specificity as to the states covered and the clientele, groups and services appellant and appellee offer are identical in nature, there are other distribution areas and prospects from which to draw within the travel industry without being in violation of the injunction). ii.
Unreasonable
A non-competition covenant applied to a geographical area where the former employer does not compete is unreasonable.837 Where the public interest outweighs the employer’s legitimate protectable interests, e.g., in the context of non-competition covenants for physicians, the Pennsylvania Supreme Court has made clear that the courts will undertake a “close judicial scrutiny” of non-competition covenants because of the value of their services to the public.838
6.
Will the State Enforce a Choice of Law Provision?
Yes. Pennsylvania has adopted Section 187 of the Restatement (Second) of Conflict of Laws. Under the Restatement, the law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to the issue. “Pennsylvania courts generally honor the intent of the contracting parties and enforce choice of law provisions in contracts executed by them.”839
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a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
In the absence of a choice of law provision, Pennsylvania courts employ a combination of the “most significant relationship” test and governmental “interest analysis” to determine which state's law will apply.840 The place having the most interest in the problem and which is the most intimately concerned with the outcome is the forum whose law should be applied.841 The fact that a defendant is incorporated in a state which disfavors covenants not to compete, does not necessarily invalidate a noncompetition covenant with no choice of law clause where the underlying dispute relates to Pennsylvania.842 This is particularly true where the employee was hired in Pennsylvania, worked in Pennsylvania exclusively during his years with the former employer, continues to reside in Pennsylvania, and owns and operates a new competitive venture in Pennsylvania, and where no other jurisdiction has contacts with the events giving rise to the dispute. Under such circumstances, there is no basis for applying any other jurisdiction’s law.843
7.
Will the State Enforce a Forum Selection Clause?
As discussed in Igames Entm’t, Inc. v. Regan, No. Civ.A.04-CV-4179, 2004 WL 2538285 (E.D. Pa. Nov. 9, 2004) (upholding validity of Delaware forum selection clause for parties in Philadelphia, noting proximity of Delaware and Philadelphia):844 A forum selection clause is presumptively valid and will be enforced by the forum unless the party objecting to its enforcement establishes that: 1) it is the result of fraud or overreaching; 2) enforcement would violate a strong public policy of the forum; or 3) enforcement would in the particular circumstances of the case result in litigation in a jurisdiction so seriously inconvenient as to be unreasonable. If the forum selection clause is valid, “plaintiffs bear the burden of demonstrating why they should not be bound by their contractual choice of forum.” However, other courts have declined to enforce a forum selection clause in employment contracts.845 v.
Leading Cases.
Angela M. Cerino, A Talent is a Terrible Thing to Waste: Toward a Workable Solution to the Problem of Restrictive Covenants on Employment Contracts, 24 Duq. L. Rev. 777-810 (1986); Case Comment, Enforcement of Restrictive Covenants in Pennsylvania Employment Contracts, 80 Dick. L. Rev. 693 (1976). M. Noteworthy case summarizing scope of permissible and impermissible restraints: Davis & Warde, Inc. v. Tripodi, 616 A.2d 1384 (Pa. Super. Ct. 1992).
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NN. Rhode Island 1.
Key Statutes
No. As to defining trade secrets, Rhode Island has adopted Uniform Trade Secrets Act, R.I. Gen. Laws §§ 6-41-1 et seq.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
The Rhode Island Supreme Court has not decided whether continued employment provides sufficient consideration to support a covenant not to compete.846 In a 2008 decision, however, a Rhode Island superior court held in an unreported case that continued employment does provide adequate consideration to support a noncompetition covenant.847 In addition, a federal court in Rhode Island, anticipating how Rhode Island courts would rule on the issue, held that continued employment is sufficient consideration.848
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
This issue has not been decided in Rhode Island. A postemployment covenant not to compete, however, signed at the inception of employment and valid under Rhode Island law remains valid even after an employee changes positions within the company, so long as neither party intends to revoke the prior employment agreement or makes a new employment agreement.849 In Astro-Med, the court consider whether an employee’s transition from a product specialist in Rhode Island to a salesperson in Florida within the same company constituted a “material change” in employment that would require the signing of a new noncompetition agreement.850
3.
Are They Enforceable?
The Rhode Island Supreme Court recognizes that covenants not to compete are disfavored and subject to strict judicial scrutiny.851 As a result, Rhode Island courts will uphold and enforce such provisions if, inter alia, the party seeking to enforce the noncompetition clause (the promisee) shows that the provision is ancillary to an otherwise valid transaction or relationship, and that “the contract is reasonable and does not extend beyond what is apparently necessary for the protection of those in whose favor it runs.”852 Before a court reaches the question of reasonableness, the party seeking to enforce the covenant must show that (1) the provision is ancillary to an otherwise valid transaction or relationship, such as an employment contract or a contract for the purchase and sale of a For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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business, (2) the provision is supported by adequate consideration, and (3) there exists a legitimate interest that the provision is designed to protect.853 A non-compete covenant that is part of a settlement agreement, rather than an employment contract or a contract for the sale of a business, is nevertheless ancillary to a valid transaction, and may be enforced so long as it meets the general requirements for enforceability.854 To be enforceable, a noncompetition covenant must not only be legally valid and supported by adequate consideration, but it must also be reasonable and necessary for the protection of those in whose favor it is made. Reasonableness is determined by the limitations on both time and geographic space contained in the agreement. Determining reasonableness in turn depends on an examination of the restrictions of the covenant in light of the employer’s protectable interest.855 The test applied is whether the “restrictions under the conditions of each case” are reasonable. Reasonableness of an agreement is “determined by its subject matter and the conditions under which it was made; by considerations of extensiveness or localism, of protection to interests sold and paid for, of mere deprivation of public rights for private gain, of proper advantage on one side or useless oppression on the other.”856
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Rhode Island law is undecided as to “whether indivisible terms of an unreasonable restrictive covenant may be rewritten by the court so as to be reasonable.”857 However, “when a divisible covenant is found unreasonable, Rhode Island courts have held that the portion of the covenant which is reasonable may be enforced.”858 In the non-employment context, in a case involving a distributorship agreement, a court held that if a covenant not to compete is overbroad, it can be modified and enforced to the extent it is reasonably necessary without imposing undue hardship on promisor or adversely affecting the public interest, unless the circumstances indicate bad faith or deliberate overreaching on the part of the employer.859 In that context, the Court held that covenants may be modified whether or not their terms are divisible.860 “Rhode Island courts permit tailoring of unreasonable non-compete provisions absent a showing of bad faith or deliberate overreaching.”861 Likewise, in Aim High Acad., Inc. v. Jessen, No. KC-2008-1384, 2008 WL 5325586 (R.I. Super. Ct. Dec. 10, 2008) (unreported), a Rhode Island Superior Court followed the rule of “partial modification” and rewrote geographic restrictions in postemployment covenants not to compete so as to make them reasonable as to former employee gymnastics teachers.862 As originally written, the covenants purported to prohibit the restricted employees from competing anywhere in the state of Rhode Island, despite the fact that the plaintiff employer was situated in central Rhode Island and most of Rhode Island's population occupied northern Rhode Island.863 The court modified the covenants so as to prohibit competition only within a 15-mile radius of the plaintiff employer, and it enforced the covenants as so modified.864 Similarly, in Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1, 14 (1st Cir. 2009), former employees had unsuccessfully contended that if an individual was a party to a Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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noncompetition covenant that was later judicially modified because of overbreadth, that individual could not, under Rhode Island law, be in breach of the covenant until the court modifies the provision to make it enforceable. In rejecting that assertion, the U.S. Court of Appeals for the First Circuit pointed out that the former employees’ position would give the promisor in a covenant not to compete one free breach and require a prior judicial order before the provision could be said to be violated.865 Such a proposition would eviscerate all but the most narrowly tailored noncompetition agreements, because a modification of any term of the provision would justify a breach of all its terms, the court explained.866 Moreover, “because most breaching employees gain the full benefit of the breach the first time they compete with their former employer, a second breach after judicial warning would in most cases be cumulative.”867
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
The Rhode Island Supreme Court has adopted Restatement (First) of Contracts §515 (1932) in regard to covenants not to compete.868 This section of the Restatement states that a covenant in restraint of trade is unreasonable if it is greater than is required to protect the person in whose favor it is created, or imposes undue hardship on the person restricted.
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Covenants Held Reasonable. ■
■
■
Nestle Food Co. v. Miller, 836 F. Supp. 69 (D.R.I. 1993) (one-year prohibition on selling for a direct competitor is reasonable and enforceable); Block v. Vector of Warwick, LLC, 2000 WL 1634784 (R.I. Super. 2000) (two-year, 10mile restriction on practice of veterinary medicine upheld as reasonable. The court noted that “a covenant not to compete should last no longer than necessary for the employees’ replacements to have a reasonable opportunity to demonstrate their effectiveness to customers”); R.J. Carbone Co. v. Regan, 2008 U.S. Dist. LEXIS 81996 (one-year, 100 mile prohibition on competing with former employer held reasonable as to time, but unreasonable as to geographic scope). ii.
Unreasonable
Covenants Held Unreasonable. ■
Durapin, Inc. v. Am. Prods., 559 A.2d 1051 (R.I. 1989) (three-year, total market restraint unreasonable);
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■
■
b.
Max Garelick, Inc. v. Leonardo, 250 A.2d 354 (R.I. 1969) (five-year restraint on purchasing grain from previous supplier of plaintiff unreasonable and unenforceable); Saban v. Caremark Rx, L.L.C., 780 F. Supp. 2d 700, 711 (N.D. Ill. 2011) (applying Rhode Island substantive law examining one-year noncompetition covenant executed by an executive working for a provider of pharmacy benefits management services; explaining that if covenant were enforced according to its plain terms, former employee “would be precluded from working in a wide variety of jobs which have zero relation” to his work for the former employer, therefore extending the scope of restriction “well beyond what is necessary” for protection of former employer's legitimate interests)
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Covenant Held Reasonable: ■
■
Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1, 14 (1st Cir. 2009) (applying Rhode Island law; a covenant barring a medical equipment salesperson from selling products to a limited subset of the former employer's customers within the state of Florida); Aim High Acad., Inc. v. Jessen, No. KC-2008-1384, 2008 R.I. Super. LEXIS 152, at *26–27 (R.I. Super. Ct. Dec. 10, 2008) (rewriting statewide covenants barring former employees of a gymnastics school in central Rhode Island from competing within a 15-mile radius of the former employer and enforcing covenants as so rewritten). ii.
Unreasonable
Covenant Held Unreasonable: ■
■
R.J. Carbone Co. v. Regan, 582 F. Supp. 2d 220, 225–26 (D.R.I. 2008) (covenant barring floral industry salesperson from competing within 100-mile radius; reasoning geographic restriction needlessly included potential customers of former employer to whom salesperson had never sold and prior customers of former employer to whom salesperson had not recently sold); Aim High Acad., Inc. v. Jessen, No. KC-2008-1384, 2008 R.I. Super. LEXIS 152, at *26–27 (R.I. Super. Ct. Dec. 10, 2008) (As written, covenants barring gymnastic school’s employees from competing in the entire state of Rhode Island; covenant rewritten and enforced to limited geographical zone to within 15-mile radius of former employer, and enforcing covenants as rewritten).
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6.
Will the State Enforce a Choice of Law Provision?
Rhode Island will enforce choice of law provisions contained in contracts, so long as the jurisdiction selected has a “real relation to the contract.”869
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Where the contract does not contain a choice of law provision, Rhode Island courts apply the “interest weighing” test to determine which state has the more significant interest in the resolution of the issues presented in the case, and will also consider as a factor the place of contract.870 Under the interest weighing test, the court considers the following factors: (1) predictability of result; (2) maintenance of interstate and international order; (3) simplification of the judicial task; (4) advancement of the forum's governmental interests; and (5) application of the better rule of law. Id.
7.
Will the State Enforce a Forum Selection Clause?
Yes. In Microfibres, Inc. v. McDevitt-Askew, 20 F. Supp. 2d 316 (D.R.I. 1998) (covenant case), the court ruled that a clause selecting Rhode Island courts as the forum for resolution of all disputes was enforceable and that the defendant employee (who was a resident of North Carolina and had been employed by the plaintiff there) was subject to suit in Rhode Island for breach of a noncompete clause in her employment agreement.871 In reaching that conclusion, the court determined that, by agreeing to the forum selection clause, the defendant had waived the right to raise lack of personal jurisdiction as a defense in the Rhode Island action.872 The court also held that, if the forum selection clause were valid and enforceable, it would justify denial of the defendant’s motion to transfer under 28 U.S.C. §1404(a) because prior agreement to the clause indicated acquiescence to the forum.873 Applying the “significant relationship” test under Rhode Island law, fact that the employer was headquartered in Rhode Island was a sufficient contact with the forum to uphold the clause.874 In Earvision, Inc. v. Wyman, No. 11-615S, 2012 U.S. Dist. LEXIS 76205, aff'd, 2012 U.S. Dist. LEXIS 76813 (D.R.I. June 1, 2012), the court held that where a party consents to a contractual forum selection clause, that party also offers his implied consent to personal jurisdiction.875
8.
Leading Cases ■
■
Durapin, Inc. v. American Products, 559 A.2d 1051 (R.I. 1989); Max Garelick, Inc. v. Leonardo, 250 A.2d 354 (R.I. 1969); Nestle Food Co. v. Miller, 836 F. Supp. 69 (D.R.I. 1993). Mark W. Freel, Matthew T. Oliver, When Commercial Freedoms Collide: Trade Secrets, Covenants Not to Compete and Free Enterprise, 47 May R.I. B.J. 9 (1999).
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OO. South Carolina 1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No. Continued at-will employment is not sufficient consideration for a covenant not to compete entered into during an ongoing employment relationship. “[W]hen a covenant is entered into after the inception of employment, separate consideration, in addition to continue at-will employment, is necessary in order for the covenant to be enforceable.”876 “[T]here is no consideration when the contract containing the covenant is exacted after several years [sic] employment and the employee's duties and position are left unchanged.”877
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. The contract containing the prohibitions must be supported by valuable consideration.878
3.
Are They Enforceable?
“A restrictive covenant not to compete ancillary to a contract of employment is generally looked upon with disfavor and is critically examined and construed against the employer . . . .”879 A covenant not to compete will ordinarily be upheld if it is:880 (1) necessary for the protection of the legitimate interest of the employer; (2) reasonably limited in its operation with respect to time and place; (3) not unduly harsh and oppressive in curtailing the legitimate efforts of the employee to earn a livelihood; (4) reasonable from the standpoint of sound public policy; and (5) supported by a valuable consideration. “If a covenant not to compete is defective in one of the above referenced areas, the covenant is totally defective and cannot be saved.”881 “[C]ases concerned with the Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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enforceability of covenants not to compete contained in employment contracts ‘must be decided on their own facts.’”882
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
“[I]n South Carolina, the restrictions in a non-compete clause cannot be rewritten by a court or limited by the parties' agreement, but must stand or fall on their own terms.”883 Poynter has been interpreted by South Carolina courts “to mean that (1) a court may not ‘blue pencil’ the restrictions contained in a non-competition provision by inserting or subtracting terms not agreed to by the parties in order to make it valid and enforceable, and (2) the parties may not of their own accord convert an overly broad territorial restriction into an enforceable one by entering into a subsequent agreement that artificially limits the actual terms used in the parties’ original contract.”884
5.
What Factors Will the Court Consider in Determining Whether Time or Geographical Restrictions in the Covenant Are Reasonable?
Unreasonable time restrictions will not be upheld. South Carolina courts have noted that “[w]hile conceding that a limitation of two or even three years may not be obnoxious, the limitation ‘. . . at any time . . .’ cannot be justified.”885 With regard to geographical restrictions, “[t]he general test is that contractual prohibitions must be geographically limited to what is reasonably necessary to protect the employer’s business.”886
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A covenant not to compete that barred a deliveryman for three years from working for a competitor in the area in which he had previously worked or to which he was assigned at any time during his employment with the former employer.887 A geographic scope where “the area covered by the restraint is limited to the territory in which the employee was able, during the term of his employment, to establish contact with his employer’s customers.”888 A two-year nonsoliciation covenant, containing no geographic limitation, and prohibiting former sales employees from soliciting customers and dealers, finding the restrictions “are at least as narrowly construed as a geographical limitation to effectuate [the former employers’] legitimate interest.” 889
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ii.
Unreasonable
A covenant not to compete prohibiting for a period of three years a former employee from directly or indirectly owning, managing, operating, controlling, being employed by, participating it, or being connected in any manner with the type of business conducted by the former employer was found to be unreasonable and defective, noting that “the terms of the covenant restrict [the former employee’s] employment opportunities beyond what is necessary for the protection of [the former employer’s] legitimate business interests.”890 A fifteen-mile territorial restriction surrounding three practice locations and reaching into adjoining counties and another state is overbroad, and therefore unreasonable and unenforceable, where “an overwhelming majority of [the former employer’s] clients lived much closer than 15 miles from at least one of the practice locations.”891 A 100-mile radius of a specified city or within 100 miles of the employee’s assigned territory for a period of 12 months was found unreasonable because “such a wide area was not needed for the protection of the business of the” former employer.892
6.
Will the State Enforce a Choice of Law Provision?
“Choice of law clauses are generally honored in South Carolina.”893 However, while terms in a non-compete agreement may be construed according to the law of another state, South Carolina courts will not enforce a contract if it would be invalid as a matter of law or contrary to public policy in South Carolina.894
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
In the absence of a choice of law provision, South Carolina follows the general rule that the law to be applied is that of the state where the contract was made. The Supreme Court of South Carolina explains:895 It is fundamental that unless there be something intrinsic in, or extrinsic of, the contract that another place of enforcement was intended, the lex loci contractu governs. If the contract be silent thereabout, the presumption is that the law governing the enforcement is the law of the place where the contract is made.
7.
Will the State Enforce a Forum Selection Clause?
South Carolina courts have not addressed this question in the context of a covenant not to compete.896
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8.
Leading Cases ■
Oxman v. Sherman, 239 S.C. 218 (1961).
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Standard Register Co. v. Kerrigan, 238 S.C. 54 (1961).
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Oxman v. Profitt, 241 S.C. 28 (1962).
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Rental Uniform Serv. of Florence, Inc. v. Dudley, 278 S.C. 674 (1983).
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Stringer v. Herron, 309 S.C. 529, 531 (Ct. App. 1992).
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Faces Boutique, Ltd. v. Gibbs, 318 S.C. 39 (Ct. App. 1995).
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Poynter Invs., Inc. v. Century Builders of Piedmont, Inc., 387 S.C. 583 (2010).
PP.
South Dakota
1.
Key Statutes
S.D. Codified Laws § 53-9-8 et seq. provides: 53-9-8 Contracts in restraint of trade void--Exceptions. Any contract restraining exercise of a lawful profession, trade, or business is void to that extent, except as provided by §§ 53-9-9 to 53-9-12, inclusive. 53-9-9. Sale of good will--Seller’s agreement with buyer to refrain from carrying on similar business, validity. Any person who sells the good will of a business may agree with the buyer to refrain from carrying on a similar business within a specified county, city, or other specified area, as long as the buyer or person deriving title to the good will from the seller carries on a like business within the specified geographical area. 53-9-10. Dissolution of partnership--Agreement of partners to refrain from carrying on similar business, validity. Partners may, upon or in anticipation of a dissolution of the partnership, agree that none of them will carry on a similar business within the same municipality where the partnership business has been transacted or within a specified part thereof. 53-9-11. Employment contract--Covenants not to compete. An employee may agree with an employer at the time of employment or at any time during his employment not to engage directly or indirectly in the same business or profession as that of his employer for any period not exceeding two years from the date of termination of the agreement and not to solicit existing customers of the employer within a specified county, first or second class municipality, or other specified area for any period not exceeding two years from the date of termination of the agreement, if the employer continues to carry on a like business therein. For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
170 Fifty State Survey on Covenants Not to Compete
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.897 If the covenant is given in a written alteration or modification to an oral employment contract, “[u]nder the terms of [S.D. Codified Laws Ann. §53-8-6] no additional consideration [is] necessary.”898 Section 53-8-6 provides: A contract not in writing may be altered in any respect by consent of the parties, in writing, without a new consideration, and is extinguished thereby to the extent of the alteration.899 S.D. Codified Laws Ann. §53-8-7 permits written alteration of written contracts without new consideration.900 Section 53-8-7 provides: Alteration of written contract without new consideration. A contract in writing may be altered by a contract in writing without a new consideration or by an executed oral agreement, and not otherwise.901 Similarly, if the covenant not to compete is given in “an executed agreement” modifying a written employment contract, section 53-8-7 allows for the principle that no new consideration is required.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Additional consideration is unnecessary “in light of SDCL §53-8-7.”902 Section 53-8-7 provides, “A contract in writing may be altered by a contract in writing without a new consideration or by an executed oral agreement, and not otherwise.” Additionally, Section 53-9-11 provides that an employee may enter into non-compete and non-solicitation covenants with his employer at the time of the employment or at any time during his employment.903 If the covenant is given in a written alteration or modification to an oral employment contract, “[u]nder the terms of [Section 53-8-6], no additional consideration [is] necessary.”904
3.
Modification, Severability and “Blue Penciling” Overbroad Agreements
In St. Ogne Livestock Co. v. Curtis,905 the South Dakota Supreme Court noted:
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The [circuit court] also held that the non-compete agreement was “overbroad in range of activities, duration and area,” and therefore, in violation of SDCL 53-9-11. The court excised the illegal terms and held the agreement enforceable as amended. The court stated: “There is little double that [the employer] violated any reasonable interpretation of those factors. It is undisputed that [the employee] began working at Belle Fourche Livestock just one day after he left [the plaintiff’s] employ. Belle Fourche Livestock is [engaged in] and located approximately ten miles from [the employee’s] former principal place of employment. The court expressly rejects [employee’s] argument that the area shall be confined to Lawrence County.” The court also noted that, despite the duration of the covenant not to compete, the employee breached his obligation when he went to work for a competitor within 24 hours of terminating his former employment.906
4.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Pursuant to S.D. Codified Laws section 53-9-11, the covenant can last no more than two years, and must include a geographic term limiting its application to a “specified county, city or other specified area.” “[I]f an employee voluntarily quits his employment or is fired for good cause, Central, Inc. and American Rim & Brake will control and no . . . showing of ‘reasonableness’ will be necessary as long as the non-compete or non-disclosure agreement complies with SDCL 539-11.”907 “However, if an employee is fired for no fault of his own, the court needs to go further to determine whether the agreement is reasonable.”908 To determine reasonableness, the court “must engage in a balancing test,” considering the extent of the restraint, including its temporal and geographic scope; the nature of the business or profession involved, including the employee’s position and duties; and the public’s interest in the employee’s being able to continue in that field.909
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable?
South Dakota courts need not engage in a reasonableness analysis where:910 1. The covenant is executed in the employment context and the employee is terminated without good cause; or 2. The covenant is executed in conjunction with a stock repurchase agreement “and is therefore subject to analysis under SDCL 53-9-9 (sale of good will), not SDCL 53-9-11 (employment contracts).” For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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i.
Reasonable
A two-year, two-state (and surrounding area) covenant not to compete and a two-year nondisclosure covenant.911 A modified non-competition covenant with a reduced geographic scope covering only the markets in the city in which the buyer was located.912 A five-year modified covenant enforced in one county.913 A one-year covenant barring an employee of a computer sales and assembly company from working for a competitor in the same industry.914 A 10-year covenant not to compete in connection with the sale of business.915 A covenant will be enforceable so long as it meets the statutory requirements. 916 ii.
Unreasonable
A farm equipment sale-of-business non-competition covenant purporting to operate “within any county in the United States.”917 A “nonswitch” or “no-hire” agreement under which rivals agree not to recruit each other’s employees.918
5.
Will the State Enforce a Choice of Law Provision?
Yes. South Dakota generally allows the parties to contract as to which state law should apply to an agreement, as limited by the public policy as recognized by South Dakota in its laws and court decisions. “Generally, parties to a contract may effectively agree to be bound by the law of a particular state, but such governing law agreements are subject to limitation and invalidation by the overriding public policy of the forum state.”919 In Overholt Crop Ins. Serv. Co. v. Travis,920 the U.S. Court of Appeals for the Eight Circuit upheld the district court’s decision to apply Minnesota law to a contract that enforced restrictive covenants against South Dakota citizens.
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Under South Dakota statutory law, a contract is to be interpreted “according to the law and usage of the place where it is to be performed or, if it does not indicate a place of performance, according to the law and usage of the place where it is made.”921 In one case, where no place of performance was specified, the place where the contract was “made” was the place where the last act necessary for its completion was accomplished.922
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6.
Will the State Enforce a Forum Selection Clause?
South Dakota courts follow the general rule that forum selection clauses are enforceable “unless unjust or unreasonable or invalid for reasons such as fraud of overreaching.”923 Clear and exclusive forum selection clauses can prevent the defendant from removing the case to federal court.924 South Dakota applies a four-part test to determine the reasonableness of a forum selection clause: “(1) The law which governs the formation and construction of the contract; (2) the residency of the parties; (3) the place of execution and/or performance of the contract; (4.) the location of the parties and witnesses involved in the litigation.”925
7.
Leading Cases ■
Franklin v. Forever Venture, Inc., 2005 S.D. 53, 696 N.W.2d 545 (S.D. 2005).
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Cent. Monitoring Serv., Inc. v. Zakinski, 553 N.W. 2d 513 (S.D. 1996).
QQ. Tennessee 1.
Key Statutes
None of general application. With respect to attorneys, the Tennessee Rules of Professional Conduct state: A lawyer shall not participate in offering or making: (a) a partnership, shareholders, operating, employment, or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a client controversy. Rules of the Tennessee Supreme Court, Rule 8: Rules of Professional Conduct § 5.6. With respect to physicians, the Tennessee Code provides: Covenants not to compete signed by healthcare providers. (a)(1) A restriction on the right of an employed or contracted healthcare provider to practice the healthcare provider's profession upon termination or conclusion of the employment or contractual relationship shall be deemed reasonable if:
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(A) The restriction is set forth in an employment agreement or other written document signed by the healthcare provider and the employing or contracting entity; and (B) The duration of the restriction is two (2) years or less and either: (i) The maximum allowable geographic restriction is the greater of: (a) A ten-mile radius from the primary practice site of the healthcare provider while employed or contracted; or (b) The county in which the primary practice of the healthcare provider while employed or contracted is located; or (ii) There is no geographic restriction, but the healthcare provider is restricted from practicing the healthcare provider's profession at any facility at which the employing or contracting entity provided services while the healthcare provider was employed or contracted with the employing or contracting entity. (2) [Deleted by 2011 amendment, effective January 1, 2012.] (b) An agreement entered into in conjunction with the purchase or sale of a healthcare provider's practice, or all or substantially all of the assets of the healthcare provider's practice, may restrict the healthcare provider's right to practice the healthcare provider's profession; provided, that the duration of the restriction and the allowable area of the restriction are reasonable under the circumstances. There shall be a rebuttable presumption that the duration and area of restriction agreed upon by the parties in such an agreement are reasonable. (c) This section shall apply to healthcare providers licensed under chapters 3, 4, 5, 6, 8, 9 and 11 of this title. (d) This section shall not apply to physicians who specialize in the practice of emergency medicine. T.C.A. §63-1-148 (2014).
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Generally, yes, provided the continued employment is sufficiently long to constitute “reasonable” consideration to support the covenant.926
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b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
If the parties enter into a noncompetition covenant after the inception of employment, “the court will determine the reasonableness of the consideration on a case-by-case basis.”927
3.
Are They Enforceable?
Yes, although they are disfavored as a restraint on trade.928
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Tennessee has adopted the “rule of reasonableness.” “This rule provides that unless the circumstances indicate bad faith on the part of the employer, a court will enforce covenants not to compete to the extent that they are reasonably necessary to protect the employer's interest without imposing undue hardship on the employee when the public interest is not adversely affected.”929
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Under Tennessee law, “the question of reasonableness must be decided on an ad hoc basis.”930 Ultimately, “the time and territorial limits involved must be no greater than is necessary to protect the business interests of the employer.”931
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A three-year customer restriction for a former partner in a CPA firm932. A two-year covenant in a 75-mile radius of any location where a prosthetist worked.933 A one-year covenant covering the United States for a salesperson of a company selling satellite telephone and GPS equipment.934 A two-month covenant in the county where a nail technician was employed.935 ii.
Unreasonable
A two-year covenant for all customers nationwide was found to be too broad.936
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A 20-year covenant prohibiting a hardware store manager from owning a competing hardware business in two counties was unenforceable.937
6.
Will state enforce a choice of law provision? a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
“Tennessee follows the rule of lex loci contractus. This rule provides that a contract is presumed to be governed by the law of the jurisdiction in which it was executed absent a contrary intent.”938
7.
Will the State Enforce a Forum Selection Clause?
Yes, as long as (1) the choice of law provision was executed in good faith; (2) the jurisdiction whose law is chosen bears a material connection to the transaction; (3) the basis for the choice of another jurisdictions law is reasonable and not merely a sham or subterfuge; and (4) the parties’ choice of another jurisdiction’s law must not be contrary to a fundamental policy of a state having a materially greater interest and whose law would otherwise govern.939
8.
Leading Cases ■
UT Med. Grp., Inc. v. Vogt, 235 S.W.3d 110, 114 (Tenn. 2007)
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Murfreesboro Med. Clinic, P.A. v. Udom, 166 S.W.3d 674, 678 (Tenn. 2005)
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Central Adjustment Bureau v. Ingram, 678 S.W. 2d 28, 35 (Tenn. 1984).
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Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471, 472 (Tenn. 1984)
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Selox, Inc. v. Ford, 675 S.W.2d 474, 475 (Tenn. 1984)
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Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361, 363 (1966)
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Greene Cty. Tire & Supply, Inc. v. Spurlin, 207 Tenn. 189 (1960)
RR. Texas 1.
Key Statutes
Tex. Bus. & Com. Code subchapter E §§15.50-15.51. Tex. Bus. & Com. Code subchapter E §15.50 (Effective September 1, 2009):
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(a) Notwithstanding Section 15.05 of this code, and subject to any applicable provision of Subsection (b), a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promise. (b) A covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board if such covenant complies with the following requirements: (1) the covenant must: (A) not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment; (B) provide access to medical records of the physician’s patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code; and (C) provide that any access to a list of patients or to patients’ medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract; (2) the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and (3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated. (c) Subsection (b) does not apply to a physician’s business ownership interest in a licensed hospital or licensed ambulatory surgical center. Tex. Bus. & Com. Code subchapter E § 15.51 (Vernon Supp. 1990). Procedures and Remedies in Actions to Enforce Covenants Not to Compete (a) Except as provided in Subsection (c) of this section, a court may award the promisee under a covenant not to compete damages, injunctive relief, or both damages and injunctive relief for a breach by the promisor of the covenant. For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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(b) If the primary purpose of the agreement to which the covenant is ancillary is to obligate the promisor to render personal services, for a term or at will, the promisee has the burden of establishing that the covenant meets the criteria specified by Section 15.50 of this code. If the agreement has a different primary purpose, the promisor has the burden of establishing that the covenant does not meet those criteria. For the purposes of this subsection, the “burden of establishing” a fact means the burden of persuading the triers of fact that the existence of the fact is more probable than its nonexistence. (c) If the covenant is found to be ancillary to or part of an otherwise enforceable agreement but contains limitations as to time, geographical area, or scope of activity to be restrained that are not reasonable and impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee, the court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographical area, and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the promisee and enforce the covenant as reformed, except that the court may not award the promisee damages for a breach of the covenant before its reformation and the relief granted to the promisee shall be limited to injunctive relief. If the primary purpose of the agreement to which the covenant is ancillary is to obligate the promisor to render personal services, the promisor establishes that the promisee knew at the time of the execution of the agreement that the covenant did not contain limitations as to time, geographical area, and scope of activity to be restrained that were reasonable and the limitations imposed a greater restraint than necessary to protect the goodwill or other business interest of the promisee, and the promisee sought to enforce the covenant to a greater extent than was necessary to protect the goodwill or other business interest of the promisee, the court may award the promisor the costs, including reasonable attorney’s fees, actually and reasonably incurred
2.
Consideration Required a.
Ancillary to or Part of an Otherwise Enforceable Agreement at the Time the Agreement Is Made: Employment At-Will.
The language in section 15.50 retains the obligation that any restrictive covenants must be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made. The analysis under section 15.50 parallels the common-law requirement that mere employment at-will, without more, will not support a restrictive covenant. Mere at-will employment is an illusory promise that cannot be enforced.940 Therefore a covenant must be supported by valuable consideration.941
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b.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Cases analyzing this issue following the enactment of 15.50 continue to require any restrictive covenant to be ancillary to or part of an otherwise enforceable agreement. Therefore the introduction of a non-compete agreement at any time during employment must accompany new consideration other than the illusory and unenforceable promise of mere continued at-will employment.942 Both cases acknowledge that mere continued employment at-will is not sufficient consideration for a newly signed covenant. Additionally, an employer’s promise to provide confidential information as consideration for a restrictive covenant is sufficient consideration, but only if the employer actually provides the promised information. If the employer fails to provide the promised information, the courts have determined that this failure of consideration renders the noncompete unenforceable.943
c.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, under both the statute and the common law, so long as the covenant is ancillary to or part of an otherwise enforceable agreement, which includes the requirement of valuable consideration that is independent of employment at-will.944 Such consideration may include special training or knowledge acquired by an employee during employment, Martin v. Credit Protection Ass’n, Inc.,945 but such training or special knowledge must be provided after the agreement is signed.946 Increasingly, since the Marsh decision, consideration in the form of equity is used to support restrictive covenants.
3.
Are They Enforceable?
Yes. Under section 15.50, a covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Under the statute, “the court shall reform the covenant to the extent necessary to cause the limitations contained in the covenant as to time, geographical area, and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than necessary to protect the goodwill or other business interest of the promisee and enforce the covenant as reformed” However, “the court may not award the promisee damages for a breach of the covenant before its reformation and the relief granted to the promisee shall be limited to injunctive relief.”947
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Also, under common law, the courts are able to reform the covenant to whatever is reasonable in time and scope under the circumstances depending on the nature and extent of the employer’s business operation.948 Nevertheless, the failure to include a statutorily required buy-out provision cannot be reformed by the court.949 If the agreement’s terms as written are broader than necessary to protect the business interest at issue, the agreement must be reformed before it can be enforced.950 If the terms of scope, time or geography are reformed by the court, the employer may obtain injunctive relief based on the reformed terms, but will not be awarded damages for the employee’s actions prior to the judicial reformation.951
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Whether an agreement not to compete is a reasonable restraint of trade is a question of law for the court.952 Determining what constitutes a reasonable period of time depends on the specific circumstances, such as the nature of the underlying relationship.953
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Three-year non-solicitation restriction is reasonable. One-year geographic restriction limited to individual’s physical location of work is reasonable notwithstanding individual’s sales territory was entirely different.954 Physician who was part of practice’s management team was reasonably constrained not to practice medicine within any county within a 50-mile radius of Dallas County.955 Two-year, worldwide non-compete was reasonable constraint on executive-level sales manager with significant access to all the company’s customers and markets notwithstanding his own territory was limited to North America and Europe.956 Two-year, ten-mile radius from current employer was reasonable constraint on nail and spa technician.957 Agreement precluded former employee from working with clients with whom she had worked in the past two years with her employer.958 Covenants of two to five years.959 A territorial restraint is reasonable if it is limited to the area where the former employee actually worked for the employer.960 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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Twenty-one counties in four states961. A restriction covering the employer-television station’s “area of dominant influence” at the time of termination of employment, to last for six months if termination was without cause and three years if termination was with cause.962 A marketing area served by the employee during his employment with the employer.963 A restriction within 100-mile radius of the Dallas County courthouse.964 ii.
Unreasonable
Ninety-day restriction from working in entire insurance industry held overbroad. Restriction against soliciting clients of parent and subsidiaries held overbroad.965 Covenant precluding work wherever company was located was overly broad as to employee’s limited duties for the company.966 A statewide restriction against competing in any manner for one year and in all other states for two years.967 A 12-mile restriction against a veterinarian office manager.968 A restriction against competing within 50 miles of any city in which the former employer operated a profit center969.
6.
Will the State Enforce a Choice of Law Provision?
Yes. Under Restatement (Second) of Conflicts §187 (Law of the State Chosen by the Parties), the law of the state chosen by the parties will be chosen unless: ■
■
The chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or Application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which would be the state of the applicable law in the absence of an effective choice of law by the parties.
The Texas Supreme Court recognizes the need to engage in full analysis of the facts, the laws and the policies in question before determining that the preferred choice of law of the parties to an agreement will be set aside.970 The following cases applied the law of a state other than Texas to evaluate the enforceability of a post-employment restriction: Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014) (applied New York law); Cameron Int’l Corp. v. Guillory, 445 S.W.3d 840
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(2014) (applied Delaware law); McGowan & Co. v. Bogan, Civil Action No. H–12–1716, 2015 WL 1220167, at * 1 (S.D. Tex. 2015) (applied Ohio law).
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
Under Restatement (Second) of Conflicts §187 (Law of the State Chosen by the Parties), in the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.
7.
Will the State Enforce a Forum Selection Clause?
Yes.971
8.
Leading Cases ■
Exxon Mobil Corp. v. Drennen, 452 S.W.3d 319 (Tex. 2014)
■
Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011)
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Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W. 3d 644, 655 (Tex. 2006)
■
Martin v. Credit Protection Ass’n, Inc., 793 S.W.2d 667, 669 (Tex. 1990)
■
DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 681 (Tex. 1990)
■
Henshaw v. Kroenecke, 656 S.W.2d 416 (Tex. 1983)
■
Frankiewicz v. Nat’l Comp Assocs., 633 S.W.2d 505 (Tex. 1982)
■
Justin Belt. Co., Inc. v. Yost, 502 S.W.2d 681 (Tex. 1973)
SS. Utah 1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes if the employment is terminable at will and the employer threatens to fire the employee if the employee does not sign the covenant.972 Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. In System Concepts v. Dixon, an employee received a promotion during the 2-month period between the time she was given the covenant not to compete and the time she actually signed the covenant not to compete. The court found sufficient consideration to support a covenant not to compete.973
3.
Are They Enforceable?
In Robbins v. Finlay, the Supreme Court of Utah cited Pennsylvania law in saying that covenants not to compete are enforceable if carefully drawn to protect only the legitimate interests of the employer.974
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
This issue has not been decided in Utah.
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
In Robbins v. Finlay, the Supreme Court of Utah found the covenant not to compete unenforceable because it served no purpose other than restricting employees from competing with former employer. Because there was no indication that the employee’s competition had an effect on the employer’s good will, the covenant not to compete was unreasonable. The court struck down the entire agreement.975
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
The court looks to the “local nature” of the employer’s customers and the general business practices.976 “…[As] long as the restrictions as to time and space are reasonably necessary to the protection of the business and the hardship features of the case do not constitute equitable grounds for rescission, or call for the intervention of other rules of equitable relief, then the court is powerless to relieve a party from the effects of his contract.”977
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a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A pharmacist was unable to compete within two miles of his former employer’s pharmacy for five years.978 The court looks to the “local nature” of the employer’s clientele and the general business.979 “…[As] long as the restrictions as to time and space are reasonably necessary to the protection of the business and the hardship features of the case do not constitute equitable grounds for rescission, or call for the intervention of other rules of equitable relief, then the court is powerless to relieve a party from the effects of his contract.”980 The Utah Supreme Court has also looked to the normal shopping habits of the public in regard to the geographic restrictions.981 Additionally, in Allen, the court looked to the likelihood that the former employee would draw customers away from his former employer.982 A contract that prohibited a pharmacist from competing within a radius of two miles of defendant’s store for five years after the termination of employment.983 ii.
Unreasonable
Not applicable.
6.
Will the State Enforce a Choice of Law Provision?
This issue has not been decided in Utah.
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
This issue has not been decided in Utah.
7.
Will the State Enforce a Forum Selection Clause?
This issue has not been decided in Utah.
8.
Leading Cases ■
TruGreen Cos., L.L.C. v. Mower Bros., 199 P.3d 929 (2008).
■
Sys. Concepts v. Dixon, 669 P.2d 421, 427 (Utah 1983).
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Robbins v. Finlay, 645 P.2d 623 (Utah 1982). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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■
TT. 1.
Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951).
Vermont Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes.984
Yes.985
3.
Are They Enforceable?
Typically yes, unless the agreement is found to be contrary to public policy, unreasonable for protection of the employer, or unreasonably restrictive of the rights of the employee.986
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Unclear. In Roy’s Orthopedic v. Lavigne, the Vermont Supreme Court stated that “[t]his Court will construe contracts but it will not make them for the parties…The courts must enforce contracts as they are written.”987 However, in A.N. Deringer, Inc. v. Strough, the U.S. Court of Appeals for the Second Circuit determined that the Vermont Supreme Court would likely permit judicial modification of an overbroad covenant.988 In Summits 7, Inc. v. Kelly, the Vermont Supreme Court noted that the modern trend was for courts to partially enforce overbroad covenants.989
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Vermont courts look to the length of time and geographic limitations. Such limitations should be no greater than is reasonably necessary to protect the legitimate business For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
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interests of the employer.990 A customer restriction has been allowed to substitute for a geographic restriction.991
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
Five-year covenant.992 Covenant restricting an employee for onr year in the former territory of the state of Vermont was reasonable.993 The court enforced a covenant that restricted a seller from obtaining a job as a headwaiter within 25 miles of sold business.994 ii.
Unreasonable
In Roy’s Orthopedic, the Supreme Court of Vermont found a covenant that restricted an employee from competing for 3 years in any territories served by the corporation and any territories that the employee knows the corporation plans to conduct business to be unreasonable.995
6.
Will the State Enforce a Choice of Law Provision?
This issue has not been decided in Vermont.
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
This issue has not been decided in Vermont.
7.
Will the State Enforce a Forum Selection Clause?
Yes. Unless one of the parties can show that the forum selection clause is unreasonable, a forum selection clause is valid if it places out-of-state parties within the jurisdiction of Vermont courts.996
8.
Leading Cases ■
Roy’s Orthopedic v. Lavigne, 142 Vt. 347 (1982).
■
Vt. Elec. Supply Co. v. Andrus, 132 Vt. 195 (1974).
■
Abalene Pest Control Serv. v. Hall, 126 Vt. 1 (1966).
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Dyar Sales & Mach. Co. v. Bleiler, 106 Vt. 425 (1934). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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UU. Virginia 1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes. In Paramount Termite Control, the Virginia Supreme Court held that continued employment supplies the consideration for their promise not to compete.997 Although Home Paramount Pest Control Companies, Inc. v. Shaffer overruled Paramount Termite Control, to the extent that it conflicts with the holding in Home Paramount Pest Control Companies, the portion in Paramount Termite Control that discusses continued employment does not conflict with this holding.998
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
This issue has not been decided in Virginia.
3.
Are They Enforceable?
Although Virginia courts do not favor covenants not to compete, the validity of a covenant not to compete is determined by applying not only the general principles of contract construction but also legal principles regarding such covenants.999 The employer bears the burden to show that the restraint is reasonable and no greater than necessary to protect the employer’s legitimate business interests.1000 A covenant not to compete between an employer and an employee will be enforced if the contract is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.1001
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
As a restraint of trade, the covenant must be strictly construed and, if ambiguous, it must be construed in favor of the employee.1002 For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
188 Fifty State Survey on Covenants Not to Compete
a.
Indicate Whether Courts Will Not Modify the Agreements, and Instead Strike Down the Entire Agreement.
Yes, if it is ambiguous or unreasonable, the court will construe it in favor of the employee. Id. Therefore, the court will likely strike down the entire agreement. In Omniplex World Servs. Corp, the Supreme Court of Virginia found the covenant at issue overbroad and unenforceable because it prohibited the employee from working for any business that provides support to his former employer, Omniplex.1003
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Time and geographic restrictions must be “no greater than is necessary to protect the employer in some legitimate business interest.”1004
a.
What Time or Geographic Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
The court upheld a five-year time limit because it was directly related to an important element of the insurance business in which the parties were engaged since many policies came up for renewal in either three or five years.1005 A five-year restriction contained in a separation agreement.1006 A three-year restriction.1007 A three-year restriction for an officer in a building supply company.1008 A two-year restriction.1009 The territory serviced by the employees.1010 A 50-mile restriction.1011 ii.
Unreasonable
A covenant not to compete that had no defined time limitation.1012 Any competition with a former employer.1013
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6.
Will the State Enforce a Choice of Law Provision?
No. It is a long-standing rule in Virginia that “[t]he nature, validity and interpretation of contracts are governed by the law of the place where [the contract was] made....”1014 Thus, when determining the validity of a contract, Virginia courts will generally apply the law of the place where the contract was executed (the lex loci contractus).1015 A contract will be governed by the law of the place where it is made, unless it is to be performed in another place.1016
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
N/A.
7.
Will the State Enforce a Forum Selection Clause?
Where parties to a contract have expressly declared that the agreement shall be construed as made with reference to the law of a particular jurisdiction, we will recognize such agreement and enforce it, applying the law of the stipulated jurisdiction.1017
8.
Leading Cases
Home Paramount Pest Control Companies, Inc. v. Shaffer, 282 Va. 412, 420, (2011). Omniplex World Services Corp. v. U.S. Investigations Services, Inc., 270 Va. 246, 618 (2005). Motion Control Systems, Inc. v. East, 262 Va. 33 (2001).
VV. Washington 1.
Key Statutes
None.
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2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No. In both Labriola v. Pollard Group, Inc., 152 Wash.2d 828, 100 P.3d 791 (2004) and Schneller v. Hayes, 176 Wash. 115, 28 P.2d 273 (1934), the Supreme Court found that continued employment alone did not serve as adequate consideration. In both these cases, the Supreme Court found insufficient consideration where the employer promised nothing in the way of future employment and nothing was stipulated as to wages. Therefore, according to Labriola, a covenant not to compete entered into after the commencement of employment will be enforced only if it is supported by independent consideration. For covenants entered into at the commencement of employment, the employment and training to be received may be sufficient consideration. In Knight, Vale & Gregory v. McDaniel, the Court of Appeals held the employees “knowingly signed the agreement on the first day of work, made no further protest, and were continuously employed and trained for approximately the next three years.1018 The court cited to Wood v. May, 73 Wash.2d 307, 310-11 (1968) and to Racine v. Bender, 141 Wash. 606 (1927) as precedent.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes. In Wood v. May, 73 Wash.2d 307, 438 P.2d 587 (1968), the Supreme Court of Washington found that additional, specialized training was sufficient consideration to support a covenant not to compete. In Wood, after two months of employment a contract was signed and the employer taught the defendant a skill.1019
3.
Are They Enforceable?
Yes. A covenant not to compete is reasonable under Washington law using a three-part test: (1) whether restraint is necessary for the protection of the business or goodwill of the employer, (2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill, and (3) whether the degree of injury to the public is such loss of the service and skill of the employee to warrant non-enforcement of the covenant.1020
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Washington courts will enforce covenants if they are reasonable.1021 A court exercising its inherent equity power can enforce a contract to the extent that such a restraint would be Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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reasonable and lawful, and where partial enforcement is possible without injury to the public and without injustice to the parties may enforce a contract in restraint of trade.1022
5.
What Factors Will the Court Consider in Determining Whether Time Restrictions in the Covenant Are Reasonable?
Washington state courts determine whether time and geographic restrictions in the covenant are reasonable using the three-part test articulated by Pacific Aerospace & Electronics, Inc. v. Taylor:1023 ■
■
■
a.
Whether restraint is necessary for the protection of the business or goodwill of the employer, Whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill, and Whether the degree of injury to the public is such loss of the service and skill of the employee to warrant non-enforcement of the covenant.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A three-year restriction.1024 ii.
Unreasonable
A five-year restriction for a horse-shoer was unreasonable.1025 A100-mile restriction for a horse-shoer was unreasonable.1026
6.
Will the State Enforce a Choice of Law Provision?
This issue has not been decided in Washington.
a.
In the Absence of a Choice of Law Provision What Rule Does the State Apply?
This issue has not been decided in Washington.
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7.
Will the State Enforce a Forum Selection Clause?
Not applicable.
8.
Leading Cases
Labriola v. Pollard Grp., Inc., 152 Wash.2d 828 (2004). Pacific Aerospace & Elecs., Inc. v. Taylor, 295 F. Supp. 2d 1205 (2003). Perry v. Moran, 108 Wash.2d 691 (1987). Wood v. May, 73 Wash. 2d 307 (1968) (en banc).
WW. West Virginia 1.
Key Statutes
None. Although, cases testing the enforceability of covenants not to compete refer to W. Va. Code section 47-18-3(a), the state antirust statute, postemployment covenants not to compete are not a per se violation of that statute.1027 The West Virginia Supreme Court “generally disfavors employee noncompete covenants.”1028
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
The issue has not been decided in West Virginia.
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
The issue has not been decided in West Virginia.
3.
Are They Enforceable?
Yes, if the restrictive covenant is no greater than required for the protection of the employer’s legitimate interests, does not impose an undue hardship on the employee and is not injurious to the public.1029
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4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Modification of overbroad agreements is permitted.1030
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
West Virginia courts examine whether time or geographic limitations are excessively broad and whether the covenant imposes an undue hardship on the employee.1031 A customer restriction has been allowed to substitute for a geographic restriction.1032 In JAK Prods., Inc. v. Bayer,1033 the court refused to enforce an employer’s eighteen month non-compete prohibiting a former employee from engaging in a telemarketing business within 30 miles of one of its call centers. The court recognized that larger geographic limitations had been previously found to be reasonable, but noted that the nature of the telemarketing business renders a geographic limitation obsolete. The court found that the geographic limits were not reasonable to protect the employer’s legitimate interests.
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A covenant for two years within 50 miles of any former employer’s offices.1034 A five year restriction covering a city or any other territory in which the former employee had worked for the former employer.1035 A three-year and 30 mile restriction against a physician.1036 ii.
Unreasonable
A two-year nationwide restriction failing to include job-specific customer limitations.1037 A one-year covenant with no geographic limitation against an insurance salesperson.1038 A five-year covenant covering 10 specific counties and all other counties in West Virginia or other states in which the employer engages in business.1039
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6.
Will the State Enforce a Choice of Law Provision?
West Virginia has not addressed the issue of choice of law provisions in non-compete cases. Choice of law provisions in contracts are generally upheld unless a) the chosen state has no substantial relationship to the parties to the transaction, b) the application of the law to the chosen state would be contrary to the fundamental policy of the state whose law would apply in the absence of a choice of law provision.1040
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
West Virginia follows the rules explained in the Restatement (Second) of Conflicts section 196.1041 This section provides that the “validity of a contract for the rendition of services and the rights created thereby are determined . . . by the local law of the state where the contract requires that the services, or a major portion of the services, be rendered, unless, with respect to the particular issue, some other state has a more significant relationship . . . to the transaction of the parties.”
7.
Will State Enforce a Forum Selection Clause?
West Virginia has not addressed forum selection clauses with respect to covenants not to compete. However, forum selection clauses are not void per se.1042
8.
Leading Cases
Reddy v. Cmty. Health Found. of Man, 298 S.E.2d 906 (W. Va. 1982). Appalachian Labs. v. Bostic, 359 S.E.2d 614 (W. Va. 1987) Gant v. Hygeia Facilities Found., 384 S.E.2d 842 (W.Va. 1989). Voorhees v. Guyan Mach. Co., 191 W. Va. 450 S.E. 2d 672 (1994)
XX.Wisconsin 1.
Key Statutes
Wis. Stat. Ann. § 103.465 provides: A covenant by an assistant, servant, or agent not to compete with his or her employer or principal during the term of the employment or Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this subsection, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
Yes.1043
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
This issue has not been addressed in Wisconsin.
3.
Are They Enforceable?
Yes. Convenants not to compete are enforced to the extent reasonably necessary for the protection of the employer or principal.1044
4.
Modification, Severability and “Blue Penciling” Overbroad Agreements
The courts will not modify an overbroad agreement.1045 However, divisible provisions may be enforced separately1046.
5.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
The time and geographical restrictions must be reasonable and necessary to protect the employer.
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196 Fifty State Survey on Covenants Not to Compete
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A two-year covenant prohibiting a salesperson from contacting customers who made purchases from the former employer within one year prior to the salesperson’s termination.1047 A one-year covenant prohibiting an insurance agent from soliciting her former employer’s policyholders in his district.1048 Restrictive covenants must be limited geographically to the area where the employer does business.1049 ii.
Unreasonable
A two-year, 50-mile covenant prohibiting a salesperson from engaging in “any business which is substantially similar to or in competition with” that of the former employer.1050 An 18-month non-solicitation agreement of actual or potential customers without geographic limitation.1051 A territorial restriction encompassing all of Milwaukee held invalid because the employer’s only place of business was in the Milwaukee airport.1052
6.
Will the State Enforce a Choice of Law Provision?
Yes.1053 However, the parties may not “override fundamental policies of the state whose law would be applicable absent the choice of law provision.”1054
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
The state follows what it calls the “grouping of contracts” approach.1055 The Wisconsin Supreme Court has found that the Restatement (Second) of Conflict of Laws is the “embodiment” of the “grouping of contracts” approach.1056 This approach is not to count the contacts but “rather to consider which contacts are the most significant and to determine where those contacts are found.”1057
7.
Will the State Enforce a Forum Selection Clause?
Forum selection clauses are enforceable in Wisconsin unless they are unconscionable.1058
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8.
Leading Case
Rollins Burdick Hunter of Wis., Inc. v. Hamilton, 101 Wis. 2d 460 (1981).
YY. Wyoming 1.
Key Statutes
None.
2.
Consideration Required a.
Will Continued Employment Provide Adequate Consideration to Support a Covenant Not to Compete?
No. Separate consideration is required.1059
b.
Will a Change in the Terms of Employment Provide Sufficient Consideration to Support a Covenant Not to Compete?
Yes, and such a change is necessary to provide the needed separate consideration for such a covenant.1060
3.
Modification, Severability and “Blue Penciling” Overbroad Agreements
Wyoming has adopted the Restatement (Second) of Contracts approach with respect to this issue.1061 Section 184 of the Restatement permits enforcement of a narrower term, “If less than all of an agreement is unenforceable . . . a court may nevertheless enforce the rest of the agreement in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange.” Section 184 does not permit the court to add to the terms of the agreement. Wisconsin previously followed the all-or-nothing approach of section 518 of the (First) Restatement of Contracts.
4.
What Factors Will the Court Consider in Determining Whether Time or Geographic Restrictions in the Covenant Are Reasonable?
Restrictions will be found reasonable only to the extent necessary to protect the employer’s business interests.1062 Factors such as the nature of the employer’s business, including products or services sold, the extent to which the employee could have developed the same contacts by simply residing in the area, the extent that customers are readily identifiable by For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
198 Fifty State Survey on Covenants Not to Compete
the public, the extent that the employee would be unable to earn a living, and whether the restrictions would be contrary to public interest. Id.
a.
What Geographic or Time Restrictions Has the Court Found to Be Reasonable or Unreasonable? i.
Reasonable
A five-mile restriction on a veterinarian from practicing small animal medicine for one year.1063 ii.
Unreasonable
A restriction for seven years in three counties for a general repairman.1064 A five-year restriction from competing in the former employer’s trade territories.1065
5.
Will the State Enforce a Choice of Law Provision?
Wyoming has not decided the issue with respect to covenants not to compete. However, Wyoming has adopted the Restatement (Second) of Conflict of Laws.1066 Wyoming “will not apply a foreign law when it is contrary to the law, public policy, or the general interests of [Wyoming’s] citizens.”1067
a.
In the Absence of a Choice of Law Provision, What Rule Does the State Apply?
The issue has not been addressed in a covenant not to compete case. However, with respect to contracts generally, Wyoming follows the Restatement (Second) of Conflict of Laws section 188.1068 The court considers contacts with the state, the place of contracting, negotiation and performance, the location of the subject matter, and the residence of the parties.1069
6.
Will the State Enforce a Forum Selection Clause?
Wyoming has not addressed this issue in a covenant not to compete context. However, in general, forum selection clauses are valid and enforceable absent a party showing that the clause is unreasonable or based on fraud or unequal bargaining positions.1070
7.
Leading Cases ■
WSP, Inc. v. Wyo. Steel Fabricators & Erecors, Inc., 158 P.3d 651 (Wyo. 2007).
■
Tench v. Weaver, 374 P.2d 27 (Wyo. 1962).
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III. About Greenberg Traurig, LLP This InfoPak was compiled by the Trade Secret and Mobility Practice at Greenberg Traurig, LLP. The team consists of more than 100 members and represents clients across multiple industries and jurisdictions. The attorneys are highly experienced in virtually all aspects of investigating and litigating trade secret and restrictive covenant cases, both at the state and federal levels. Greenberg focus on preventing violations of restrictive covenants, misappropriation and corporate espionage, and have partnered with several forensic experts to assist our clients in this effort. Greenberg Traurig provides integrated, business-focused legal services for clients worldwide. An international law firm with approximately 1800 attorneys and governmental affairs professionals in more than 30 commercial and government centers, Greenberg Traurig offers local knowledge and experience, supported by global resources and reach. For more information, please visit www.gtlaw.com. The Trade Secret and Mobility Practice team members that shepherded this effort were Michelle DuCharme and Kurt A. Kappes. Biographies for Michelle and Kurt, as well as all other contributors within the firm, are included below. For any questions regarding the enclosed materials, please contact the Trade Secret and Mobility Practice Co-chairs, Kurt A. Kappes (
[email protected]) or Rich C. McCrea (
[email protected]).
A.
Greenberg Traurig, LLP’s Trade Secrets & Mobility Team ■
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Gabriel Aizenberg focuses his practice on a variety of litigation areas, including fraud, contractual disputes, business torts, breach of fiduciary duty, claims of violations of non-competition and non-solicitation agreements, trade secret misappropriation, and government contracts. Gabriel has significant experience in post-judgment proceedings and asset-recovery litigation. Alena M. Benowich is an associate in the Litigation Practice of Greenberg Traurig’s New York office. Rob Bernstein focuses his practice on labor and employment exclusively for management, with an emphasis in litigation and counseling. Rob has represented many multinational and domestic corporations in a wide range of industries. His practice extends to numerous jurisdictions across the United States, involving most workplace issues, including class and collective actions, employee benefits and trade secret litigation. Koray J. Bulut focuses his practice on employment law, with an emphasis on employee mobility litigation matters. He is experienced litigating cases in California, New York, Vermont, Pennsylvania, and Minnesota involving unfair
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competition, employee raiding, enforcement of non-competes, misappropriation of trade secrets, and breach of contract. ■
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Shea B. Brack represents and advises employers in both traditional labor issues as well as in employment litigation. She assists employers in a broad range of single and multi-plaintiff class action employment matters including wage and hour, sexual harassment, discrimination, retaliation, and wrongful termination. In addition to her many years of experience practicing US and Texas employment law, Dianne Carlson has spent the last ten years specializing in cross-border employment relationships, as a result of which she has advised multinational companies on the enforcement, general application, and structure of non-compete and non-solicitation agreements of globally mobile executives in many countries, and has drafted many such agreements in complex situations. Michael R. Cedillos works in the firm’s Litigation practice and focuses on commercial litigation, banking litigation, FINRA arbitrations, and real estate development and finance litigation, as well as bankruptcy litigation. Brett M. Doran concentrates his practice on commercial litigation, with a focus on consumer class action litigation, financial services industry litigation and arbitration, internal and regulatory investigations, business torts and contract disputes. He also has experience representing clients in consumer defense, labor and employment litigation, government contracts and federal appeals. Michelle DuCharme is an associate within Greenberg Traurig’s Litigation Practice and focuses her practice on a wide range of complex litigation matters, including labor and employment, trade secret, consumer product compliance and government enforcement. Tiffany S. Fordyce concentrates her practice on commercial litigation, with an emphasis on labor and employment. Her employment litigation practice includes virtually all types of discrimination and retaliation claims, wage and hour claims, trade secret misappropriation claims, whistleblower claims and WARN Act defense. She advises clients on employment related matters, including advising on national and local reductions in force, handbooks, drug testing policies, employment and consulting agreements, severance packages, social media policies, proper employee classification, navigating various leave laws, and noncompetition and separation agreements. Peter N. Hall focuses his practice on labor and employment law, with an emphasis on litigation. He counsels employers of all sizes and with operations across the country on all aspects of employment law, including strategic litigation, avoidance of discrimination and retaliation claims, wage and hour issues, employee terminations, and restrictive covenants. He frequently drafts employee handbooks and employment, restrictive covenant, and separation agreements. Peter has litigated numerous complex and contentious matters in both federal and state courts, up to the U.S. and Georgia Supreme Courts, including corporate espionage, trade secret theft, computer fraud, ERISA/securities fraud, discrimination/retaliation, and wage/hour allegations. Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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Jeffrey Allan Hirsch offers years of experience in resolving disputes through general civil litigation and arbitration. Throughout his career, Jeffrey has represented clients in disputes involving contracts (including non-competes), estates, trusts, title insurance, insurance coverage, real estate transactions, financial institutions, fraud, lender liability, and business torts involving breach of fiduciary duties. Howard K. Jeruchimowitz is a commercial litigator with an emphasis in the Real Estate Litigation practice representing owners, developers, landlords and tenants in landlord-tenant and shopping center disputes, mechanics liens, foreclosures, and construction disputes, as well as Employment Litigation representing companies and executives in trade secret misappropriation and breach of covenant, non-compete and confidentiality disputes. He has a wide range of experience in trials in both state and federal courts, as well as arbitrations and mediation. Kurt Kappes is the Co-Chair of Greenberg Traurig’s National Labor & Employment practice's Non-Compete/Trade Secret and Employment Contract Litigation team. Mr. Kappes has extensive trial and pretrial experience, representing clients in many complex litigation cases trade secrets and employee mobility, computer fraud, non-compete, unfair competition, and Business and Professions Code Section 17200 actions. He also represents clients in labor and employment issues, including advisory matters, trade secret audits, contracts, discrimination claims, whistleblower cases, and wrongful termination litigation. Mr. Kappes is also an Adjunct Professor at the University of California, Davis, where he has taught courses in Trade Secrets, Corporate Mobility and Industrial Espionage. Marc B. Koenigsberg is a business litigator, concentrating his practice on commercial litigation, employment law and ADA defense. Marc has also represented clients in whistleblower retaliation, sexual harassment and racial discrimination lawsuits, and has defended more than 100 ADA accessibility cases for both public and private entities, as well as compliance counseling on ADA Titles II and III, and related state laws. Michael D. Lane has deep litigation experience in state, federal and administrative courts. He has represented clients in many class action and singleplaintiff litigation cases involving trade secrets, non-competes, franchise, labor and employment, intellectual property, unfair competition and regulatory matters. Charles B. Leuin focuses his practice on a range of complex commercial litigation matters, including contract litigation, employment litigation, trade secret and other intellectual property litigation, business torts, professional negligence and fiduciary litigation, and class action defense. In addition to his courtroom advocacy, Charles is an experienced business advisor and counselor to his clients, advising them on employment matters, trade secret and other intellectual property protection and contracting practices.
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John K. Londot handles complex matters through trial and appeal. John practices in commercial, constitutional, employment, trade secret, and real estate litigation, as well as administrative and professional regulatory law. Terence P. McCourt, Managing Shareholder of the Boston office and Chairman of its Labor & Employment Practice, represents a broad range of organizations in all facets of management-side labor and employment law. Terry handles diverse employment matters, including employment discrimination and wrongful termination cases in state and federal courts, wage and hour compliance, labor arbitration cases, non-competition cases, internal corporate investigations, and National Labor Relations Board proceedings. He also counsels employers concerning day-to-day human resources issues as well as myriad legal requirements in the workplace, particularly related to significant operational changes such as mergers, acquisitions, business relocations or reductions in force. Richard C. McCrea, Jr. ("Rich") is the Co-Chair of Greenberg Traurig’s National Labor & Employment practice's Non-Compete/Trade Secret and Employment Contract Litigation team. He is a jury trial lawyer specializing in employment, civil rights and restrictive covenant litigation. He is one of the very few lawyers dual-Board Certified in both Labor & Employment and Civil Trial. Rich has been repeatedly recognized as one of the foremost employment litigators in Florida by various independent legal ranking services. Paul F. McQuade focuses his practice on intellectual property law and government contracts, counseling both commercial and federal sector clients. Paul conducts intellectual property audits and due diligence in acquisitions, prepares and negotiates licensing, research and development, and collaborative agreements. He has litigated patent infringement and trade secret cases in a number of jurisdictions and has lectured and appeared in articles concerning intellectual property enforcement, data rights and software licensing. Katie Molloy defends employers in discrimination, harassment, retaliation and wrongful discharge matters. She also provides daily advice and counseling on all employment law and human resources matters, including hiring and firing, wage and hour, and accommodation and leave issues. Katie has also represented employers and employees in relation to employment agreements, restrictive covenants, tortious interference and trade secret disputes. James W. Perkins is a shareholder in the Litigation Practice of Greenberg Traurig's New York office. Jim's practice focuses on complex commercial litigation and arbitration with an emphasis in real estate, creditor’s rights, commercial paper, securities, and intellectual property. He also has wide-ranging experience in antitrust, corporate structure and governance and mergers and acquisitions, among others. Saxon Peters is a corporate and securities attorney with a focus on the representation of early stage companies and venture investors. Saxon has represented companies in a wide range of industries, including technology, insurance, clean energy, biotechnology, software and hardware design and Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
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online services. His practice involves virtually all aspects of early stage company counseling, debt and equity financings, mergers and acquisitions, public offerings, securities regulation and public company reporting compliance. ■
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Meshach Y. Rhoades focuses her practice on regulatory, commercial and telecommunications litigation, including dispute resolution, antitrust, business torts, contract, intellectual property, labor and employment, noncompete agreements, public finance, trade secrets, and other civil litigation matters. She also advises corporations in complex commercial disputes, and represents and counsels local governments regarding general finance and contract dispute resolution. Rebecca H. Silk focuses her practice on general labor and employment matters. She also assists clients with trade secret and restrictive covenant matters. Mona M. Stone represents both public and private entities throughout the country, ranging from small businesses to multibillion-dollar companies. Serving as corporate in-house counsel early in her career exposed Mona to a vast array of business legal issues. She has directed critical internal and external client investigations and communicated findings to executive management teams in response to formal charges, including corruption, whistleblower, intellectual property and data privacy issues. Mona also counsels clients on legal documents and employment agreements, including non-compete and non-disclosure terms. David G. Thomas is a litigation, trial, and appellate attorney focusing on handling complex commercial and business litigation in state and federal courts across the United States, with an emphasis on management-side class-action defense. David represents retailers in defending false advertising and unfair trade practices claims arising out of alleged violations of federal and state consumer protection statutes, including the Federal Trade Commission Act and “little FTC Acts” like Massachusetts General Laws Chapter 93A – the Massachusetts Consumer Protection Act. David also prosecutes and defends claims arising out of non-competition agreements and alleged misuse of trade secrets and other confidential information. Maxim V. Tsotsorin focuses his practice on advising both emerging growth and established technology companies on a variety of corporate, employment and intellectual property matters, including trade secrets, confidentiality, restrictive covenants, non-solicitation, non-compete and related issues. Maxim frequently drafts and negotiates employment, consulting, non-disclosure and separation and severance agreements representing interests of employers. Shira R. Yoshor represents management in virtually all aspects of labor and employment law and a wide variety of complex commercial litigation. She regularly counsels employers on managing workplace issues, drafts employment agreements, handbooks and policies, drafts and litigates non-competition and non-disclosure agreements, and investigates claims and complaints by employees.
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A special thank you to Katharine Malone, Thaddeus C. Houston, and Elizabeth Houghton for their contributions to the InfoPak as well.
IV. State Index State
Team Members
State
Team Members
Alabama
Shira Yoshor
Michigan
Brett Doran
Alaska
Koray Bulut
Minnesota
Michael Cedillos
Arizona
Mona Stone
Mississippi
Tiffany Fordyce, Shira Yoshor
Arkansas
Shira Yoshor
Missouri
Max Tsotsorin, Tiffany Fordyce
California
Kurt Kappes
Montana
Tiffany Fordyce
Colorado
Meshach Rhoades, Jeffrey Hirsch
Nebraska
Elizabeth Houghton
Connecticut
James Perkins, Alena Benowich
Nevada
Howard Holderness
Delaware
Koray Bulut
New Hampshire
Michael Lane
District of Columbia
Katharine Malone
New Jersey
Robert Bernstein
Florida
John Londot, Rich McCrea, Katie Molloy
New Mexico
Michael Lane
Georgia
Peter Hall, Rebecca Silk
New York
Robert Bernstein Michelle DuCharme
Hawaii
Saxon Peters
North Carolina
Shira Yoshor
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State
Team Members
State
Team Members
Idaho
Katharine Malone
North Dakota
Elizabeth Houghton
Illinois
Charles Leuin, Howard Jeruchimowitz, Gabriel Aizenberg
Tennessee
Katie Molloy
Indiana
Michael Cedillos
Texas
Brad Hancock, Dianne Carlson
Iowa
Michael Cedillos
Utah
Thaddeus Houston
Kansas
Tiffany Fordyce,
Vermont
Koray Bulut
Kentucky
Max Tsotsorin, Tiffany Fordyce
Virginia
Paul McQuade, Jeffrey Hirsch
Louisiana
Brett Doran
Washington
Saxon Peters
Maine
Jeffrey Hirsch
West Virginia
Paul McQuade, Koray Bulut
Maryland
Shira Yoshor
Wisconsin
Shea Brack
Massachusetts
Terrence McCourt, David Thomas
Wyoming
Shea Brack
V. Endnotes 1
Ala. Code § 8-1-1.
Digitel Corp. v. DeltaCom, Inc., 953 F. Supp. 1486, 1495 (M.D. Ala. 1996) (citations omitted); Daughtry v. Capital Gas Co., 284 Ala. 89 (1969).
2
3
Digitel Corp. v. DeltaCom, Inc., 953 F. Supp. 1486, 1495 (M.D. Ala. 1996).
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206 Fifty State Survey on Covenants Not to Compete
4 Clark v. Liberty Nat’l Life Ins. Co., 592 So. 2d 564, 565–66 (Ala. 1992) (citing DeVoe v. Cheatham, 413 So. 2d 1141, 1142 (Ala. 1982)). 5
Mason Corp. v. Kennedy, 286 Ala. 639 (1971); Dobbins v. Getz Exterminators of Ala., 382 So. 2d 1135 (Ala. Civ. App. 1980) 6
Ala. Code § 8-1-1.
7
Benchmark Med. Holdings, Inc. v. Barnes, 328 F. Supp. 2d 1236, 1249 (M.D. Ala. 2004).
8
Nobles-Hamilton v. Thompson, 883 So. 2d 1247 (Ala. Civ. App. 2003).
9
Digitel Corp. v. DeltaCom, Inc., 953 F. Supp. 1486, 1496 (M.D. Ala. 1996).
10
Buckley v. Seymour, 679 So. 2d 220, 225 (Ala. 1996).
11
Clark v. Livery Nat’l Life Ins. Co., 592 So. 2d 564, 566–67 (Ala. 1992).
12
Central Bancshares of the S. v. Puckett, 584 So. 2d 829, 831 (Ala. 1991).
13
Affiliated Paper Cos. v. Hughes, 667 F. Supp. 1436 (N.D. Ala. 1987).
14
Concrete Co. v. Lambert, 510 F. Supp. 2d 570, 585–86 (M.D. Ala. 2007).
15
Anniston Urologic Assoc., P.C. v. Kline, 689 So. 2d 54 (Ala. 1997).
16
Orkin Exterminating Co. v. Etheridge, 582 So. 2d 1102, 1104 (Ala. 1991).
17
Movie Gallery US, LLC v. Greenshields, 648 F. Supp. 2d 1252 (M.D. Ala. 2009).
18
Movie Galley US, LLC v. Greenshields, 648 F. Supp. 2d 1252 (M.D. Ala. 2009).
19
Bright v. Zimmer Spine, Inc., 999 F. Supp. 2d 1251, 1252–53 (N. D. Ala. 2014).
20
But see Data Management v. Greene, 757 P.2d 62 (Alaska 1988).
21
Id.
22
Id. at 65.
23
Wirum & Cash, Architechs v. Cash, 837 P.2d 692, 709 n.25 (Alaska 1992) (citations omitted).
24
See Metcalfe Invs., Inc. v. Garrison, 919 P.2d 1356, 1361 (Alaska 1996).
25
Metcalfe Invs., Inc. v. Garrison, 919 P.2d 1356, 1362 (Alaska 1996).
26
Wirum & Cash, Architects v. Cash, 837 P.2d 692, 710-11 (Alaska 1992).
27
Data Mgmt. v. Greene, 757 P.2d 62 (Alaska 1988).
28
Palmer G. Cewis Co. v. Arco Chemical Co., 904 P.2d 1221, 1227 & n.14 (Alaska 1995).
29
See Palmer G. Cewis Co. v. Arco Chemical Co., 904 P.2d 1221, 1227 & n.14 (Alaska 1995).
30
M/S Brennan v Zapeta Off-Shore Co., 407 U.S. 1 (1972).
31
Mattison v. Johnston, 152 Ariz. 109, 113, 730 P.2d 286, 290 (App. 1986); Compass Bank v. Hartley, 430 F. Supp. 2d 973, 978-79 (D. Ariz. 2006). 32
Demasse v. ITT Corp., 194 Ariz. 500, 505 (1999).
33
Olliver/Pilcher Ins. v. Daniels, 148 Ariz. 530 (1986); Lassen v. Benton, 86 Ariz. 323 (1959).
34
Olliver, 148 Ariz. 530, 533.
35
61 A.L.R. 3d 397, 410.
36
Varsity Gold, Inc. v. Porzio, 202 Ariz. 355 (App. 2002).
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37
Valley Med. Specialists v. Farber, 194 Ariz. 363, 369 (1999) (citing Restatement (Second) of Contracts § 188 cmt. a). 38
Amex Distrib. Co. V. Mascari, 150 Ariz. 510, 518 (App. 1986).
39
Highway Techs., Inc. v. Porter, No. CV-09-1305-PHX-DGC, 2009 WL 1835114 (D. Ariz. June 26, 2009).
40
Bed Mart, Inc. v. Kelley, 202 Ariz. 370,374, 45 P.3d 1219, 1223 (App. 2002).
41
Phoenix Orthopaedic Surgeons v. Peairs, 164 Ariz. 54, 790 P.2d 752 (App. 1989), overruled on other grounds by Valley Med. Specialists v. Farber, 194 Ariz. 363, 372, 982 P.2d 1277, 1286 (1999) (finding that courts should not create a restrictive covenant significantly different from that created by the parties.) 42
Titus v. Superior Court, Maricopa County, 91 Ariz. 18, 386 P.2d 874 (1962).
43
Lassen v. Benton, 86 Ariz. 323, 346 P.2d 137 (1959).
44
Unisource Worldwide, Inc. v. Swope, CV-12-02036-PHX-NVW, 2013 WL 4029170 (D. Ariz. Aug. 8, 2013).
45
Nouveau Riche Corp. v. Tree, 2008 WL 5381513 (D. Ariz Dec. 23, 2008).
46
CanMate Sys., Inc. v. Telescopic, LLC, 2008 WL 215830, at *11 (D. Ariz. Jan 24, 2008).
47
Liss v. Exel Transp. Servs., 2007 WL 891167 (D. Ariz. March 27, 2007)(finding that three years was longer than necessary to protect the employer’s legitimate business interest). 48
Compass Bank v. Hartley, 430 F. Supp. 2d 973, 980 (D. Ariz. 2006) (interpreting step-down provision and enforcing covenant under new one-year, 25 mile restriction). 49
Safelite Glass Corp. v. Crawford, 25 F. App’x 613, 614 (9th Cir. 2002).
50
Lessner Dental Labs., Inc. v. Kidney, 16 Ariz. App. 159, 492 P.2d 39 (App. 1971).
51
In re Estate of Levine, 145 Ariz. 185, 189, 700 P.2d 883, 887 (App. 1985)(citations omitted).
52
Pathway Medical Technologies, Inc. v. Nelson, No. CV11–0857 PHX DGC, 2011 WL 4543928 (D. Ariz. Sept. 30, 2011). 53
Cardon v. Cotton Lane Holdings, Inc., 173 Ariz. 203, 207, 841 P.2d 198, 202 (1992).
54
Societe Jean Nicolas et Fils v. Mousseux, 123 Ariz. 59, 61, 597 P.2d 541, 543 (1979).
55
See, e.g., Girard v. Rebsamen Ins. Co., 14. Ark. App. 154 (1985); Credit Bureau Mgmt. Co. v. Huie, 254 F. Supp. 547 (E.D. Ark 1996). 56
Moore v. Midwest Distribution, Inc., 76 Ark. App. 397, 402 (2002).
57
Quality Liquid Feeds, Inc. v. Plunkett, No. CA04–228, 2004 Ark. App. LEXIS 914, at *10 (Ark. Ct. App. Dec. 8, 2004) 58
Morgan v. W. Memphis Steel & Pipe, Inc., 22 F. Supp. 3d 929, 932 (E.D. Ark. 2014).
59
Federated Mutual Ins. Co. v. Bennett, 818 S.W.2d 596, 599 (Ark. Ct. App. 1991) (citing Rector-Phillips-Morse, Inc. v. Vroman, 253 Ark. 750, 753 (1973)). 60
See, e.g., Brown v. Devine, 240 Ark. 838 (1966); McLeod v. Meyer, 237 Ark. 173 (1963).
61
Bendinger v. Marshalltown Trowell Co., 994 S.W.2d 468, 472 (Ark. 1999).
62
Advanced Envtl. Recycling Techs., Inc v. Advanced Control Solutions, Inc., 372 Ark. 286, 298 (2008).
63
Freeman v. Brown Hiller, Inc., 102 Ark. App. 76, 83 (2008).
64
Sensabaugh v. Farmers Ins. Exch., 420 F. Supp. 2d 980 (E.D. Ark. 2006).
65
Dawson v. Temps Plus, Inc., 987 S.W.2d 722, 727 (Ark. 1999)
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208 Fifty State Survey on Covenants Not to Compete
66
Quality Liquid Feeds, Inc., v. Plunkett, No. CA 04-228, 2004 Ark. App. LEXIS 914 (Ark. Ct. App. Dec. 8, 2004).
67
HRR Ark., Inc. v. River City Contractors, Inc., 87 S.W.3d 232, 239-40 (Ark. 2002).
68
Jaraki v. Cardiology Assocs. of Ne. Ark., P.A., 75 Ark. App. 198, 206–07 (2001).
69
Morgan v. West Memphis Steel & Pipe, Inc., 22 F. Supp. 3d 929, 933 (E.D. Ark. 2014).
70
Nanomech, Inc. v. Suresh, 777 F.3d 1020, 1024 (8th Cir. 2015).
71
Olin Water Servs. v. Midland Research Labs., Inc., 596 F. Supp. 412, 417 (E.D. Ark. 1984).
72
Whirlpool Corp. v. Ritter, 929 F.2d 1318, 1321 (8th Cir. 1991) (not a covenant case).
73
Id. (citations omitted).
74
Nelms v. Morgan Portable Bldg. Corp., 305 Ark. 284, 289 (1991) (citations omitted).
75
44 Cal. 4th 937 (2008).
76
D’Sa v. Playhut, Inc., 85 Cal. App. 4th 927 (2000).
77
See Golden v. Cal. Emergency Physicians Med. Group, 782 F.3d 1083 (9th Cir. 2015)
78
44 Cal. 4th 937 (2008).
79
See Wanke Indus. Commercial Residential, Inc. v. Sup. Ct., 209 Cal. App. 4th 1151, 1177 (2012).
80
Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. Co., 630 F. Supp. 2d 1084 (N.D. Cal. 2009); Kolani v. Gluska, 64 Cal. App. 4th 402, 408 (1998). 81
D’Sa v. Playhut, Inc., 85 Cal. App. 4th 927 (2000).
82
See Silguero v. Creteguard, Inc., 187 Cal. App. 4th 60 (2010).
83
174 Cal. App. 3d 268, 279 (1985).
84
Application Grp. v. Hunter Grp., Inc., 61 Cal. App. 4th 881 (1st Dist. 1998).
85
See, e.g., Frame v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 20 Cal. App. 3d 668 (Cal. Ct. App. 1971); Arkley v. Aon Risk Servs. Cos., Inc., 2012 WL 2674980 (C.D. Cal. June 13, 2012) (finding that California law applied to Illinois employment agreements because California’s “strong policy interest” in employee mobility outweighs Illinois’ stated interest of fostering predictability for companies). 86
Adv. Bionics Corp. v. Medtronic, Inc., 29 Cal. 4th 697 (2002).
87
Biosense Webster, Inc. v. Super. Ct., 135 Cal. App. 4th 827 (2nd. Dist. 2006).
88
See Swenson v. T-Mobile U.S., Inc., 415 F. Supp. 2d 1101 (S.D. Cal. 2006); Universal Operations Risk Mgmt., LLC v. Global Rescue LLC, No. C 11–5969 SBA, 2012 WL 2792444, at *4 (N.D. Cal. July 9, 2012); Hartstein v. Rembrandt IP Solutions, LLC, No. 12–2270 SC, 2012 WL 3075084, at *6 (N.D. Cal. July 30, 2012); Rowen v. Soundview Commc’ns, 2015 WL 899294 (N.D. Cal. March 2, 2015) (enforcing forum selection clause in contract including non-compete provision).
See, Muggill v. Reuben H. Donnelley Corp., 62 Cal. 2d 239 (Cal. 1965); Am. Credit Indem. Co. v. Sacks, 213 Cal. App. 3d 622 (Cal. Ct. App. 1989); Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514 (Cal. Ct. App. 1997); see also, Thompson v. Impaxx, Inc., 113 Cal. App. 4th 1425 (Cal. Ct. App. 2003) (holding that information about customers could be protected because it was “confidential, proprietary, and/or a trade secret,” not because the nonsolicitation covenant “passed muster under section 16600”). 89
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209
90
American Paper & Packaging Prods., Inc. v. Kirgan, 183 Cal. App. 3d 1318, 1325 (1986) (“An agreement between employer and employee defining a trade secret may not be decisive in determining whether the court will so regard it.”). 91
Cal. Civil Code § 3426 (The Uniform Trade Secrets Act); see, e.g., Morlife, Inc. v. Perry, 56 Cal. App. 4th 1514 (Cal. Ct. App. 1997); Klamath-Orleans Lumber, Inc. v. Miller, 87 Cal. App. 3d 458 (Cal. Ct. App. 1978). 92
See, e.g., Universal Operations Risk Mgmt., LLC v. Global Rescue LLC, No. C 11–5969 SBA, 2012 WL 2792444, at *4 (N.D. Cal. July 9, 2012); Hartstein v. Rembrandt IP Solutions, LLC, No. 12–2270 SC, 2012 WL 3075084, at *6 (N.D. Cal. July 30, 2012); Rowen v. Soundview Commc’ns, 2015 WL 899294 (N.D. Cal. Mar. 2, 2015). 93
Restatement (Second) of Conflict of Laws § 102(c) (1971) (“The Supreme Court of the United States has not had occasion to determine whether full faith and credit requires a State of the United States to enforce a valid judgment of a sister State that orders the doing of an act other than the payment of money or that enjoins the doing of an act.”). 94
Lucht’s Concrete Pumping, Inc. v. Horner, 255 P.3d 1058 (Colo. 2011).
95
Id. at 1061 (citing Troutman v. Webster, 257 P.2d 264 (Colo. 1927); Int’l Paper v. Cohen, 126 P.3d 222, 225 (Colo. App. 2005) (citations omitted). 96
Lucht’s, 255 P.3d at 1061 (citations omitted).
97
Id. But see Management Recruiters of Boulder v. Miller, 762 P.2d 763 (Colo. App. 1980) (commenting that a change in employment status, without a change in the noncompetition covenant agreement, showed that the covenant was not associated with the new position). 98
C.R.S. § 8-2-113(2).
99
Logixx Automation, Inc. v. Lawrence Michaels Family Trust, 56 P.3d 1224 (Colo. App. 2002).
100
Nat’l Graphics Co. v. Dilley, 681 P.2d 546, 547 (Colo. App. 1984); see also Mgmt. Recruiters of Boulder v. Miller, 762 P.2d 763, 766 (Colo. App. 1988); see also Rocky Mountain Chocolate Factory, Inc. v. SDMS, Inc., No. 06-cv-1212-WYD-BNB, 2006 U.S. Dist. LEXIS 90103 (D. Colo. Dec. 8, 2006). 101
Knoebel Mercantile Co. v. Siders, 165 Colo. 393 (1968).
102
Zeff, Farrington & Assoc. v. Farrington, 168 Colo. 48 (1968).
103
Keller Corp. v. Kelley, 187 P.3d 1133 (Colo. App. 2008).
104
Nat’l Graphics, 681 P.2d at 547.
105
See Axelson v. Columbine Laundry Co., 254 P. 990 (Colo. 1927) (six months); Weber v. Nonpareil Baking Co., 274 P. 932 (Colo. 1929) (perpetuity). 106
Knoebel Mercantile Co. v. Siders, 439 P.2d 355, 357-58 (Colo. 1968).
107
See Freudenthal v. Espey, 102 P. 280 (Colo. 1909) (City of Trinidad); Harrison v. Albright, 577 P.2d 302 (Colo. App. 1977) (within 50 miles of Denver); Gibson v. Angros, 491 P.2d 87 (Colo. App. 1971) (Boulder County); Zeff, 449 P.2d 813 (within 200 miles of Denver); Trans-American Collections, Inc. v. Continental Accounting Servicing House, Inc., 342 F. Supp. 1303 (D. Utah 1972) (applying Colorado law) (United States). 108
Haggard v. Synthes Spine, No. 09-cv-00721-CMA-KMT, 2009 U.S. Dist. LEXIS 54818, at *17-18 (D. Colo. June 12, 2009). 109
Logixx Automation, 56 P.3d 1224.
110
Boulder Med. Ctr. v. Moore, 651 P.2d 464 (Colo. App. 1982).
111
Haggard v. Spine, Civil Action No. 09–cv–00721–CMA–KMT, 2009 WL 1655030, at *10 (D. Colo. June 12, 2009) (finding that nonsolicitation covenant that omitted geographic limitation functioned as worldwide restriction, and was therefore unreasonably broad); see also Harvey Barnett, Inc. v. Shidler, 143 F. Supp. 2d 1247, 1254–55 (D.
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210 Fifty State Survey on Covenants Not to Compete
Colo. 2001); Nutting v. RAM Southwest, Inc., 106 F. Supp. 2d 1121, 1126-27 (D. Colo. 2000) (holding that perpetual and worldwide covenants not to compete). 112
Gulick v. A. Robert Strawn & Assocs., 477 P.2d 489 (Colo. App. 1970).
113
See American Express Financial Advisors, Inc.v. Topel, 38 F. Supp. 2d 1233 (D. Colo. 1999).
114
Dresser Indust. v. Sandvick, 732 F.2d 783 (10th Cir. 1984).
115
Id. at 787.
116
See Excell, Inc. v. Sterling Boiler & Mech., Inc., 106 F.3d 318, 320-21 (10th Cir. 1997).
117
Conn. Gen. Stat. §§ 35-50 to 35-58 (2014).
118
Id. § 35-51.
119
Id. §§ 35-52, 35-53.
120
VBrick Sys., Inc. v. Stephens, No. 3:08–cv–1979 (CFD), 2009 WL 1491489, *10 (D. Conn. 2009); MacDermid, Inc. v. Raymond Selle and Cookson Group PLC, 535 F. Supp. 2d 308, 316 (D. Conn. 2008); Home Funding Group, LLC v. Kochmann, No. 3:06CV1234 (HBF), 2007 WL 1670148, *2 (D. Conn. 2007); Sartor v. Town of Manchester, 312 F. Supp. 2d 238, 245 (D. Conn. 2004); Wesley Software Dev. Corp. v. Burdette, 977 F. Supp. 137, 141 (D. Conn. 1997); Discoverytel SPC, Inc. v. Pinho, No. CV106011816S, 2010 WL 4515414, *4 (Conn. Super. Ct. 2010); Salva, LLC v. Michaels, No. CV075004364, 2008 WL 853125, *2 (Conn. Super. Ct. 2008); RKR Dance Studios, Inc. v. Makowski, No. CV-08-4035468-S, 2008 Conn. Super. LEXIS 2295, *15 (Conn. Super. Ct. 2008). 121
Thoma v. Oxford Performance Materials, Inc., 153 Conn. App. 50, 65-66 (2014); Artman v. Output Tech. Solutions E. Region, Inc., No. CV 000595362S, 2000 WL 992166, *3 (Conn. Super. Ct. 2000); see also Dick v. Dick, 167 Conn. 210 (1974). 122
Discoverytel SPC, Inc. v. Pinho, No. CV106011816S, 2010 WL 4515414, *4 (Conn. Super. Ct. 2010); see also Torrington Creamery v. Davenport, 126 Conn. 515 (1940). 123
A.H. Harris & Sons, Inc. v. Naso, No. 3:14CV304(AWT), 2015 WL 1420132, *9 (D. Conn. 2015); Sabatasso v. Ranciato, No. NNHCV116024130S, 2013 WL 2947896, *2 (Conn. Super. Ct. 2013); Van Dyke Printing Co. v. DiNicola, 43 Conn. Supp. 191, 196 (Conn. Super. Ct. 1993). 124
Sylvan R. Shemitz Designs, Inc. v. Brown, No. AANCV136013145S, 2013 WL 6038263, *6 (Conn. Super. Ct. 2013). 125
Thoma v. Oxford Performance Materials, Inc., 153 Conn. App. 50, 56-57 (2014).
126
Access Am., LLC v. Mazzotta, No. CV054003389, 2005 WL 2650093 (Conn. Super. Ct. 2005); Grayling Assoc., Inc. v. Villota, No. CV040833521, 2004 WL 1784388, *1 (Conn. Super. Ct. 2004). 127
Sylvan R. Shemitz Designs, Inc. v. Brown, No. AANCV136013145S, 2013 WL 6038263, *9 (Conn. Super. Ct. 2013). 128
A.H. Harris & Sons, Inc. v. Naso, No. 3:14CV304(AWT), 2015 WL 1420132, *10 (D. Conn. 2015); United Rentals, Inc. v. Frey, No. 3:10CV1628 (HBF), 2011 WL 693013, *6 (D. Conn. Feb. 18, 2011); Branson Ultrasonics Corp. v. Stratman, 921 F. Supp. 909, 913 (D. Conn. 1996); Deming v. Nationwide Mut. Ins. Co., 279 Conn. 745, 761 (2006); Robert S. Weiss & Assocs., Inc. v. Wiederlight, 208 Conn. 525, 529, n.2 (1988). 129
A.H. Harris & Sons, Inc. v. Naso, No. 3:14CV304(AWT), 2015 WL 1420132 (D. Conn. 2015).
130
Saylavee, LLC v. Hunt, No. FSTCV126015400S, 2013 WL 2350786 (Conn. Super. Ct. 2013).
131
United Rentals, Inc. v. Frey, No. 3:10CV1628 (HBF), 2011 WL 693013 (D. Conn. 2011).
132
Tyco Healthcare Group LP v. Ross, No. 3:11–cv–373 (CFD), 2011 WL 1790186 (D. Conn. 2011).
133
Discoverytel SPC, Inc. v. Pinho, No. CV106011816S, 2010 WL 4515414 (Conn. Super. Ct. 2010).
134
Xplore Techs. Corp. v. Killion, No. FSTCV105013459S, 2010 WL 4277765 (Conn. Super. Ct. 2010).
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135
Fairfield County Bariatrics and Surgical Assocs, P.C. v. Ehrlich, No. FBTCV1050291046, 2010 WL 1375397 (Conn. Super. Ct. 2010). 136
Webster Bank, N.A. v. Cahill, No. CV09-4018982S, 2009 Conn. Super. LEXIS 1672 (Conn. Super. Ct. 2009); Webster Bank v. Ludwin, No. CV-10-6006194, 2011 Conn. Super. LEXIS 127 (Conn. Super. Ct. Jan. 7, 2011). 137
Cuna Mut. Life Ins. Co. v. Butler, 2007 Conn. Super. LEXIS 1623 (Conn. Super. Ct. 2007).
138
Maintenance Techs. Intern. LLC v. Vega, No. CV054005177S, 2006 WL 279429 (Conn. Super. Ct. 2006).
139
United Rentals, Inc. v. Bastanzi, No. 3:05CV596 (RNC), 2005 WL 5543590 (D. Conn. 2005).
140
Century 21 Access Am. v. McLean, 2004 Conn. Super. LEXIS 3239 (Conn. Super. Ct. 2004).
141
Nat’l. Truck Emergency Road Serv., Inc. v. Peloquin, 2011 WL 4716235 (Conn. Super. Ct. 2011).
142
CT Cellar Doors, LLC v. Palamar, 2010 WL 5573704 (Conn. Super. Ct. 2010).
143
RKR Dance Studios, Inc. v. Makowski, No. CV-08-4035468-S, 2008 Conn. Super. LEXIS 2295 (Conn. Super. Ct. 2008). 144
Braman Chem. Enters., Inc. v. Barnes, 42 Comm. I. Rpts. 547 (Conn. Super. Ct. 2006).
145
Amphenol Corp. v. Hendry, No. CV 960326080, 1997 WL 15421 (Conn. Super. Ct. 1997).
146
See, e.g., Sylvan R. Shemitz Designs, Inc. v. Brown, No. AANCV136013145S, 2013 WL 6038263, *6 (Conn. Super. Ct. 2013) (refusing to enforce one-year prohibition against employment in “specialized lighting business” regardless of position’s importance or relatedness to duties employee held with plaintiff, where defendant former employee was young, possessed limited information belonging to plaintiff and worked in niche industry); Creative Dimensions, Inc. v. Laberge, No. CV116020991, 2012 WL 2548717, *5 (Conn. Super. Ct. 2012) (refusing to enforce 18 month prohibition that, in essence, would keep defendants out of portable display industry, a highly competitive market in which customers often work with multiple companies, sales staff are fairly transient, and defendants’ skills are industry-specific); RKR Dance Studios, Inc. v. Makowski, No. CV-08-4035468-S, 2008 Conn. Super. LEXIS 2295, *21 (Conn. Super. Ct. 2008) (refusing to enforce two year restriction against ball room dance instructor that, in effect, limited defendant to work in studios that did not offer comparable instruction opportunities or benefits). 147
Sylvan R. Shemitz Designs, Inc. v. Brown, No. AANCV136013145S, 2013 WL 6038263, *6 (Conn. Super. Ct. 2013); Creative Dimensions, Inc. v. Laberge, CV116020991, 2012 WL 2548717 (Conn. Sup. Ct. 2012); Fairfield County Bariatrics and Surgical Assocs., P.C. v. Ehrlich, No. FBTCV1050291046, 2010 WL 1375397, *30 (Conn. Super. Ct. 2010). 148
Fairfield County Bariatrics and Surgical Assocs, P.C. v. Ehrlich, No. FBTCV1050291046, 2010 WL 1375397, *35 (Conn. Super. Ct. 2010). 149
Johnson v. Priceline.com, Inc., 711 F.3d 271, 280, n.3 (2d Cir. 2013); see also Bulldog New York v. Pepsico, Inc., 8 F. Supp. 2d 152, 160 (D. Conn. 2004); Cornerstone Realty, Inc. v. Dresser Rand Co., 993 F. Supp. 107, 118 (D. Conn. 1998); Elgar v. Elgar, 238 Conn. 839, 850 (1996). 150
American States Ins. Co. v. Allstate Ins. Co., 282 Conn. 454, 461 (2007); Reichhold Chems., Inc. v. Harford Accident & Indem. Co., 252 Conn. 774, 781 (2000). 151
Restatement (Second) of Conflicts of Laws §6 (2); American States Ins. Co. v. Allstate Ins. Co., 282 Conn. 454, 467-68 (2007); Reichhold Chems., Inc. v. Harford Accident & Indem. Co., 252 Conn. 774, 782 (2000). 152
Restatement (Second) of Conflicts of Laws § 188(2);.American States Ins. Co. v. Allstate Ins. Co., 282 Conn. 454, 468 (2007); Reichhold Chems., Inc. v. Harford Accident & Indem. Co., 252 Conn. 774, 783 (2000). 153
Restatement (Second) of Conflicts of Laws § 145(2); Reichhold Chems., Inc. v. Hartford Accident and Indem. Co., 243 Conn. 401, 426, n.9 (1997).
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212 Fifty State Survey on Covenants Not to Compete
154
Reichhold Chems., Inc. v. Harford Accident & Indem. Co., 243 Conn. 401, 408-11 (1997); see also North Am. Tech. Servs., Inc. v. V.J. Techs., Inc., No. 10 CV 1384(AWT), 2011 WL 4538069, *2 (D. Conn. 2011). 155
Brooks v. Batesville Casket Co., Inc., No. 3:11–CV–731(JCH), 2011 WL 3837089, *2-3 (D. Conn. 2011); James v. Interactive Holdings, Inc., No. 3:10–cv–1111 (WWE), 2011 WL 134068, *1 (D. Conn. 2011).
All Pro Maids, Inc. v. Layton, No. Civ.A. 058-N, 2004 WL 1878784, at *5 (Del. Chanc. Ct. 2004) (unpublished); Comfort, Inc. v. McDonald, No. 1066(S), 1984 WL 8216 (Del. Chanc. Ct. 1984). 156
157
Faw, Casson & Co. v. Cranston, 375 A. 2d 463 (Del. Chanc. Ct. 1977).
158
Knowles-Zeswitz Music, Inc. v. Cara, 260 A. 2d 171 (Del. Chanc. Ct. 1969).
159
No. Civ.A. 690-N, 2006 WL 1565161 (Del. Chanc. Ct. June 2, 2006) (unpublished).
160
Lewmor, Inc. v. Fleming, No. CIV.A. 8355, 1986 WL 1244 (Del. Chanc. Ct. 1986).
161
Research & Trading Corp. v. Powell, 468 A.2d 1301 (Del. Chanc. Ct. 1983).
162
Am. Homepatient, Inc. v. Collier, 2006 WL 1134170 (Del. Chanc. Ct. Apr. 19, 2006)(unpublished).
163
McCann Surveyors v. Evans, 611 A.2d 1, 4 (Del. Chanc. Ct. 1987).
164
Research & Trading Corp. v. Powell, 468 A.2d 1301 (Del. Chac. Ct. 1983).
165
Elite Cleaning Co. v. Capel, No. Civ.A. 690-N, 2006 WL 1565161 (Del. Chanc. Ct. June 2, 2006).
166
Original Vincent & Joseph, Inc. v. Schiavone, 36 Del. Ch. 548 (1957).
167
Caras v. American Original Corp., 1987 WL 15553 (Del. Chanc. Ct. 1987).
168
Stone & Webster Eng’g Corp. v. Brunswick Pulp & Paper Co., 209 A.2d 890 (Del. Super. Ct. 1965).
169
Fleming v. Hall, Ltd. v. Cope, 30 F. Supp. 2d 459, 464 (D. Del. 1998).
170
D. C. Code § 28-4502.
171
Ellis v. James V. Hurson Assocs., 565 A.2d 615 (D.C. Ct. App. 1989).
172
Saul v. Thalis, 106 F. Supp. 408, 410-11 (D.D.C. 1957) (parties revoked earlier agreement and signed a new contract with new terms of employment and a new restrictive covenant). 173
Ellis v. James V. Hurson Assocs., 565 A.2d 615 (D.C. Ct. App. 1989).
174
Chemical Fireproofing Corp. v. Krouse, 155 F.2d 422, 423 (D.C. Cir. 1946).
175
Johnson v. MPR Assocs., Inc., 894 F. Supp.255, 258 (E.D. Va. 1994) (applying D.C. substantive law).
176
Deutsch v. Barsky, 795 A.2d 669 (D.C. Ct. App. 2002).
177
National Chemsearch Corp. of N.Y. v. Hanker, 309 F. Supp. 1278 (D.D.C. 1970).
178
Meyer v. Wineburgh, 110 F. Supp. 957 (D.D.C. 1953).
179
Chemical Fireproofing Corp. v. Krouse, 155 F.2d 422, 423 (D.C. Cir. 1946).
180
Murphy v. LivingSocial, Inc., 931 F. Supp. 2d 21, 25 (Dist. D.C. Mar. 18, 2013) (Plaintiff was a resident of Illinois, Defendant was a D.C. resident. Choice of law provision in employment contract specified D.C. law). L.G. Balfour Co. v. McGinnis, 759 F. Supp. 840 (D.D.C. 1991). Generally, D.C. courts will follow the Restatement (Second) of Torts and will look at the policy and intent of the parties. Vaughan v. Nationwide Mut. Ins. Co., 702 A.2d 198, 199 (D.C. Ct. App. 1997). See also, Base One Technologies, Inc. v. Ali, No. 14–1520 (JEB), 2015 WL 237907, at *3 (Dist. D.C. Jan. 20, 2015) (New York law applied by a D.C. court where parties based in D.C. signed a contract specifying application of New York law, and the parties’ pleadings relied upon New York law). 181
Hercules & Co., Ltd. v. Shama Rest. Corp., 556 A.2d 31 (D.C. Ct. App. 1989).
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213
182
Open Magnetic Imaging, Inc. v. Nieves-Garcia, 826 So. 2d 415 (Fla. Dist. Ct. App. 2002) (“Where, as here, employment is terminable at will by either the employer or employee, Florida courts have routinely enforced noncompete agreements even where an employee has been requested to execute such agreements after commencement of employment.”) (citing, generally, Aero Kool Corp. v. Oosthuizen, 736 So. 2d 25 (Fla. Dist. Ct. App. 1999) (noncompete executed four years after employee’s commencement of employment)); Balasco v. Gulf Auto Holding, Inc., 707 So. 2d 858 (Fla. Dist. Ct. App. 1998) (agreement specifying continued employment held sufficient consideration for restrictive covenant); McQuown v. Lakeland Window Cleaning Co., 136 So. 2d 370 (Fla. Dist. Ct. App. 1962) (employee’s continued employment was held a sufficient consideration for a covenant not to compete executed more than one year after commencing work); Perma-Liner Industries, Inc. v. U.S. Sewer & Drain, Inc., 630 F. Supp. 2d 516 (E.D. Pa. 2008) (applying Florida law) (where restrictive covenant specifies that agreement is supported by consideration in form of continued employment, agreement cannot be found void for lack of consideration); cf. Wright & Seaton, Inc. v. Prescott, 420 So. 2d 623 (Fla. Dist. Ct. App. 1982) (upholding a covenant not to compete in a terminable-at-will employment contract, where employer had employed the employee for almost a year in reliance upon promise not to compete). 183
Criss v. Davis, Presser & LaFaye, 494 So. 2d 525, review denied, 501 So. 2d 1281 (Fla. Dist. Ct. App. 1986) (continuation of his employment for two years, in addition to a salary increase, held adequate consideration for restrictive covenant); Tasty Box Lunch v. Kennedy, 121 So. 2d 52 (Fla. Dist. Ct. App. 1960) (continued employment of at-will employee and agreement to pay commissions constitute consideration for restrictive covenant). 184
Capraro v. Lanier Business Prods., 466 So. 2d 212 (Fla. 1985).
185
See, e.g., Hilb Rogal & Hobbs of Fla., Inc. v. Grimmel, 48 So. 3d 957, 962 (Fla. Dist. Ct. App. 2010).
186
See, e.g., Whitby v. Infinity Radio Inc., 951 So. 2d 890, 897 (Fla. Dist. Ct. App. 2007).
187
Fla. Stat. § 542.335(1)(b).
188
Fla. Stat. § 542.335(1)(b).
189
Fla. Stat. § 542.335(1)(i); see, e.g., DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928, 940 (Fla. Dist. Ct. App. 2012) (finding neither trial court nor enjoined party identified such public policy); Avalon Legal Info. Servs., Inc. v. Keating, 110 So. 3d 75 (Fla. Dist. Ct. App. 2013). 190
See, e.g., Pinch-A-Penny of Pinellas County v. Chango, 557 So. 2d 940 (Fla. Dist. Ct. App. 1990); Sarasota Beverage Co. v. Johnson, 551 So. 2d 503 (Fla. Dist. Ct. App. 1989); Xenographics, Inc. v. Thomas, 537 So. 2d 140 (Fla. Dist. Ct. App. 1988); Twenty Four Collection v. Keller, 389 So. 2d 1062 (Fla. Dist. Ct. App. 1980), review denied, 419 So. 2d 1048 (Fla. 1982); Miller Mechanical v. Ruth, 300 So. 2d 11 (Fla. 1974). 191
Reliance Wholesale, Inc. v. Godfrey, 51 So. 3d 561, 565 (Fla. Dist. Ct. App. 2010).
192
464 So. 2d 154, 156 (Fla. Dist. Ct. App. 1985).
And see Healthcare Fin. Enter., Inc. v. Levy, 715 So. 2d 341, 342 (Fla. Dist. Ct. App. 1998) (discussing predecessor statute); Fla. Stat. § 542.335(1)(h) (“A court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract.”). 193
194
See, e.g., Dorminy v. Frank B. Hall & Co., 464 So. 2d 154, 158 (Fla. Dist. Ct. App. 1985).
195
Avalon Legal Info. Servs., Inc. v. Keating, 110 So. 3d 75 (Fla. Dist. Ct. App. 2013).
196
Henao v. Prof’l Shoe Repair, Inc., 929 So. 2d 723 (Fla. Dist. Ct. App. 2006).
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214 Fifty State Survey on Covenants Not to Compete
197
Milner Voice and Data, Inc. v. Tassy, 377 F. Supp. 2d 1209 (S.D. Fla. 2005) (applying Florida law).
198
Xenographics, Inc. v. Thomas, 537 So. 2d 140 (Fla. Dist. Ct. App. 1988).
199
Sentry Ins. v. Dunn, 411 So. 2d 336 (Fla. Dist. Ct. App. 1982), review denied, 419 So. 2d 1196 (Fla. 1982).
200
Flickenger v. R.J. Fitzgerald & Co., Inc., 732 So. 2d 33 (Fla. Dist. Ct. App. 1999); cf. Balasco v. Gulf Auto Holding, Inc., 707 So. 2d 858 (Fla. Dist. Ct. App. 1998) (same, regarding automobile dealership’s former sales manager); Advantage Digital Systems, Inc. v. Digital Imaging Servs., Inc., 870 So.2d 111 (Fla. Dist. Ct. App. 2003) (same, regarding printer salesman). 201
Joseph U. Moore, Inc. v. Howard, 534 So. 2d 935 (Fla. Dist. Ct. App. 1988).
202
Cherry, Bekaert & Holland v. LaSalle, 413 So. 2d 436 (Fla. Dist. Ct. App. 1982).
203
See, e.g., JonJuan Salon, Inc. v. Acosta, 922 So. 2d 1081 (Fla. Dist. Ct. App. 2006); Open Magnetic Imaging, Inc. v. Nieves-Garcia, 826 So. 2d 415 (Fla. Dist. Ct. App. 2002). The goodwill associated with a specified area is also a factor. See, e.g., Litwinczuk v. Palm Beach Cardiovascular Clinic, L.C., 939 So. 2d 268 (Fla. Dist. Ct. App. 2006). 204
Fla. Stat. § 542.335(1)(g)2.
205
See, e.g., Envtl. Servs., Inc. v. Carter, 9 So. 3d 1258, 1263 (Fla. Dist. Ct. App. 2009).
206
Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223 (11th Cir. 2009) (applying Florida law).
207
Graphic Business Sys. v. Rogge, 418 So. 2d 1084 (Fla. Dist. Ct. App. 1982), reh’g denied (September 10, 1982).
208
JonJuan Salon, Inc. v. Acosta, 922 So. 2d 1081 (Fla. Dist. Ct. App. 2006); cf. Tiffany Sands, Inc. v. Mezhibovsky, 463 So. 2d 349 (Fla. Dist. Ct. App. 1985) (five-mile radius of a hair salon). 209
Shields v. Paving Stone Co., Inc., 796 So. 2d 1267 (Fla. Dist. Ct. App. 2001).
210
Heiderich v. Florida Equine Veterinary Servs., Inc., 86 So. 3d 527 (Fla. Dist. Ct. App. 2012).
211
Litwinczuk v. Palm Beach Cardiovascular Clinic, L.C., 939 So. 2d 268 (Fla. Dist. Ct. App. 2006).
212
Mazzioni Farms, Inc. v. E.I. DuPont, 761 So. 2d 306, 311 (Fla. 2000).
213
Walls v. Quick & Reilly, Inc., 824 So. 2d 1016, 1018 (Fla. Dist. Ct. App. 2002).
214
See Fla. Stat. § 542.335; see Forrest v. Kornblatt, 328 So. 2d (Fla. Dist. Ct. App. 1976), reh’g denied (April 1, 1976). 215
493 So. 2d 437 (Fla. 1986).
216
Maritime Ltd. Partnership v. Greenman Advertising Assocs., 455 So. 2d 1121 (Fla. Dist. Ct. App. 1984) (that contracting parties can agree on forum); cf. Golden Palm Hospitality, Inc. v. Stearns Bank National Association, 874 So.2d 1231 (Fla. Dist. Ct. App. 2004) (holding that forum selection clauses are presumptively valid under Florida law). 217
Proudfoot Consulting Co. v. Gordon, 576 F.3d 1223, 1243 (11th Cir. 2009) (citing Capraro v. Lanier Business Prods., Inc., 466 So. 2d 212, 213 (Fla. 1985)). 218
AOT, Inc. v. Hampshire Mgmt. Co., 653 So. 2d 476, 478 (Fla. Dist. Ct. App. 1995).
219
Longshore Lakes Joint Venture v. Mundy, 616 So. 2d 1047, 1047 (Fla. Dist. Ct. App. 1993).
220
Lotenfoe v. Pahk, 747 So. 2d 422, 425 (Fla. Dist. Ct. App. 1999) (citing Parker Tampa Two, Inc. v. Somerset Dev. Corp., 544 So. 2d 1018, 1021 (Fla. 1989)). 221
Id.
222
Becham v. Synthes USA, 482 Fed. App’x 387 (11th Cir. 2012).
223
Ga. Code Ann. §13-8-2.1 (effective July 1, 1990) (IERM 551:14) was repealed by Laws 2009, Act 64, § 2, eff. November 3, 2010; Laws 2011, Act 99, § 3, eff. May 11, 2011. Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
215
224
Mouldings, Inc. v. Potter, 315 F. Supp. 704 (M.D. Ga. 1970); Thomas v. Coastal Indus. Servs., 214 Ga. 832 (1959); Baker v. Nat’l Credit Ass’n, 211 Ga. 635 (1955) (sufficient consideration exists for noncompete agreement executed after inception of employment). 225
Glisson v. Global Sec. Servs., LLC, 287 Ga. App. 640 (2007).
226
See W.R. Grace & Co. v. Mouyal, 262 Ga. 464 (1992); Trujillo v. Great S. Equip. Sales, LLC, 289 Ga. App. 474, 476 (2008). 227
W.R. Grace & Co. v. Mouyal, 262 Ga. 464 (1992); Durham v. Stand-by Labor of Ga., 230 Ga. 558 (1973). See also Nat’l Settlement Assocs. v. Creel, 256 Ga. 329 (1986); Orkin Exterminating Co. v. Walker, 251 Ga. 536 (1983); Howard Schultz & Assocs. v. Broniec, 239 Ga. 181(1977); Jarrett v. Hamilton, 179 Ga. App. 422 (1986). 228
Hilb, Rogal & Hamilton Co. v. Holley, 284 Ga. App. 591 (2007) (citing New Atlanta Ear, Nose & Throat Assoc. v. Pratt, 253 Ga. App. 681, 683 (2002)). 229
O.C.G.A. § 13-8-54(c).
230
See Sunstates Refrigerated Servs. v. Griffin, 215 Ga. App. 61, 63 (1994).
231
Id.
232
Johnstone v. Tom’s Amusement Co., 228 Ga. App. 296 (1997); In re Pervis, 512 B.R. 348, 375 (N.D. Ga. 2014) (“the Georgia appellate courts have regularly struck down restrictive covenants if they could have been interpreted in an invalid way, even though they may also be interpreted in a valid way”). 233
Lyle v. Memar, 259 Ga. 209, 210 (1989) (holding that “covenants in the sale of a business, unlike covenants in contracts of employment, can be blue penciled to make them valid”); see also White v. Fletcher/Mayo/Assocs., 251 Ga. 203 (1983) (in sale of business context, seller “‘may be enjoined from competing to the extent that it is found essential, by clear and convincing evidence, to protect the purchaser, despite the overbreadth of the covenant”) (quoting Redmond v. Royal Ford, 244 Ga. 711, 713 (1979)). 234
Hamrick v. Kelley, 260 Ga. 307, 308 (1990).
235
New Atlanta Ear, Nose & Throat Assocs., P.C. v. Pratt, 253 Ga. App. 681 (2002).
236
Sysco Food Servs. of Atlanta, Inc. v. Chupp, 225 Ga. App. 584 (1997) (citing W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 465(1) (1992)). 237
See Vortex Protective Serv. v. Dempsey, 218 Ga. App. 763, 765-66 (1995).
238
See W.R. Grace & Co. v. Mouyal, 262 Ga. 464, 465 (1992).
239
See Stultz v. Safety & Compliance Mgmt., 285 Ga. App. 799, 804 (2007) (suggesting that employee who was “heart and soul” of business might be subject to broader restrictions); Saxton v. Coastal Dialysis & Med. Clinic, Inc., 220 Ga. App. 805 (1996) (considering position held by former employee in determining reasonableness of restrictive covenants); but see Impreglon, Inc. v. Newco Enters., Inc., 508 F. Supp. 2d 1222 (N.D. Ga. 2007) (finding that Georgia law does not allow consideration of role of former employee when applying strict scrutiny to employment context restrictive covenants). 240
Rash v. Toccoa Clinic Med. Clinic Ass’n, 253 Ga. 322, 320 S.E.2d 170 (1984) (“There is no reason to conclude that the obstetrical and gynecological needs of persons within a 25-mile radius of Toccoa are any greater than in many other areas of this and other states, nor is there any reason to conclude that the need for the appellant’s services, in the context of this case, is sufficient to outweigh the law’s interest in upholding and protecting freedom to contract and to enforce contractual rights and obligations.”). 241
See Dent Wizard Int’l Corp. v. Brown, 272 Ga. App. 553, 556 (2005) (invalidating four-county territorial restriction because employee only worked in two or three of the counties); Howard Schultz & Assocs. v. Broniec, 239 Ga. 181 (1977); August Eye Ctr., P.C. v. Duplessie, 234 Ga. App. 226, 227-28 (1998); Brunswick Floors, Inc. v. Guest, 234 Ga. App. 298, 300 (1998). Georgia common law, however, also requires that an employee be able to determine at the time of signing the agreement the extent of the geographic scope. See, e.g., Harville v. Gunter, 230 Ga. App. 198 (1998) (holding that a “territorial limitation not determinable until the time of the employee’s For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
216 Fifty State Survey on Covenants Not to Compete
termination invalidates the provision and the entire agreement”); see also BellSouth Corp. v. Forsee, 265 Ga. App. 589 (2004). 242
See Szomjassy v. OHM Corp., 132 F. Supp. 2d 1041, 1050 (N.D. Ga. 2001).
243
W.R. Grace & Co. v. Mouyal, 262 Ga. 464; Habif, Arogetti & Wynne, P.C. v. Baggett, 231 Ga. App. 289, 295 (1989); see also MacGinnitie v. Hobbs Group, LLC, 420 F.3d 1234, 1241 (11th Cir. 2005). 244
Johnson v. Lee, 243 Ga. 864, 866 (1979)
245
Orkin Exterminating Co. v. Walker, 251 Ga. 536 (1983). A one year restriction is usually considered reasonable. Pittman v. Harbin Clinic Prof’l Ass’n, 210 Ga. App. 767 (1993) (“The one-year limitation is patently reasonable. Limitations of one year and greater have been held to be reasonable.”). 246
See Howard Schultz & Assoc. v. Broniec, 239 Ga. 181 (1977) (“The nondisclosure covenant here contains no time limitation and hence it is unenforceable.”). 247
E.g., Avion Sys., Inc. v. Thompson, 293 Ga. app. 60, 64 (2008) (invalidating covenants that “in effect restrict employment in any capacity, even if completely unrelated to the employer’s business, and are thus impermissibly overbroad as not reasonably necessary to protect the employer’s interests”); Whimsical Expressions, Inc. v. Brown, 275 Ga. App. 420, 423 (2005) (invalidating covenant that prohibited employee from acting as salesperson, which had never been part of his job responsibilities); see also Nat’l Settlement Assocs. v. Creel, supra; McNeil Grp. v. Restivo, 252 Ga. 112 (1984); Hudson & Co. v. Cole, 247 Ga. 182 (1981); Ponders, Inc. v. Norman, 246 Ga. 647 (1980); Howard Schultz & Assocs. v. Broniec, supra; Federated Mut. Ins. Co. v. Whitaker, 232 Ga. 811 (1974). 248
See Habif, Arogeti & Wynne, P.C. v. Baggett, 231 Ga. App. 289, 295 (1998) (“Cases applying lesser scrutiny have upheld covenants prohibiting physicians from practicing any kind of medicine for competing organizations.”). 249
H&R Block E. Enters., Inc. v. Morris, 606 F.3d 1285 (11th Cir. 2010).
250
Palmer & Cay of Ga., Inc. v. Lockton Cos., 284 Ga. App. 196, 199 (2007).
251
Martinez v. DaVita, Inc., 266 Ga. App. 723 (2004).
252
Hicks v. Doors by Mike, Inc., 260 Ga. App. 407 (2003).
253
New Atlanta Ear, Nose & Throat Assocs. P.C. v. Pratt, 253 Ga. App. 681 (2002).
254
Attaway v. Republic Servs. of Ga., LLP, 253 Ga. App. 322 (2002).
255
Chaichimansour v. Pets Are People Too, No. 2, Inc., 226 Ga. App. 69 (1997).
256
Electronic Data Sys. Corp. v. Heinemann, 217 Ga. App. 816 (1995).
257
Whaley v. Alco Standard Corp., 253 Ga. 5 (1984).
258
Hancock v. Fickling & Walker Ins. Agency, 248 Ga. 608 (1981).
259
Griffin v. Vendegriff, 205 Ga. 288 (1949).
260
Nun v. Orkin Exterminating Co., 256 Ga. 203 (1986).
261
Nat’l Settlement Assocs. of Ga. v. Creel, 256 Ga. 329 (1986).
262
Whaley v. Alco Standard Corp., 253 Ga. 5 (1984).
263
Holland Ins. Group, LLC v. Senior Life Ins. Co., 329 Ga. App. 834 (2014).
264
Ward v. Process Control Corp., 247 Ga. 583 (1981).
265
Crowe v. Manpower Temp. Serv., 256 Ga. 239 (1986).
266
Rollins Protective Servs. Co. v. Palermo, 249 Ga. 138 (1982) (court also denied injunction restraining former employee from transacting business with customers he knew as a result of his former employment, on the ground that injunctive protection would go beyond what was necessary to protect confidential information or customer lists).
Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
217
267
Thomas v. Coastal Indus. Servs., 214 Ga. 832 (1959).
268
Ferrero v. Associated Materials, 923 F.2d 1441 (11th Cir. 1991) (applying Georgia statute).
269
601 F. Supp. 615, 617 (N.D. Ga. 1985).
270
243 Ga. App. 670 (2000).
271
58 Tenn. App. 164 (1968).
272
57 Haw. 113 (1976).
273
7’s Enters., Inc. v. Del Rosario, 111 Hawai’i 484, 497 (2006).
274
Uarco Inc. v. Lam, 18 F. Supp. 2d 1116, 1123 (1998).
275
Uarco Inc. v. Lam, 18 F. Supp. 2d 1116, 1123 (1998).
276
111 Idaho 206 (Ct. App. 1986), aff’d, 116 Idaho 948 (1989).
277
But cf., Idaho Trust Bank v. Ross, No. CV20131285, 2013 WL 3766899, at *4-5 (Idaho Dist. June 1, 2013) (Genuine issue of material fact as to whether non-compete agreements executed by bank and bank employee were supported by consideration). 278
§ 44-2703. Construction and Enforcement.
279
141 Idaho 415, 111 P.3d 100 (2005).
280
94 Idaho 896 (1972).
281
Pinnacle Performance, Inc. v. Hessing, 135 Idaho 364, 369 (2001).
282
Melaleuca, Inc. v. Bartholomew, No. 4:2012cv00216, 2012 U.S. Dist. LEXIS 116092, at *6 (D. Idaho Aug. 16, 2012). 283
MWI Veterinary Supply Co. v. Wotton, 896 F. Supp. 2d 905, 912-913 (D. Idaho 2012).
284
Bybee v. Isaac, 145 Idaho 251, 258 (2008).
285
WGI Heavy Minerals, Inc. v. Gorrill, No. CV 2006 384, 2006 WL 637030, at *3 (Idaho Dist. Ct. Mar. 1, 2006).
286
Magic Valley Truck Brokers, Inc. v. Meyer, 133 Idaho 110, 115 (Ct. App. 1999).
287
Dick v. Geist, 107 Idaho 931 (Ct.App. 1985).
288
Marshall v. Covington, 81 Idaho 199 (1959).
289
Jorgensen v. Coppedge, 145 Idaho 524, 528 (2008).
290
Pinnacle Performance, Inc. v. Hessing, 135 Idaho 364 (Ct. App. 2001).
291
Magic Lantern Prods., Inc. v. Dolsot, 216 Idaho 805, 807 (1995).
292
Insurance Center v. Taylor, 94 Idaho 896 (1972).
293
Idaho Code §28-1-105(1) (1980).
294
T.J.T., Inc. v. Mori, 152 Idaho 1, 3 & n.1, 4-10 (2011).
295
See e.g. Great Plains Equip., Inc. v. Nw. Pipeline Corp., 132 Idaho 754, 765 & n.3 (1999).
296
773 P.2d 1143 (Idaho 1989).
297
Cerami-Kote v. Energywave Corp., 116 Idaho 56 (Idaho 1989).
298
See Fifield v. Premier Dealer Servs., Inc., 993 N.E.2d 938 (Ill. 2013).
299
Id. at 944.
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218 Fifty State Survey on Covenants Not to Compete
300
But see Montel Aetnastak, Inc. v. Miessen, No. 13 C 3801, 2014 WL 702322 (N.D. Ill. Jan. 28, 2014) (declining to follow Fifield and holding that 15 months of continued employment was sufficient consideration to support covenant not to compete where employee resigned). 301
See Fifield v. Premier Dealer Servs., Inc., 993 N.E.2d 938 (Ill. 2013).
302
965 N.E.2d 393 (Ill. 2011).
303
Id. at 396.
304
Id. at 403.
305
House of Vision, Inc. v. Hiyane, 225 N.E.2d 21, 25 (Ill. 1967); see also Eichmann v. Nat’l Hosp. and Health Care Servs., Inc., 719 N.E.2d 1141, 1149 (Ill. App. 1st Dist. 1999). 306
Id.
307
Id.
308
Eichmann, 719 N.E.2d at 1149; Arpac Corp. v. Murray, 589 N.E.2d 640, 652 (Ill. App. 1st Dist. 1992).
309
Cambridge Eng’g, Inc. v. Mercury Partners 90 BI, Inc., 879 N.E.2d 512, 530 (Ill. App. 1st Dist. 2007); Eichmann, 719 N.E.2d at 1149. 310
See Northwest Podiatry Center, Ltd. v. Ochwat, 990 N.E.2d 347 (Ill. App. 1st Dist.2013); Arpac, 589 N.E.2d at 652. 311
Pactiv Corp. v. Menasha Corp., 261 F.Supp.2d 1009, 1015 (N.D. Ill. May 2003).
312
YCA, LLC v. Berry, No. 03 C 3116, 2004 WL 1093385, at *19 (N.D. Ill. May 7, 2004); Fisher/Unitech, Inc. v. Computer Aided Tech., Inc., No. 13 C 02090, 2013 WL 1446425, at *7 (N.D. Ill. Apr. 9, 2013). 313
Lawrence & Allen, Inc. v. Cambridge Human Res. Group, Inc., 685 N.E.2d 434, 441 (Ill. App. 2d Dist. 1997)
314
Id.
315
See Arpac Corp. v. Murray, 589 N.E.2d 640, 650-51 (Ill. App. 1st Dist. 1992).
316
See Cambridge Eng’g, Inc. v. Mercury Partners 90 BI, Inc., 879 N.E.2d 512, 523 (Ill. App. 1st Dist. 2007).
317
See, e.g. Millard Maintenance Serv. Co. v. Bernero, 566 N.E.2d 379 (Ill. App. 1st Dist. 1990) (two years); McRand, Inc. v. Van Beelen, 486 N.E.2d 1306 (Ill. App 1st Dist. 1985) (two-years reasonable; employer took one to three years to establish a key account); but see Mohanty v. St. John Heart Clinic, 866 N.E.2d 85 (Ill. 2006) (fiveyear non-compete against doctor held reasonable; clinic took 10 years to establish a client base). 318
Instrumentalist Co. v. Band, Inc., 480 N.E.2d 1273 (Ill. App. 1st Dist. 1985) (geographical scope of noncompetition covenant between employer magazine and former employee, which encompassed entire country, was reasonable and enforceable, in light of evidence that magazine's subscribers and advertisers were located throughout United States, and, indeed, in several foreign countries); Mohanty, 866 N.E.2d at 85 (geographical limitation of 5-mile radius for cardiologist narrowly drawn); Retina Servs. v. Garoon, 538 N.E.2d 651 (Ill. App. 1st Dist. 1989) (covenant was not overly broad because the ophthalmologist could practice in other hospitals in the metropolitan area); Midwest Television, Inc. v. Oloffson, 699 N.E.2d 230 (Ill. App. 3rd Dist.1998) (upholding noncompete that prohibited competition within a 100-mile radius for a one-year period; employer’s radio stations generally had a 60-mile broadcast range). 319
Unisource Worldwide, Inc. v. Carrara, 244 F.Supp.2d 977 (C.D. Ill. 2003) (in the printing industry, where pricing data changes every six to 12 months, two-year restriction held unreasonable; any information that employer wants to protect is already “stale” after one year). See Arpac Corp. v. Murray, 589 N.E.2d 640 (Ill. App. 1st Dist. 1992)(two-year non-compete held unreasonable and too broad); 320
879 N.E.2d 512, (Ill. App. 1st Dist. 2007).
321
589 N.E.2d 640 (Ill. App. 1st Dist. 1992).
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219
322
Old Republic Insurance Co. v. Ace Property & Casualty Insurance Co., 906 N.E.2d 630, 636 (Ill. App. 1st Dist. 2009). 323
See Old Republic Insurance Co. v. Ace Property & Casualty Insurance Co., 906 N.E.2d 630, 636 (Ill. App. 1st Dist. 2009). 324
Aon Corp. v. Utley, 863 N.E.2d 701 (Ill. App. 4th Dist. 2006); Newell Co. v. Lee, 950 F. Supp. 864, 869 (N.D. Ill. 1997). 325
See Ind. Professional Conduct Rule 5.6.
326
Clark Sales & Serv., Inc. v. Smith, No. 49A04–1208–PL–387, 2013 WL 865477, at *10 (Ind. Ct. App. March 8, 2013) (unpublished opinion). 327
652 N.E.2d 507 (Ind. 1995); see Clark Sales & Serv., Inc., 2013 WL 865477, at *9-10; Ackerman II, 652 N.E.2d at 509 (expressly adopting pages 780-81 of Ackerman v. Kimball Int’l, Inc., 634 N.E.2d 778, 780-81 (Ind. Ct. App. 1994) [hereinafter, Ackerman I]); Ackerman I, 634 N.E.2d at 781 (“An employer’s promise to continue at-will employment is valid consideration for the employee’s promise not to compete with the employer after his termination.”). See also Rollins v. Am. State Bank, 487 N.E. 2d 842, 843 (Ind. Ct. App. 1986) (holding that “continued employment in an at will employment position constitutes consideration . . . for signing [an] agreement not to compete”). 328
See Ackerman II, 652 N.E.2d at 509, 780-81 (“[W]e agree ... that the 1974 Employment agreement was not unenforceable due to lack of consideration, both because Ackerman received [the employer’s] promise to continue at-will employment and because Ackerman ratified the 1974 employment agreement by executing the termination agreement” that “entitled him to a $15,000 salary allowance and placement counseling benefits of up to $35,000.”). 329
Dicen v. New Sesco, Inc., 806 N.E.2d 833, 843 (Ind. Ct. App. 2004) [hereinafter Dicen I], aff’d in part at 839 N.E.2d 684 (Ind. 2005) [hereinafter Dicen II]. 330
Norlund v. Faust, 675 N.E.2d 1142, 1154 (Ind. Ct. App. 1997).
331
Dicen I, 806 N.E.2d at 843.
332
Smart Corp. v. Grider, 650 N.E.2d 80, 83 (Ind. Ct. App. 1995).
333
Id. (citing Field v. Alexander & Alexander of Ind., Inc., 503 N.E.2d 627, 635 (Ind. Ct. App. 1987)). See also, Distributor Service, Inc. v. Stevenson, F.Supp.3d 964, 973-974 (2014) (“The bottom line is that the plain language of the non-compete provision would prohibit Mr. Stevenson from being an ‘employee’ of an entity who engages in ‘competitive business activity,’ whether he is in sales, works as a janitor, or maintains the second employer’s lawn. Thus is it overbroad and unenforceable.”). 334
Dicen II, 839 N.E.2d at 687; Licocci v. Cardinal Assocs., Inc., 445 N.E.2d 556, 561 (Ind. 1983).
335
Bridgestone/Firestone, Inc. v. Lockhart, 5 F. Supp. 2d 667, 683 (S.D. Ind. 1998).
336
Smart Corp., 650 N.E.2d at 83-84.
337
Id.
338
Compare Central Ind. Podiatry, P.C. v. Kruger, 882 N.E.2d 723, 730-31 (Ind. 2008) [hereinafter Kruger II] (using blue pencil doctrine to reduce geographic restriction from 40 counties to only the three counties in which the physician had actually practiced and none of the contiguous counties), with Dicen II, 839 N.E.2d at 689 (declining to blue pencil overbroad nation-wide restriction on grounds that the result of “utliliz[ing] a blue pencil to strike the geographical limitation . . . would be no geographical limitation at all”). 339
See Frederick v. Professional Bldg. Maint. Indus., 344 N.E.2d 299, 302 (1976).
340
Sharvelle v. Magante, 836 N.E.2d 432, 437 (Ind. Ct. App. 2005).
341
Kuntz v. EVI, LLC, 99 N.E.2d 425, 432 (2013).
342
Ebbeskotte v. Tyler, 142 N.E.2d 905, 910 (Ind. Ct. App. 1957).
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220 Fifty State Survey on Covenants Not to Compete
343
College Life Ins. Co. of Am. v. Austin, 466 N.E.2d 738, 745 (Ind. Ct. App. 1984) (distinguishing Ebbeskotte on grounds that it, unlike the case at bar, involved a limited geographical scope). 344
Vukovich v. Coleman, 789 N.E.2d 520, 525-26 (Ind. Ct. App. 2003).
345
Field, 503 N.E.2d at 635; see also Seach v. Richards, Dieterle & Co., 439 N.E.2d 208, 213 (Ind. Ct. App. 1982); Comm. Bankers Life Ins. Co. of Am. v. Smith, 516 N.E.2d 110, 114-15 (Ind. Ct. App. 1987). 346
Kruger II, 882 N.E.2d at 730-31; see also Coates v. Heat Wagons, Inc., 942 N.E.2d 905, 915 (Ind. Ct. App. 2011) (same, citing Kruger II); Cap Gemini Am. v. Judd, 597 N.E.2d 1272, 1288 (Ind. Ct. App. 1992) (geographic restriction unreasonable because it was “broader in scope than the geographic area in which the employees actually worked, and therefore [was] invalid”). 347
Fumo v. Med. Group of Mich. City, Inc., 590 N.E.2d 1103, 1109 (Ind. Ct. App. 1992).
See, e.g., Crystal Valley Sales, Inc. v. Anderson, 22 N.E.3d 646, 655 (2014); Zimmer US, Inc. v. Keefer, 2012 U.S. Dist. LEXIS 151878, at *29 (N.D. Ind. Oct. 23, 2012) (a 12-month, 60-mileradius covenant in a restricted area); Coates v. Heat Wagons, Inc., 942 N.E.2d 905, 915 (Ind. Ct. App. 2011) (A two-year covenant restricting “substantially similar” business in 19 states that were employee’s contact area); Mercho-Roushdi-Shoemaker-Dilley Thoarco-Vascular Corp. v. Blatchford, 900 N.E.2d 786, 796-97 (Ind. Ct. App. 2009) (a three-year, 50-mile covenant for a physician); Central Ind. Podiatry, P.C. v. Kruger, 859 N.E.2d 686, 694 (Ind. Ct. App. 2007) [hereinafter Kruger I], aff’d in part at 882 N.E.2d 723 (Ind. 2008) (a two-year covenant upheld after court restricted covenant to only area where doctor practiced); MacGill v. Reid, 850 N.E.2d 926, 931-32 (Ind. Ct. App. 2007) (a two-year covenant with a 25-mile radius); McGlothen v. Heritage Environmental Servs., L.L.C., 705 N.E. 2d 1069, 1071 (Ind. Ct. App. 1999) (a one-year covenant); 4408, Inc. v. Losure, 373 N.E.2d 899, 902-03 (Ind. Ct. App. 1978) (a three-year covenant). 348
349
See, e.g., Rollins, 487 N.E. 2d at 843; Miller v. Frankfort Bottle Gas, Inc., 202 N.E.2d 395, 397, 399 (Ind. Ct. App. 1965). But see Captain & Co., Inc. v. Towne, 404 N.E.2d 1159, (Ind. Ct. App. 1980) (holding that “[t]wo year restraint was unreasonable in view of the nature of the protectable interest”). 350
Heritage Techs., LLC v. Phibro-Tech, Inc., No. 1:05-cv-01851, 2008 U.S. Dist. LEXIS 329, at *28-33 (S.D. Ind. Jan. 2, 2008). 351
Fumo, 590 N.E.2d at 1106, 1109.
352
Mercho-Roushdi-Shoemaker-Dilley Thoraco-Vascular Corp. v. Blatchford, 900 N.E.2d 786, 796-97 (Ind. Ct. App. 2009) 353
MacGill, 850 N.E.2d at 931-32
354
Unger v. FFW Corp., 771 N.E.2d 1240, 1245 (Ind. Ct. App. 2002)
355
McCart v. H&R Block, Inc., 470 N.E.2d 756, 758, 762-64 (Ind. Ct. App. 1984)
356
4408, Inc., 373 N.E.2d at 902-03.
357
Clark’s Sales and Service, Inc. v. Smith, 4 N.E.3d 772, 783 (2014).
358
Buffkin v. Glacier Group, 997 N.E.2d 1, 13 (2013).
359
Bodemer v. Swanel Beverage, Inc., 884 F. Supp. 2d 717, 731-32 (N.D. Ind. 2012) (a covenant not to compete to protect trade secrets cannot encompass the earth’s surface); 360
Spine, Sports & Pain Med. P.C. v. Nolan, 920 N.E.2d 276, 2010 WL 183434, at *6-7 (Ind. Ct. App. Jan. 20, 2010) (unpublished opinion) Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
221
361
Dicen I, 806 N.E.2d at 844.
362
Coates, 942 N.E.2d at 915.
363
Cap Gemini Am., 597 N.E.2d at 1288
364
Comm. Bankers Life Ins. Co., 515 N.E.2d at 114-15.
365
See, e.g., Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002) (“Indiana choice of law doctrine favors contractual stipulations as to governing law.”); Dearborn v. Everett J. Prescott, Inc., 486 F. Supp. 2d 802, 812 (S.D. Ind. 2007) (“Indiana law generally enforces contractual provisions that specify a choice of law, at least in commercial and other settings. . . where the parties have comparable bargaining power, and where the chosen state has some connection to the parties’ relationship.”). 366
OVRS Acquisition Corp. v. Community Health Serv., Inc., 657 N.E.2d 117, 124 (Ind. Ct. App. 1995).
367
George S. May Int’l Co. v. King, 629 N.E.2d 257, 261 n.6 (Ind. Ct. App. 1994).
368
Horner v. Tilton, 650 N.E.2d 759, 763 (Ind. Ct. App. 1995) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18 (1972)). 369
See, e.g., Donnelly v. Brown, Winick, Graves, Gross, Baskerville, Schoenebaum, & Walker, P.L.C., 599 N.W.2d 677 (Iowa 1999). 370
See, e.g., Phone Connection v. Harbst, 494 N.W.2d 445, 449 (Iowa Ct. App. 1992) (continued employment for indefinite time provides sufficient consideration for covenant). 371
See Iowa Glass Depot v. Jindrich, 338 N.W.2d 376, 384 (Iowa 1983) (continued employment insufficient consideration in light of harm to former employee). 372
338 N.W.2d 376 (Iowa 1983).
373
Id. at 384.
See, e.g., Ales v. Anderson, Gabelmann, Lower & Whitlow, P.C., 728 N.W.2d 832, 840-41 (Iowa 2007); Iowa Glass Depot, 338 N.W.2d at 381-84. 374
375
Iowa Glass Depot, 338 N.W.2d at 381.
See, e.g., Lamp v. Am. Prosthetics, Inc., 379 N.W.2d 909, 910 (Iowa 1986); Uncle B’s Baker, Inc., v. O’Rourke, 920 F. Supp. 1405, 1431 (N.D. Iowa 1996); Pro Edge v. Gue, 374 F. Supp. 2d 711, 739 (N.D. Iowa 2005); Reg Seneca, LLC v. Harden, 938 F. Supp. 2d 852, 859 (S.D. Iowa 2013). 376
Mutual Loan Co. v. Pierce, 65 N.W.2d 405, 408 (Iowa 1954); Pathology Consultants v. Gratton, 343 N.W.2d 248, 434 (Iowa 1984) (“Covenants not to compete are unreasonably restrictive unless they are tightly limited as to both time and area.”). 377
378
See, e.g., Ehlers v. Iowa Warehouse Co., 188 N.W.2d 368, 370-72 (Iowa 1971), modified at 190 N.W.2d 413 (Iowa 1971) (overruling prior “all or nothing” approach to enforcement of non-competes). 379
Lamp, 379 N.W.2d at 910-11.
380
Uncle B’s Baker, Inc., 920 F. Supp. at 1431-33.
381
Casey’s Gen. Stores v. Campbell Oil, 441 N.W.2d 758, 761 (Iowa 1989).
382
Id.
383
See, e.g., Rasmussen Heating & Cooling v. Idso, 463 N.W.2d 703, 705 (Iowa Ct. App. 1990) (reducing 10-year period to five years); Orkin Exterminating Co. v. Burnett, 146 N.W.2d 320, 324 (1966) (enforcing 3 year period); Cogley Clinic v. Martini, 112 N.W.2d 678, 682 (Iowa 1962); Phone Connection, 494 N.W.2d at 449-50 (affirming For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
222 Fifty State Survey on Covenants Not to Compete
reduction of five-year period to two years); Reg Seneca, LLC, 938 F. Supp. 2d at 859-60 (enforcing two year period). 384
Cogley Clinic, 112 N.W.2d at 682.
385
Pro Edge, 374 F. Supp. 2d at 740.
386
Am. Express Fin. Advisors v. Yantis, 358 F. Supp. 2d 818, 836-37 (N.D. Iowa 2005).
387
Moore Bus. Forms, Inc. v. Wilson, 953 F. Supp. 1056, 1060-61, 1065 (N.D. Iowa 1996) (restriction was broader, but employer sought only partial enforcement). 388
Reg Seneca, LLC, 938 F. Supp. 2d at 859-60.
389
Lamp, 379 N.W.2d at 910-11.
390
Gateway 2000, Inc. v. Kelley, 9 F. Supp. 2d 790, 797 (E.D. Mich. 1998) (applying Iowa law).
391
See, e.g., Curtis 1000, Inc. v. Youngblade, 878 F. Supp. 1224, 1251-52 (N.D. Iowa 1995); APAC Teleservices, Inc. v. McRae, 985 F. Supp. 852, 856 (N.D. Iowa 1997). 392
Curtis 1000, Inc., 878 F. Supp. at 1255-56.
393
See Veasley v. CRST Int’l, Inc., 553 N.W.2d 896, 897-98 (Iowa 1996); APAC Teleservices, Inc., 985 F. Supp. at 857. 394
Curtis 1000, Inc., 878 F. Supp. at 1251.
395
Id. at 1252.
396
See, e.g., Central States Indus. Supply, Inc. v. McCullough, 218 F. Supp. 2d 1073, 1079-80 (N.D. Iowa 2003); see also ISU Veterinary Services Corp. v. Reimer, 779 F. Supp. 2d 970, 983 (S.D. Iowa 2011) (covenant case noting in dicta that Iowa courts enforce forum selection clause where the parties were “sophisticated business people that entered into an arms-length transaction”). 397
Puritan-Bennett Corp. v. Richter, 8 Kan. App. 2d 311, 315 (1983).
398
Uraco v. Eastland, 584 F. Supp. 1259 (D. Kan. 1984) (“noncompetition clause was supported by valid consideration, in the form of an increase in base salary”); Puritan-Bennett Corp., 8 Kan. App. 2d at 315 (employee received promotion); Heatron, Inc. v. Shackelford, 898 F. Supp. 1491, 1499–1500 (D. Kan. 1995) (adequate consideration for noncompete where employee was promoted and would not have received promotion if he had refused to sign agreement). 399
Uraco, 584 F. Supp. at 1261 (citing H&R Block, Inc. v. Lovelace, 208 Kan. 538 (1972)).
400
Uraco, 584 F. Supp. at 1261 (citing Eastern Dist. Co., Inc. v. Flynn, 222 Kan. 666, 672–673 (1977)).
401
Bruce D. Graham, M.D., P.A. v. Cirocco, 31 Kan. App. 2d 563, 567–68 (2003) (quoting Weber v. Tillman, 259 Kan. 457, 462 (1996)). 402
Heatron, 898 F. Supp. at 1501.
Eastern Dist., 222 Kan. at 675 (citing Foltz v. Struxness, 168 Kan. 714 (1950). Universal Engraving, Inc. v. Durate, 519 F. Supp. 2d 1140, 1154 (D. Kan. 2007) (court decreased temporal restriction from five years to two years). 403
404
Eastern Dist., 222 Kan. at 675.
405
Universal Engraving, 519 F. Supp. 2d at 1153.
406
Id.
407
P.A., 279 Kan. 755 (2005).
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408
259 Kan. 457.
409
275 Kan. 20, 23 (2002).
410
168 Kan. 714 (1950).
411
Wichita Clinic,. P.A. v. Louis, 39 Kan. App. 2d 848, 859 (2008); Louis, 39 Kan. App. 2d at 860 (upheld noncompete prohibiting physician from practicing in Sedgwick County because restriction was coextensive with area from which clinic drew most of its patients); Weber, 259 Kan. 457, 465 (1996) (upholding restrictive covenants for 30 mile radius of any office or place of business of the defendant). 412
Equifax Servs. Inc., v. Hitz, 968 F.2d 1224, *4 (10th Cir. 1992) (enforcing a Kansas choice of law and venue clause). 413
Alexander, 913 F. Supp. at 1500.
414
Equifax Servs., 968 F.2d at *4 (10th Cir. 1992) (citing Commercial Union Ins. v. John Massman Contracting, 713 F. Supp. 1403, 1405 (D, Kan. 1989)); see also Alexander & Alexander, Inc. v. Feldman, 913 F. Supp. 1495, 1500 (D. Kan. 1996) (last act necessary for formation of contract occurred when defendant signed agreement in his office in Kansas). 415
Equifax Servs., 986 F.2d at *4 (court enforced a Kansas choice of law and venue clause).
416
See Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345, 352–54 (Ky. 2014).
417
OVRS Acquisition Corp. v. Community Health Servs., Inc., 657 N.E.2d 117, 127 (Ind. Ct. App. 1995) (applying Kentucky substantive law); Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345, 352-54 (Ky. 2014); Higdon Food Serv. v. Walker & Kesterson Meat Co., 641 S.W.2d 750 (Ky. 1982); Cent. Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681, 685 (Ky. Ct. App. 1981). 418
Cent. Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681, 685 (Ky. Ct. App. 1981).
419
Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345, 353–54 (Ky. 2014).
OVRS Acquisition Corp. v. Community Health Servs., Inc., 657 N.E.2d 117, 127 (Ind. Ct. App. 1995) (applying Kentucky substantive law). See also Higdon Food Serv. v. Walker & Kesterson Meat Co., 641 S.W.2d 750 (Ky. 1982) (claim of former employee that written employment contract executed subsequent to initial employment lacked mutuality of obligation was rejected based on court’s reading of entire employment agreement and employer’s decision to hire individual employee as a salesman); Cent. Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681, 685 (Ky. Ct. App. 1981). 420
421
See Charles T. Creech, Inc. v. Brown, 433 S.W.3d 345, 352–54 (Ky. 2014).
422
See Lareau v. O’Nan, 355 S.W.2d 679, 681 (Ky. 1962); Ceresia v. Mitchell, 242 S.W.2d 359, 364 (Ky. 1951); Kegel v. Tillotson, 297 S.W.3d 908, 911 (Ky. Ct. App. 2009). 423
Hall v. Willard & Woolsey P.S.C., 471 S.W.2d 316 (Ky. Ct. App. 1971) (citing Crowell v. Woodruff, 245 S.W.2d 447 (Ky. Ct. App. 1952)); OVRS Acquisition Corp. v. Community Health Servs., Inc., 657 N.E.2d 117, 126 (Ind. Ct. App. 1995) (applying Kentucky substantive law). 424
641 S.W.2d 750, 752 (Ky. 1982).
425
Id.
426
477 F. Supp. 198, 201 (W.D. Ky. 1979).
427
Kegel v. Tillotson, 297 S.W.2d 908, 913 (Ky. Ct. App. 2009).
428
567 S.W.2d 313, 315 (Ky. Ct. App. 1978).
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224 Fifty State Survey on Covenants Not to Compete
429
See also Hodges v. Todd, 698 S.W.2d 317, 320 (Ky. Ct. App. 1985) (“Equitable considerations will prevail against a mechanistic approach as to whether the contract is divisible or indivisible and thus enforceable.”). 430
See Cent. Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681 (Ky. Ct. App. 1981); Hammons v. Big Sandy Claims Serv., 567 S.W.2d 313, 315 (Ky. Ct. App. 1978); Hall v. Willard & Woolsey P.S.C., 471 S.W.2d 316 (Ky. Ct. App. 1971). 431
Lantech.com v. Yarbrough, 247 Fed. App’x 769 (6th Cir. Sept. 10, 2007) (applying Kentucky law) (not recommended for full-text publication). 432
See generally Hammons v. Big Sandy Claims Serv., 567 S.W.2d 313 (Ky. Ct. App. 1978) (upholding a covenant not to compete for one year); Higdon Food Serv. v. Walker & Kesterson Meat Co., 641 S.W.2d 750 (Ky. 1982) (one year); Hall v. Willard & Woolsey P.S.C., 471 S.W.2d 316 (Ky. Ct. App. 1971) (one year); Borg-Warner Protective Servs. Corp. v. Guardsmark, Inc., 946 F. Supp. 495 (E.D. Ky. 1996) (one year); Louisville Cycle & Supply Co. v. Baach, 535 S.W.2d 230 (Ky. 1976) (eighteen months); Central Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681 (Ky. Ct. App. 1981) (two years); Genesis Med. Imaging, Inc. v. Demars, No. 5:2007cv00360, 2008 U.S. Dist. LEXIS 68885 (E.D. Ky. Sept. 5, 2008) (two years); Lantech.com v. Yarbrough, 247 Fed. App’x 769 (6th Cir. Sept. 10, 2007) (two years) (applying Kentucky law) (not recommended for full-text publication). 433
See Reynolds v. Sonitrol of Lexington, Inc., No. 2009-CA-000106-MR, 2010 WL 1508100 (Ky. Ct. App. Apr. 16, 2010) (unpublished and thus not a binding precedent) (three years); White v. Sullivan, 667 S.W.2d 385 (Ky. Ct. App. 1983) (five years). 434
Calhoun v. Everman, 242 S.W.2d 100 (Ky. Ct. App. 1951).
435
See Cent. Adjustment Bureau v. Ingram Assocs., 622 S.W.2d 681 (Ky. Ct. App. 1981); Hammons v. Big Sandy Claims Serv., 567 S.W.2d 313, 315 (Ky. Ct. App. 1978); Hall v. Willard & Woolsey P.S.C., 471 S.W.2d 316 (Ky. Ct. App. 1971). 436
Hodges v. Todd, 698 S.W.2d 317, 320 (Ky. Ct. App. 1985).
437
See, e.g., Borg-Warner Protective Servs. Corp. v. Guardsmark, Inc., 946 F. Supp. 495 (E.D. Ky. 1996) (“at the site, place or location where [employee] performed services); OVRS Acquisition Corp. v. Community Health Servs., Inc., 657 N.E.2d 117 (Ind. Ct. App. 1995) (applying Kentucky substantive law) (restriction limited to two specific sites within the state); White v. Sullivan, 667 S.W.2d 385 (Ky. Ct. App. 1983) (50-mile radius); Hall v. Willard & Woolsey P.S.C., 471 S.W.2d 316 (Ky. Ct. App. 1971) (50-mile radius); Reynolds v. Sonitrol of Lexington, Inc., No. 2009-CA-000106-MR, 2010 WL 1508100 (Ky. Ct. App. Apr. 16, 2010) (unpublished and thus not a binding precedent) (100-mile radius); Hammons v. Big Sandy Claims Serv., 567 S.W.2d 313 (Ky. Ct. App. 1978) (200-mile radius). 438
See Genesis Med. Imaging, Inc. v. Demars, No. 5:2007cv00360, 2008 U.S. Dist. LEXIS 68885 (E.D. Ky. Sept. 5, 2008). See also Senture, LLC v. Dietrich, 575 F. Supp. 2d 724 (E.D. Va. 2008) (applying Kentucky law); Lantech.com v. Yarbrough, 247 Fed. App’x 769 (6th Cir. Sept. 10, 2007) (applying Kentucky law) (not recommended for full-text publication). 439
Calhoun v. Everman, 242 S.W.2d 100 (Ky. Ct. App. 1951).
440
633 S.W.2d 717, 719 (Ky. 1982).
441
See Lewis v. American Family Ins. Grp., 555 S.W.2d 579 (Ky. 1977).
442
See Prezocki v. Bullock Garages, Inc., 938 S.W.2d 888 (Ky. 1997); Prudential Res. Corp. v. Plunkett, 583 S.W.2d 97 (Ky. Ct. App. 1979). 443
See Cellular One, Inc. v. Boyd, 653 So. 2d 30, 34-35 (La. Ct. App. 1995).
444
See Dixie Parking Serv., Inc. v. Hargrove, 691 So. 2d 1316, 1321 (La. Ct. App. 1997) (participation in employer’s profit-sharing bonus plan was consideration for non-compete agreement). 445
See Acadian Cypress & Hardwood Inc. v. Stewart, No. 2012 CA 1425, 2013 WL 1182063, *4 (La. Ct. App. Mar. 22, 2013); see also Innovative Manpower Solutions, LLC v. Ironman Staffing, LLC, No. 12-1863, 2013 WL 883698,
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*17 (W.D. La. Mar. 7, 2013) (“Louisiana state courts … require strict compliance with the geographic and other limitations of LRS 23:921.”). 446
See L & B Transport, LLC v. Beech, 568 F.Supp. 2d 689, 693 (M.D. La. 2008).
447
See Arthur J. Gallagher Risk Mgmt. Servs., Inc. v. Todd, No. 10-41, 2010 WL 2179753, *3 (La. Ct. App. June 2, 2010); see also Arthur J. Gallagher & Co. v. Babcock, 703 F.3d 284, 292 (5th Cir. 2012) (“Under Louisiana law … a[a] court may, however, rely on a contractual severability clause to excise the geographic areas in which an employer does not conduct such business.”). 448
See L&B Transp., LLC v. Beech, 568 F. Supp. 2d 689, 698 (M.D. La. 2008) (noting that Louisiana courts generally decline to reform agreements with overbroad geographic restrictions, though courts permit reformation of geographic restrictions in “exceptional circumstances” and where there is a severability clause in the agreement). 449
See Cellular One, Inc. v. Boyd, 653 So. 2d 30, 34-35 (La. Ct. App. 1995) (“contracts seeking to extend noncompetition agreements beyond the two year statutory limit are null and void”). 450
See Cellular One, Inc. v. Boyd, 653 So. 2d 30, 34-35 (La. Ct. App. 1995) (“noncompetition agreements which fail to specify the ‘parish or parishes, municipality or municipalities, or parts thereof’ wherein the employer carried on a similar business are unenforceable”). 451
See Class Action Claim Servs., L.L.C. v. Clark, 892 So. 2d 595, 600 (La. Ct. App. 2004) (two years).
Moores Pump & Supply, Inc. v. Laneaux, 727 So. 2d 695, 698 (La. Ct. App. 1999) (enforcing a non-competition agreement covering 43 of Louisiana’s 64 parishes because the employer solicited business in each of the named parishes);Bell u. Rimkus Consulting Grp., Inc. of Louisiana, 983 So. 2d 927, 933 (La. Ct. App. 2008) (holding unenforceable a noncompetition covenant purporting to cover any standard or consolidated metropolitan area in which a client is located for failing to expressly identify the parishes or municipalities in which competition is to be restricted); L&B Transp., LLC v. Beech, 568 F.Supp. 2d 689, 698 (M.D. La. 2008) (holding unenforceable a nonsolicitation provision covering entire state of Alabama failure to specify the parishes or municipalities in which competition is to be restricted); Technical Indus., Inc. v. Banks, 419 F.Supp. 2d 903, 908 (W.D. La. 2006) (declining to issue a preliminary injunction enforcing a noncompetition restriction except as to those areas in which the employer carries on like business). 452
453
ADR v. Graves, 374 So. 2d 699 (La. Ct. App. 1979).
454
Abraham v. State Farm Mut. Auto. Ins. Co., 465 F.3d 609, 611-12 (5th Cir. 2006).
See Restivo v. Hanger Prosthetics & Orthotics, Inc., 483 F.Supp. 2d 521, 528-29 (E.D. La. 2007) (applying Louisiana law given Louisiana’s strong public policy disfavoring noncompete contracts to employment agreement that included a choice of law of Maryland); Technical Indus., Inc. v. Banks, 419 F.Supp. 2d 903, 908-10 (W.D. La. 2006) (applying Louisiana law to employment agreement pursuant to choice of law analysis); Bell v. Rimkus Consulting Group, Inc. of La., 983 So.2d 927, 932-33 (La. Ct. App. 2008) (applying Louisiana law to employment agreement despite choice of Texas law in the agreement). 455
456
Brignull v. Albert, 666 A.2d 82 (Me. 1995); Wausau Mosinee Paper Corp. v. Magda, 366 F. Supp. 2d 212 (D. Me. 2005).
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226 Fifty State Survey on Covenants Not to Compete
457
454 A.2d 830, 834 (Me. 1983).
458
Lord v. Lord, 454 A.2d 830, 834 (Me. 1983).
459
Chapman & Drake v. Harrington, 545 A.2d 645, 647 (Me. 1988).
460
OfficeMax Inc. v. County Qwick Print, Inc., 751 F.Supp. 2d 221 (D. Me. 2010).
461
Brignull v. Albert, 666 A.2d 82 (Me. 1995).
462
Roy v. Bolduc, 140 Me. 103 (1943).
463
Kelly Services, Inc. v. Greene, 535 F.Supp. 2d 180 (D. Me. 2008).
464
Baybutt Constr. Corp. v. Commercial Union Ins. Co, 455 A.2d 914 (Me. 1983).
465
ITI Holdings, Inc. v. Professional SCUBA Ass’n, Inc., No. 05-184-P-S, 2006 WL 240618 (D. Me. 2006).
466
Sinko v. Graymar, 55 Md. App. 561 (1983).
467
Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118 (1967).
468
See, Holloway v. Faw, Casson & Co., 78 Md. App. 205 (1989); Nationwide Mut. Ins. Co. v. Hart, 73 Md. App. 406 (1988). 469
Holloway v. Faw, Casson & Co., 78 Md. App. 205 (1989).
470
Holloway v. Faw, Casson & Co., 572 A.2d 510, 511 (Md. 1990).
471
Tuttle v. Riggs-Warfield-Rolonson, 251 Md. 45 (1968).
472
TEK systems, Inc. v. Bolton, No. RDB–08–3099, 2010 WL 447782 (D. Md. Feb. 4, 2010).
473
Hearn Insulation & Improvement Co. v. Bonilla, No. AW–09–990, 2010 WL 3069953 (D. Md. Aug. 5, 2010).
474
Ledo Pizza System, Inc. v. Singh, 983 F.Supp. 2d 632, 642 (D. Md. 2013).
475
Deutsche Post Global Mail, Ltd.v. Conrad, 292 F.Supp. 2d 748, 756 (D. Md. 2003).
476
Ameritox, Ltd. v. Savelich, No. WDQ–15–499, 2015 WL 1130546 at *3 (D. Md. 2015) (citing Ground Zero Museum Workshop v. Wilson, 813 F.Supp. 2d 678, 696 (D. Md. 2011); Henry v. Gateway, Inc., 187 Md. App. 647, 979 A.2d 287, 297 (2009) (“Maryland appellate courts have long recognized the ability of parties to specify in their contracts which state's law will apply.”); PADCO Advisors, Inc. v. Omdahl, 179 F.Supp. 2d 600, 605 (D. Md. 2002). 477
CIENA Corp. v. Jarrand, 203 F.3d 312, 323 (4th Cir. 2000)
478
Commercial Union Ins. Co. v. Porter Hayden Co., 97 Md. App. 442, 451 (1993).
479
See, e.g., Nizam’s Institute of Medical Sciences v. Exch. Techs., Inc., 23 F.3d 1210 (4th Cir. 1994).
480
Wilkinson v. QCC, Inc., 2001 WL 1646491 (Mass. App. Ct. 2001) (unpublished); Sentry Insurance v. Fimstein, 14 Mass. App. Ct. 706 (1982). 481
EMC Corp. v. Donatelli, 25 Mass. L. Rptr. 399 (Mass. Super. Ct. May 5, 2009)(continued employment may not be enough); Lunt v. Cambell, 23 Mass. L. Rptr. 145 (Mass. Super. Ct. Sept. 24, 2007); Metropolitan Removal Co. v. D.S.I. Removal Specialists, Inc., No. 20051503, 2006 WL 619111 (Mass Super. Ct. 2006)(continued employment without additional consideration is not consideration); IKON Office Solutions, Inc. v. Belanger, 59 F.Supp. 2d 125, 131 (D. Mass. 1999)(despite Economy Grocery Stores Corp. v. McMenamy, 195 Mass. 747, 748 (1935)(continued employment sufficient) and Sherman v. Pfefferkorn, 241 Mass. 468, 471-73 (1922) (“later decisions demonstrate that, in order for a restrictive covenant to withstand scrutiny, some additional consideration ought to pass to an employee upon the execution of a post-employment agreement.”). 482
Metropolitan Removal Co. v. D.S.I. Removal Specialists, Inc., No. 20051503, 2006 WL 619111 (Mass Super. Ct. 2006). But see, AFC Cable Sys, Inc. v. Clisham, 62 F.Supp. 2d 167, 173 (D. Mass. 1999) (provided new benefits,
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job title, pay structure, and authority to employee but failed to have employee sign a new non-compete agreement, despite several attempts, did not suffice to create a binding agreement). 483
See Marine Contrs. Co., Inc. v. Hurley, 310 N.E.2d 915 (Mass. 1974); Richmond Bros., Inc. v. Westinghouse Bdcst. Co., Inc., 357 Mass. 106 (1970); Dynamics Research Corp. v. Analytic Science Corp., 400 N.E.2d 1274 (Mass. App. Ct. 1980). 484
Ferrofluidics Corp. v. Adv. Vacuum Components, Inc., 968 F.2d 1463, 1469 (1st Cir. 1992); (“Massachusetts courts will not invalidate an unreasonable noncompete covenant completely but will enforce it to the extent that it is reasonable.”); All Stainless, Inc. v. Colby, 364 Mass. 773, 778 (1974)(“If the covenant is too broad in time, in space or in any other respect, it will be enforced only to the extent that is reasonable and to the extent that it is severable for the purposes of enforcement.”). 485
Novelty Bias Binding Co. v. Shevrin, 342 Mass. 714, 717-718 (1961) (rejecting arbitrary limits on covenants not to compete, reasonableness considering the facts determines validity). 486
Novelty Bias Binding Co., 342 Mass. at 716.
487
A.R.S. Servs., Inc. v. Baker, 29 Mass. L. Rptr. 457 (Mass. Super. Ct. 2012).
488
Zona Corp .v. McKinnon, 28 Mass. L. Rptr. 233 (Mass Super. Ct. Mar. 14, 2011).
489
Blackwell v. E.M. Helides, Jr., Inc, 368 Mass. 255 (1975).
490
Marine Contrs. Co. v. Hurley, 365 Mass. 280, 289 (1974).
491
Philips Electronics N. Am. Corp. v. Halperin, No. 005251, 2000 WL 33171040 (Mass. Super. Ct. Dec. 12, 2000).
492
See Lombard Med. Tech v. Johannessen, 729 F. Supp. 2d 432 (D. Mass. 2010); Phillips Electr. V. Halperin, 2000 Mass. Sup. LEXIS 574 (Mass. Sup. Ct. 2000); Bowne of Boston, Inc. v. Levine, 1997 Mass. Sup. LEXIS 69 (Mass. Sup. Ct. 1997). 493
See, e.g., Edwards v. Athena Capital Advisors, Inc., 23 Mass. L. Rptr. 155 (Mass. Super. Ct. Aug. 9, 2007); Merchant Bus. Solutions, LLC v. Arst, No. 06067, 2006 WL 696582 (Mass. Super. Ct. 2006). 494
Cypress Grp., Inc. v. Stride & Assocs, Inc., 17 Mass. L. Rptr. 436 (Mass. Super. Ct. 2004).
495
See Marine Contrs. Co., Inc. v. Hurley, 310 N.E.2d 915 (Mass. 1974).
496
Shipley Co. Inc. v. Kozlowski, 926 F.Supp. 28, 30 (D. Mass. 1996) (choice-of-law provision upheld but a “court must disregard a choice-of-law provision in an agreement if: (1) the other state involved has a fundamental policy against the non-compete agreement; (2) that state has a materially greater interest than the designated state in the determination of the issue of enforcement of the non-competition agreement; and (3) the other state’s law would have applied in the absence of the choice-of-law provision in the employment agreement.”). 497
Bushkin Assocs., Inc. v. Raytheon Co., 393 Mass. 622, 631 (1985).
498
Optos, Inc. v. Topcon Med. Sys., Inc., 777 F. Supp. 2d 217 (D. Mass. 2011).
499
QIS, Inc. v. Indus. Quality Control, Inc., 686 N.W.2d 788, 789 (Mich. Ct. App. 2004) (“Mere continuation of employment is sufficient consideration to support a noncompete agreement in an at-will employment setting.”); see also Pellow v. Daimler Chrysler Services North America, LLC, No. 05-73815, 2006 WL 2540947, *5 (E.D. Mich. Aug. 31, 2006) (citing Lowry Computer Prods., Inc. v. Head, 984 F. Supp. 1111, 1115 (E.D. Mich. 1997)). 500
QIS, Inc. v. Indus. Quality Control, Inc., 686 N.W.2d 788, 789 (Mich. Ct. App. 2004).
501
Landscape Forms, Inc. v. Quinlan, No. 307116, 2012 WL 5290319, *2 (Mich. Ct. App. Oct. 25, 2012).
502
Id.
503
Id.; see also Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 546 (6th Cir. 2007) (non-compete agreements are enforceable “if the agreement or covenant is reasonable as to its duration,
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228 Fifty State Survey on Covenants Not to Compete
geographical area, and the type of employment or line of business,” including “the reasonableness of the competitive business interests justifying the clause”). 504
See St. Clair Medical, P.C. v. Borgiel, 715 N.W.2d 914, 919 (Mich. Ct. App. 2006) (“[A]n employer’s business interest justifying a restrictive covenant must be greater than merely preventing competition.”); see also Sulfo Techs., L.L.C. v. Schmoyer, No. 294246, 2011 WL 445808, *4 (Mich. Ct. App. Feb. 8, 2011) (“While it is recognized that an employer may have a ‘reasonable competitive business interest’ to protect through [noncompetition agreements] they cannot be so broad or encompassing to result in the restraint or monopolization of trade or commerce. … While ‘[r]easonable covenants may protect such legitimate interests as trade secrets, confidential information, close contact with the employer’s customers or customer lists, or cost factors and pricing .... [a]n employer may not unreasonably prohibit future use of general knowledge or skill.’”) (citations omitted); N. Mich. Title Co. of Antrim-Charlevoix v. Bartlett, 2005 WL 599867 (Mich. Ct. App. 2005) (refused to enforce noncompete agreement because it was designed to protect employer from competition itself not from unfair competitive advantage). 505
See, e.g., Grigg Box Co. v. Mich. Box Co., No. 285862, 2009 WL 340111 (Mich. Ct. App. Oct. 22, 2009) (upholding modification non-compete from three-years to 18 months); Thermatool Corp. v. Borzym, 575 N.W.2d 334, 339 (Mich. Ct. App. 1998) (noting court can extend a covenant beyond its stated expiration in the event of a “continuous and systematic” breach). 506
Landscape Forms, Inc. v. Quinlan, No. 307116, 2012 WL 5290319, *2 (Mich. Ct. App. Oct. 25, 2012).
507
Allegra Network LLC v. Cormack, No. 11-13087, 2012 WL 3583618, *4 (E.D. Mich. Aug. 20, 2012) (quotation marks omitted).
See Allegra Network LLC v. Cormack, No. 11-13087, 2012 WL 3583618, *4 (E.D. Mich. Aug. 20, 2012) (“Michigan courts have upheld non-compete agreements covering time periods of six months to five years.”). 508
Neocare Health Sys., Inc. v. Teodoro, No. 255558, 2006 WL 198329 (Mich. Ct. App. Jan. 26, 2006) (upholding five-year restriction (with no geographic limitation) because former employer did not have such a large market share to prevent employee from getting her own patients); but see N. Mich. Title Co. of Antrim-Charlevoix v. Bartlett, No. 248751, 2005 WL 599867 (Mich. Ct. App. Mar. 15, 2005) (refusing to enforce five-year noncompete agreements because the agreement did not protect employer with respect to any “reasonable business interest”; noting that the noncompete agreement would be enforceable if they served to protect plaintiff from “unfair competitive advantage,” which cannot arise from employee’s use of “general knowledge or skill gained in working for the employer”). Lockworks, Ltd. v. Keegan, No. 279894, 2009 WL 187419, at *2 (Mich. Ct. App. Jan. 27, 2009) (hair salon employee cannot compete within 5 miles of former employer’s hair salon); St. Clair Med., P.C. v. Borgiel, 715 N.W.2d 914, 918 (Mich. Ct. App. 2006) (physician cannot compete within seven miles of former employer’s medical clinics); see also Radio One, Inc. v. Wooten, 452 F. Supp. 2d 754 (E.D. Mich. 2006) (radio broadcaster cannot compete within 75 miles of former employer’s radio transmitter); In re Spradlin, 284 B.R. 830 (E.D. Mich. 2002) (former business owner cannot engage in sale of office furniture in Michigan or Ohio).
509
See Rooyakker & Sitz, PLLC v. Plante & Moran, PLLC, 742 N.W.2d 409 (2007) (client nonsolicitation agreement without geographic limitation was reasonable because they merely prevented former employees from engaging former clients of former employer in the same accounting services provided by the former employer); see also New World Sys. Corp. v. Jones, No. 06-11603, 2009 WL, at *11 (E.D. Mich. Apr. 14, 2009); Lowry Computer
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229
Prods., Inc. v. Head, 984 F. Supp. 1111, 1113 (E.D. Mich. 1997); Superior Consulting, Inc. v. Walling, 851 F. Supp. 839, 847 (E.D. Mich. 1994).
See DeLaval, Inc. v. Schmitt, 994 F.Supp. 2d 883, 886 (W.D. Mich. 2014); Performance Contracting, Inc. v. DynaSteel Corp., No. 12-10165, 2013 WL 607775, *3 (E.D. Mich. Feb. 19, 2013) (citing Restatement (Second) of Conflict of Laws §§ 187, 188); Chrysler Corp. v. Skyline Industrial Services, Inc., 528 N.W.2d 698 (Mich. 1995) (adopting the Restatement (Second) of Conflict of Laws approach). 510
511
See Uhl v. Komatsu Forklift Co., Ltd., 512 F.3d 294, 302 (6th Cir. 2008).
512
See Kuhlman v. TDP Capital Access, LLC, No. 291348, 2010 WL 2793565, *5 (Mich. Ct. App. July 15, 2010).
513
See Omne Financial, Inc. v. Shacks, Inc., 596 N.W.2d 591 (Mich. 1999).
514
Satellite Indus. v. Keeling, 396 N.W.2d 635, 639 (Minn. Ct. App. 1986).
515
Sanborn Mfg. Co. v. Currie, 500 N.W.2d 161, 164 (Minn. Ct. App. 1993) (employer must “provide[] real benefits beyond those already obtained by the employee in a previous contract”). 516
Satellite Indus., 396 N.W.2d at 639 (citing Freeman v. Duluth Clinic, 334 N.W.2d 626, 630 (Minn. 1983)).
517
See, e.g., Davies & Davies Agency, Inc. v. Davies, 298 N.W.2d 127, 130-31 (Minn. 1980) (upholding a noncompetition agreement where the signing employee “derived substantial economic and professional benefit from the [employer] after signing the contract”). 518
Softchoice, Inc. v. Schmidt, 763 N.W.2d 660, 668 (Minn. Ct. App. 2009).
Sanborn Mfg. Co., 500 N.W.2d at 164 (citing Davies); see also Menzies Aviation (USA), Inc. v. Wilcox, 978 F.Supp.2d 893, 998 (D. Minn. 2013) (denying motion for TRO because employer was not likely to succeed on the merits where, among other things, the employee “received no new benefits”); Garvaras v. Greenspring Media, LLC, 994 F.Supp.2d 1006, 1011 (D. Minn. 2014) (denying motion for TRO and declining to blue-pencil agreement where, among other things “over the course of his employment [the employee] stopped receiving the benefits for which he had bargained”). 519
520
See, e.g., Nat’l Recruiters, Inc. v. Cashman, 323 N.W.2d 736, 740 (Minn. 1982); Bennett v. Storz Broad. Co., 134 N.W.2d 892, 898 (Minn. 1965); see also IDS Life Ins. Co. v. SunAmerica, Inc., 958 F. Supp. 1258, 1273 (N.D. Ill. 1997) (applying Minnesota law). 521
Mgmt. Recruiters, Int’l v. Prof. Placement Servs., No. C6-91-2055, 1992 WL 61542, *1 (Minn. Ct. App. 1992) (citing Klick v. Crosstown State Bank, Inc., 372 N.W.2d 85, 88 (Minn. Ct. App. 1985); see also Davies, 298 N.W.2d at 131 (modifying overbroad covenant). 522
Davies, 298 N.W.2d at 131-32; Roth v. Gamble-Skogmo, Inc., 532 F. Supp. 1029, 1032-33 (D. Minn. 1982); Garvaras, 994 F.Supp.2d at 1012 (declining to blue-pencil agreement because “[m]odifying this agreement would require more than modifying the duration and territorial scope”). 523
Satellite Indus., 396 N.W.2d at 640.
524
Davies, 298 N.W.2d at 130-31.
525
See, e.g., Harris v. Bolin, 247 N.W.2d 600, 602-03 (Minn. 1980).
526
Davies, 298 N.W.2d at 130-31; Roth, 532 F. Supp. at 1032-33.
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230 Fifty State Survey on Covenants Not to Compete
527
Softchoice, Inc., 763 N.W.2d at 670.
528
Benfield, Inc. v. Moline, 351 F.Supp.2d 911, 917-18 (D. Minn. 2004).
529
Vital Images, Inc. v. Martel, 2007 WL 3095378, at *3 (D. Minn. Oct. 19, 2007); see also Alside, Inc. v. Larson, 220 N.W.2d 274, 292 (Minn. 1974) (two years); IKON Office Solutions, Inc. v. Dale, 170 F. Supp. 892 (D. Minn. 2001) (reducing 5-year restriction to three years), aff’d at 22 Fed. App’x 647, 648-49, 2001 WL 1269994 (8th Cir. Oct. 24, 2001) (unpublished decision). 530
Life Time Fitness, Inc. v. DeCelles, 854 F.Supp.2d 690, 693, 696 (D. Minn. 2012).
531
Webb Publishing, Co. v. Fosshage, 426 N.W.2d 445, 450 (Minn. Ct. App. 1988) (holding that the “temporal duration and geographic area of the restriction do not appear unreasonable” but remanding for determination of whether the restriction was “overbr[oad] in light of its purpose”). 532
Overholt Crop Ins. Serv. Co. v. Bredeson, 437 N.W.2d 698, 703 (Minn. Ct. App. 1989).
533
Guidant Sales Corp. v. Niebur, No. CIV-01-17722DWFAJB, 2001 WL 1636502, *7 (D. Minn. Oct. 18, 2001).
534
See, e.g., Bess v. Bothman, 257 N.W.2d 791, 795 (Minn. 1977) (supplying geographic limitation); Davies, 298 N.W.2d at 131 (modifying 50-mile radius to one-county area). 535
See, e.g., Milliken & Co. v. Eagle Packaging, Co., 295 N.W.2d 377, 380 n.1 (Minn. 1980); Hagstron v. Am. Circuit Breaker Corp., 518 N.W.2d 46, 48-49 (Minn. Ct. App. 1994); 536
See, e.g., Hague v. Allstate Ins. Co., 289 N.W.2d 43, 46-47 (Minn. 1978), aff’d, 449 U.S. 302 (1981); Nodak Mut. Ins. Co. v. Am. Family Mut. Ins. Co., 590 N.W.2d 670, 672-75 (Minn. Ct. App. 1999), aff’d at 604 N.W.2d 91, 94 (Minn. 2000). 537
Medtronic, Inc. v. Adv. Bionics Corp., 630 N.W.2d 438, 454 (Minn. Ct. App. 2001).
538
Nodak Mut. Ins. Co., 590 N.W.2d at 672.
539
Hime v. State Farm Fire & Cas. Co., 284 N.W.2d 829, 833 (Minn. 1979); Medtronic, Inc., 630 N.W.2d at 454.
540
Hauenstein & Bermeister v. Met-Fab Indus., Inc., 320 N.W.2d 886 (Minn. 1982).
541
Id. at 890.
542
Id.
543
Id. (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 18 (1972)).
544
Id. at 891.
545
Id.
546
Raines v. Bottrell Ins. Agency, Inc., 992 So. 2d 642, 646 (Miss. Ct. App. 2008) (holding that employer who offered continued employment gave sufficient consideration to uphold a restrictive covenant); Stephen L. LaFrance Pharm., Inc. v. Tallant, No. 3:97CV 104, 1997 WL 392736, at *4 (N.D Miss. June 25, 1997) (stating that continued employment alone constitutes sufficient consideration for a covenant not to compete). 547
Tallant, 1997 WL 392736, at *4 (finding that an increase in pay coupled with more favorable terms for employees in new restrictive covenant constituted adequate consideration). 548
Raines, 992 So. 2d at 645 (citing Redd Pest Control Co. v. Foster, 761 So. 2d 967, 972 (Miss. Ct. App. 2000)).
549
Id. (citing Redd, 761 So. 2d at 972-73).
550
Bus. Commc’ns, Inc. v. Banks, 91 So. 3d 1, 10 (Miss. Ct. App. 2011) (quoting Herring Gas Co. v. Magee, 813 F. Supp. 1239, 1245 (S.D. Miss. 1993)). 551
Tex. Rd. Boring Co. of La.–Miss. v. Parker, 194 So. 2d 885, 889 (Miss. 1967).
552
Parker, 194 So. 2d at 888 (Miss. 1967); see also Herring, 813 F. Supp. at 1245 (“If a court finds that the limitations contained in a covenant not to compete are unreasonable, then the court will modify the limitations so that they are reasonable.” (citing Redd Pest Control Co. v. Heatherly, 248 Miss. 34 (1963))). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
231
553
Taylor v. Cordis Corp., 634 F. Supp. 1242, 1249 (S.D. Miss. 1986) (amending noncompete that had no geographic restriction and applying it to only those customers whom the former employee serviced during his employment). 554
Parker, 194 So. 2d at 889.
555
Herring, 813 F. Supp. at 1245.
556
Parker, 194 So. 2d at 889.
557
Herring, 813 F. Supp. at 1245.
558
Asbury MS Gray-Daniels, L.L.C. v. Daniels, 812 F. Supp. 2d 771, 777–78 (S.D. Miss. 2011) (noting that Mississippi recognizes that parties may legitimately control the choice of substantive law in a contract dispute as long as the state law selected bears a “reasonable relation” to the transaction) (internal quotation marks omitted) (quoting Sorrels Steel Co. v. Great Sw. Corp., 906 F.2d 158, 167 (5th Cir. 1990)). See also Miss. Code Ann. § 75-1301(a) (stating that “when a transaction bears a reasonable relation to this state and also to another state or nation the parties may agree that the law of either this state or of such other state or nation shall govern their rights and duties”); Herring, 813 F. Supp. at 1243 (enforcing Mississippi choice of law provision). 559
Ellis v. Trustmark Builders, Inc., 625 F.3d 222, 225–26 (5th Cir. 2010) (internal quotation marks and citation omitted). 560
Coats v. Penrod Drilling Corp., 785 F. Supp. 614, 618 (S.D. Miss. 1992) (internal quotation marks and citation omitted). See also id.at 618–19 (finding that Mississippi law controlled contract claim for wrongful discharge notwithstanding that employee was employed in United Arab Emirates immediately prior to discharge where place of contracting was Mississippi, employment contract was negotiated in Mississippi and employee remained a resident of Mississippi). 561
Bentley v. Mutual Benefits Corp., 237 F. Supp. 2d 699, 701 (S.D. Miss. 2002) (citation omitted).
562
Id. (citing Caldas & Sons, Inc. v. Willingham, 17 F.3d 123, 127 (5th Cir. 1994)).
563
Id. at 701–702.
564
Peterson v. Test Int’l, E.C., 904 F. Supp. 574, 580 (S.D. Miss. 1995) (dismissing complaint where employment agreement contained forum selection clause requiring employee to litigate in Bahrain). 565
See Fair v. Lighthouse Carwash Sys., LLC, 961 So. 2d 60, 62–65 (Miss. Ct. App. 2007) (finding that forum selection clause failed to include clear, unequivocal language expressly prohibiting litigation in forums other than Indiana, and therefore had to be construed against the drafter). See also Frierson v. Delta Outdoor Inc., 794 So. 2d 220, 226 (Miss. 2001) (enforcing forum selection clause in non-employment case). 566
Walter E. Zemitzch, Inc. v. Harrison, 712 S.W.2d 418 (Mo. Ct. App. 1986).
567
Mayer Hoffman McCann, P.C. v. Barton, 614 F.3d 893, 902 (8th Cir. 2010) (applying Missouri law); JumboSack Corp. v. Buyck, 407 S.W.3d 51, 55 (Mo. Ct. App. 2013). 568
See Nail Boutique v. Church, 758 S.W.2d 206 (Mo. Ct. App. 1988); USA Chem., Inc. v. Lewis, 557 S.W.2d 15 (Mo. Ct. App. 1977); Reed, Roberts Assocs. v. Bailenson, 537 S.W.2d 238 (Mo. Ct. App. 1976); Renwood Food Prods. v. Schaefer, 240 Mo. App. 939 ( Mo. Ct. App. 1949). 569
JumboSack Corp. v. Buyck, 407 S.W.3d 51, 55–57 (Mo. Ct. App. 2013).
570
Sturgis Equip. Co. v. Falcon Indus. Sales Co., 930 S.W.2d 14, 17 (Mo. Ct. App. 1996) (no additional consideration was provided in the stock buy/sell agreement).
See Computer Sales Int’l v. Collins, 723 S.W.2d 450 (Mo. Ct. App. 1986); Ranch Hand Foods v. Polar Pak Foods, 690 S.W.2d 437 (Mo. Ct. App. 1985). 571
572
See Ashland Oil v. Tucker, 768 S.W.2d 595 (Mo. Ct. App. 1989); Computer Sales Int’l v. Collins, 723 S.W.2d 450 (Mo. Ct. App. 1986). For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
232 Fifty State Survey on Covenants Not to Compete
573
Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012); Healthcare Servs. of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604, 771 (Mo. 2006). 574
Schott v. Beussink, 950 S.W.2d 621, 625 (Mo. Ct. App. 1997).
575
198 S.W.3d at 610; Schott v. Beussink, 950 S.W.2d 621, 625 (Mo. Ct. App. 1997).
576
Id. at 626; Sturgis Equip. Co. v. Falcon Indus. Sales Co., 930 S.W.2d 14, 17 (Mo. Ct. App. 1996).
577
Payroll Advance, Inc. v. Yates, 270 S.W.3d 428, 434 (Mo. Ct. App. 2008).
578
Renal Treatment Ctrs.-Mo., Inc. v. Braxton, 945 S.W.2d 557 (Mo. Ct. App. 1997).
579
JumboSack Corp. v. Buyck, 407 S.W.3d 51, 57-58 (Mo. Ct. App. 2013).
580
Symphony Diagnostic Servs. No. 1, Inc. v. Greenbaum, No. 13-4196-CV-C-FJG, 2015 WL 1197815, at *4–5 (W.D. Mo. 2015) (applying Missouri law). 581
See, e.g., Superior Gearbox Co. v. Edwards, 869 S.W.2d 239 (Mo. Ct. App. 1993) (reducing 10-year term to a five-year term); Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613 (Mo. Ct. App. 1988) (reducing a three-year, 350-mile radius restriction to two years and 125 miles). 582
Payroll Advance, Inc. v. Yates, 270 S.W.3d 428, 437 (Mo. Ct. App. 2008).
583
746 S.W.2d at 616.
584
Easy Returns Midwest, Inc. v. Schultz, 964 S.W.2d 450, 453 (Mo. Ct. App. 1998).
585
Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 247 (Mo. Ct. App. 1993).
586
Silvers, Asher, Sher & McLaren, M.D.s Neurology, P.C. v. Batchu, 16 S.W.3d 340, 344 (Mo. Ct. App. 2000).
587
See 869 S.W.2d at 248-49.
588
Id. at 248 (imposing five-year restriction on former president and chief executive officer).
589
AEE-EMF, Inc. v. Passmore, 906 S.W.2d 714, 723 (Mo. Ct. App. 1995).
590
See, e.g., Safety-Kleen Sys. Inc. v. Hennkens, 301 F.3d 931 (8th Cir. 2002) (applying Missouri law) (one year); Ballesteros v. Johnson, 812 S.W.2d 217 (Mo. Ct. App. 1991) (one year); TLC Vision (USA) Corp. v. Freeman, 2012 WL 5398671 (E.D. Mo. Nov. 2, 2012) (sixth months and one year); Mayer Hoffman McCann, P.C. v. Barton, 614 F.3d 893 (8th Cir. 2010) (applying Missouri law) (two years); Whelan Sec. Co. v. Kennebrew, 379 S.W.3d 835 (Mo. 2012) (two years); Healthcare Servs. Of the Ozarks, Inc. v. Copeland, 198 S.W.3d 604 (Mo. 2006) (two years); Silvers, Asher, Sher & McLaren, M.D.s Neurology, P.C. v. Batchu, 16 S.W.3d 340, 344 (Mo. Ct. App. 2000) (two years); Schott v. Beussink, 950 S.W.2d 621 (Mo. Ct. App. 1997) (two-year nonsolicitation period); Cape Mobile Home Mart v. Mobley, 780 S.W.2d 116 (Mo. Ct. App. 1989) (two years); Osage Glass, Inc. v. Donovan, 693 S.W.2d 71 (Mo. 1985) (three years); AEE-EMF, Inc. v. Passmore, 906 S.W.2d 714 (Mo. Ct. App. 1995) (three years, as reduced from original five-year term); Mills v. Murray, 472 S.W.2d 6 (Mo. Ct. App. 1971) (three years). 591
See, e.g., Shelbina Veterinary Clinic v. Holthaus, 892 S.W.2d 803 (Mo. Ct. App. 1995) (four years); Watlow Elec. Mfg. Co. v. Wrob, 899 S.W.2d 585 (Mo. Ct. App. 1995) (five years); Superior Gearbox Co. v. Edwards, 869 S.W.2d 239 (Mo. Ct. App. 1993) (five years, as reduced from original 10-year term); A.B. Chance Co. v. Schmidt, 719 S.W.2d 854 (Mo. Ct. App. 1986). 592
Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 248 (Mo. Ct. App. 1993).
593
See, e.g., Payroll Advance, Inc. v. Yates, 270 S.W.3d 428 (Mo. Ct. App. 2008) (two year restriction found unreasonable for geographic overbreadth and vagueness); Sturgis Equip. Co. v. Falcon Indus. Sales Co., 930 S.W.2d 14 (Mo. Ct. App. 1996) (two-year covenant unenforceable for lack of protectable interests). 594
West Grp. Broad., Ltd. v. Bell, 942 S.W.2d 934 (Mo. Ct. App. 1997). Missouri
595
See, e.g., Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 248 (Mo. Ct. App. 1993) (10-year term reduced to five years); Mid-States Paint & Chem. Co. v. Herr, 746 S.W.2d 613, 616 (Mo. Ct. App. 1988) (three-year term reduced to two years). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
233
596
Superior Gearbox Co. v. Edwards, 869 S.W.2d 239, 247 (Mo. Ct. App. 1993).
597
Silvers, Asher, Sher & McLaren, M.D.s Neurology, P.C. v. Batchu, 16 S.W.3d 340, 344 (Mo. Ct. App. 2000).
598
Schott v. Beussink, 950 S.W.2d 621, 626 (Mo. Ct. App. 1997).
599
Sigma-Aldrich Corp. v. Vikin, 451 S.W.3d 767, 772-73 (Mo. Ct. App. 2014).
600
Id. at 626-27.
601
Id.
602
Cape Mobile Home Mart v. Mobley, 780 S.W.2d 116, 119 (Mo. Ct. App. 1989).
603
See, e.g., Emerson Elec. Co. v. Rogers, 418 F.3d 841 (8th Cir. 2005) (applying Missouri law) (covenants extended to the sales territory assigned to an independent contractor); Safety-Kleen Sys. Inc. v. Hennkens, 301 F.3d 931 (8th Cir. 2002) (applying Missouri law) (covenant included any area in which a customer service representative has worked). 604
National Starch & Chem. Corp. v. Newman, 577 S.W.2d 99 (Mo. Ct. App. 1978); Baxter Int’l, Inc. v. Morris, 976 F.2d 1189 (8th Cir. 1992) (applying Missouri law). 605
Consol. Fin. Invs., Inc. v. Manion, 948 S.W.2d 222, 224 (Mo. Ct. App. 1997).
606
Baxter Int’l, Inc. v. Morris, 976 F.2d 1189 (8th Cir. 1992) (applying Missouri law).
607
190 S.W.3d 389 (Mo. Ct. App. 2006).
608
Ashland Oil, Inc. v. Tucker, 768 S.W.2d 595 (Mo. Ct. App. 1989) (although the agreement was executed in Louisiana, the court concluded that Missouri had the most significant interest in the enforcement of the agreement); Nat’l Starch & Chem. Corp. v. Newman, 577 S.W.2d 99 (Mo. Ct. App. 1978) (although the agreements were executed in Georgia and New York, the court found that those two states’ relative interests were slight, and applied Missouri law instead). 609
Whelan Sec. Co. v. Allen, 26 S.W.3d 592, 596 (Mo. Ct. App. 2000).
610
Id.; Adrian N. Baker & Co. v. Demartino, 733 S.W.2d 14, 19 (Mo. Ct. App. 1987); USA Chem, Inc. v. Lewis, 557 S.W.2d 15, 24 (Mo. Ct. App. 1977). 611
724 F.2d 707 (8th Cir. 1984).
612
341 Mont. 73, 80 (2008).
613
Id.
614
Access Organics, 341 Mont. at 80.
615
Access Organics, 341 Mont. at 73.
616
Mont. Code Ann. §§ 28-2-703-705.
617
Wrigg v. Junkermier, Clark, Campanella, Stevens, P.C., 362 Mont. 496, 498–99 (2011) (citing Dumont v. Tucker, 250 Mont. 417, 421 (1991)). 618
Wrigg, 362 Mont. at 498 (citations omitted).
619
Id. at 498–99 (citing Dobbins, De Guire & Tucker, P.C. v. Rutherford, MacDonald & Olson, 218 Mont 392, 397 (1985)). 620
Wrigg, 362 Mont. at 507.
621
250 Mont. 417, 420 (1991).
622
Mont. Mountain Prods. v. Curl, 327 Mont. 7, 10 (2005).
623
Id.
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234 Fifty State Survey on Covenants Not to Compete
624
Mont. Mountain, 327 Mont. at 10
625
Id.
626
Van Gundy v. P.T. Freeport Indonesia, 50 F. Supp. 2d 993, 997 (D. Mont. 1999) (enforcing Louisiana choice of law clause in employment agreement); Polzin v. Appleway Equip. Leasing, Inc., 345 Mont. 508 (2008) (affirming selection of Washington choice of law provision in non-employment agreement). 627
Polzin, 345 Mont. at 512 (citing Modroo v. Nationwide Mut. Fire Ins. Co., 345 Mont. 262 (2008)).
628
Van Gundy, 50 F. Supp. 2d at 997 (citing Keystone, Inc. v. Triad Sys. Corp., 971 P.2d 1240, 1242 (Mont. 1998)).
629
Bruchett v. MasTec N. Amer., Inc., 322 Mont. 93, 97 (2004) (applying Montana law where employer paid income taxes, unemployment insurance premiums and wages to Montana). 630
Polzin, 345 Mont. at 514 (citing Milanovich v. Schnibben, 337 Mont. 334 (2007)).
631
Id.
632
337 Mont. at 337–38.
633
C.W. Swingle & Co. v. Reynolds, 140 Neb. 693 (1941).
634
Schuelke v. Wilson, 255 Neb. 726 (1998).
635
See, e.g., Dana F. Cole & Co. v. Byerly, 211 Neb. 903 (1982).
636
See Mertz v. Pharmacists Mut. Ins. Co., 261 Neb. 704 (2001) (quoting Am. Sec. Servs. v. Vodra, 222 Neb. 480 (1986)). 637
Prof’l Bus. Servs. Co. v. Rosno, 589 N.W. 2d 826, 831 (Neb. 1991).
638
H & R Block Tax Servs. v. Circle A Enters., 269 Neb. 411 (2005).
639
Vlasin v. Len Johnson & Co., 235 Neb. 450, 455 (1990).
640
E.g., Unlimited Opportunity, Inc. v. Waadah, 290 Neb. 629 (2015).
641
D.W. Trowbridge Ford, Inc. v. Galyen, 200 Neb. 103 (1978).
642
Akkad v. Nebraska Heart Institute, P.C., No. A–11–572, 2012 WL 1233008, at *12 (Neb. Ct. App. Apr. 10, 2012); Thrivent Fin. for Lutherans v. Hutchinson, 906 F. Supp. 2d 897 (2012) (holding that the enforcement of a non-solicitation covenant, which barred a former employee from initiating contact with his former clients for one year, would “serve the public interest”). 643
Akkad v. Neb. Heart Inst., P.C., No. A–11–572, 2012 WL 1233008, at *12 (Neb. Ct. App. Apr. 10, 2012).
644
DCS Sanitation Mgmt., Inc. v. Castillo et al., 435 F.3d 892 (2006).
645
Mertz v. Pharmacists Mut. Ins. Co., 261 Neb. 704 (2001).
646
Vlasin v. Len Johnson & Co., Inc., 235 Neb. 450 (1990).
647
Presto Co. v. Beller, 568 N.W.2d 235 (1997).
648
Aon Consulting, Inc. v. Midlands Fin. Benefits, Inc., 275 Neb. 642, 651 (2008).
649
Vanice v. Oehm, 247 Neb. 298 (1995).
650
See Powell v. Am. Charter Fed. Sav. & Loan Ass’n, 245 Neb. 551 (1994) (deciding the state with the most significant relationship to the transaction and the parties is the state where the parties contracted, negotiated, and resided; where the subject matter was located; and where performance was to take place). 651
Camco, Inc. v. Baker, 113 Nev. 512, 516-17 (1997).
652
113 Nev. 512, 516-17 (1997). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
235
653
Hansen v. Edwards, 83 Nev. 189 (1967).
654
See Ellis v. McDaniel, 95 Nev. 455, 459-60 (1979).
655
83 Nev. 189, 192 (1967).
656
Ellis v. McDaniel, 95 Nev. 455, 458-59 (1979).
657
Hansen v. Edwards, 83 Nev. 189, 426 P.2d 792 (1967).
658
Farmer Bros. Co. v. Albrecht, No. 2:11–CV–01371–PMP–CWH, 2011 WL 4736858 at *2 (D. Nev. Oct. 6, 2011). 659
Ellis v. McDaniel, 95 Nev. 455 (1979).
660
Camco, Inc. v. Baker, 113 Nev. 512, 519-20 (1997).
661
Jones v. Deeter, 112 Nev. 291, 296 (1996).
662
Engel v. Ernst, 102 Nev. 390, 395 (1986).
663
Id.
664
Williams v. United Servs. Auto. Ass’n, 109 Nev. 333, 334-35 (1993).
665
Tandy Computer Leasing v. Terina’s Pizza, Inc., 105 Nev. 841, 843 (1989) (rejecting the application of Texas law because the forum selection clause in a contract for the lease of computer equipment was not freely negotiated and enforcement of the clause would have been unreasonable and unjust). 666
See Smith, Batchelder & Rugg v. Foster, 119 N.H. 679, 683 (1979).
667
See NHRS § 275.70 (stating, “[p]rior to or concurrent with making an offer of change in job classification or an offer of employment…”) (emphasis added). 668
See NHRS § 275.70, ACAS Acquisitions (Precitech) Inc. v. Hobert, 155 N.H. 381, 388–89 (2007); see also Batchelder, 119 N.H. at 683. 669
See Merrimack Valley Wood Prods., Inc. v. Near, 152 N.H. 192, 200 (2005) (citing Batchelder, 119 N.H. at 682).
670
Maddog Software, Inc. v. Sklader, 382 F.Supp.2d 268, 283 (D.N.H. 2005)
671
Id.
672
Id.
673
Merrimack, 152 N.H. at 200-01 (internal quotations removed).
674
Id. (internal quotation removed); see also Batchelder, 119 N.H. at 685.
675
Techn. Aid Corp. v. Allen, 134 N.H. 1, 16-19 (1991).
676
See Merrimack, 152 N.H. at 200.
677
See, e.g., Batchelder, 119 N.H. at 683.
678
Concord Orthopaedics Prof’l Ass’n v. Forbes, 142 N.H. 440, 444 (1997) (internal quotation removed), Hobert, 155 N.H. at 392. 679
Technical Aid, 134 N.H. at 14.
680
Hobert, 155 N.H. at 393-94.
681
Concord Ortopaedics, 142 N.H. at 443-46.
682
Batchelder, 119 N.H. at 683.
683
Syncom Indus., Inc. v. Wood, 155 N.H. 73, 80-81 (2007).
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236 Fifty State Survey on Covenants Not to Compete
684
685
Allied Adjustment Serv. v. Heney, 125 N.H. 698, 700 (1984).
Consolidated Mut. Ins. Co. v. Radio Foods Corp., 108 N.H. 494, 496-97 (1968).
686
Hogan v. Bergen Brunswig Corp., 153 N.J. Super. 37, 43 (1977) (continuation of plaintiff’s employment for approximately three years after plaintiff signed letter acknowledging restrictive covenant against post-employment competition constituted sufficient consideration to enforce agreement). 687
Maw v. Advanced Clinical Commc’ns, Inc., 179 N.J. 439, 447 (2004) (quoting Ingersoll–Rand Co. v. Ciavatta, 110 N.J. 609, 628 (1988)). 688
Karlin v. Weinberg, 77 N.J. 408 (1978).
689
See Cmty. Hosp. Grp., Inc. v. More, 183 N.J. 36 (2005) (partially enforcing restrictive covenant).
690
Solari Indus., Inc. v. Malady, 55 N.J. 571 (1970)
691
Karlin v. Weinberg, 77 N.J. 408, 423 (1978).
692
Karlin v. Weinberg, 77 N.J. 408, 423 (1978).
693
Id.
694
Id. at 424.
695
Kalman Floor Co. v. Jos. L. Muscarelle, Inc., 196 N.J. Super. 16 (App. Div. 1984), aff’d 98 N.J. 266 (1985).
696
Raven v. A. Klein & Co., Inc., 195 N.J. Super. 209, 213 (App. Div. 1984).
697
See Actega Kelstar, Inc. v. Musselwhite, No. Civil No. 09–1255 (RBK/JS), 2010 WL 744126, at *2 (D.N.J. Mar. 2, 2010). 698
Bell v. Merchants & Businessmen’s Mut. Ins. Co., 241 N.J. Super. 557, 562-63 (App. Div. 1990).
699
McNeill v. Zoref, 297 N.J. Super. 213, 219 (App. Div. 1997) (citation omitted).
700
But see N.M.S.A. § 57-3A-1 et seq. (New Mexico UTSA).
701
See Manuel Lujan Ins. v. Jordan, 100 N.M. 573, 574–75 (1983) (noting, however, that Jordan’s employment contract stated the effective date was the date that Jordan began his employment). 702
Nichols v. Anderson, 43 N.M. 296 (1939); see also Bowen v. Carlsbad Ins. & Real Estate, Inc., 104 N.M. 514 (1986) (stating, “[i]t is well-settled that a restrictive covenant is valid if it is within reasonable limits of time and space and ancillary to a sale of a business”). 703
Kidskare, P.C. v. Mann, No. 33,475, 2015 WL 1381231, at *3 (N.M. Ct. App. 2015).
704
See Bowen, 104 N.M. at 516; see also Nichols, 43 N.M. 296.
705
Bowen, 104 N.M. at 516.
706
Nichols, 43 N.M. at 296.
707
Kidskare, P.C. v. Mann, 2015 WL 1381231 (N.M. Ct. App. 2015).
708
Lovelace Clinic v. Murphy, 417 P.2d 450 (N.M. 1966).
709
United Wholesale Liquor Co. v. Brown-Forman Distillers Corp., 108 N.M. 467, 470, 1989–NMSC–030, 12, 775 P.2d 233, 236 (N.M. 1989). 710
Jim v. Fin. Servs. Corp., 87 N.M. 362, 364 (N.M. 1975).
711
Eichel v. Goode, Inc., 101 N.M. 246, 250 (1984).
712
Id. (internal quotation and citation omitted).
Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
237
713 N.Y. Lab. Law § 202-k. 714
Zellner v. Stephen D. Conrad, M.D., P.C., 183 A.D. 2d 250, 256 (N.Y. App. Div. 1992).
715
Reed, Roberts Ass’n v. Strauman, 40 N.Y.2d 303, 307 (1976).
716
BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 389 (1999) (quoting Strauman, 40 N.Y.2d at 307).
717
BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 394 (1999).
718
Id.
719
Scott, Stackrow & Co., C.P.A.’s, P.C. v. Skavina, 9 A.D.3d 805, 807 (N.Y. App. Div. 2004).
720
Id.
BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 390, 712 N.E.2d 1220 (1999) (stating that “the application of the test of reasonableness of employee restrictive covenants focuses on the particular facts and circumstances giving context to the agreement”). 721
722
See, e.g., Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 70 (2d Cir. 1999) (finding period of six months to be “relatively short” and thereby reasonable); Natsource LLC v. Paribello, 151 F. Supp. 2d 465 (S.D.N.Y. 2001) (period of one year deemed to be “very limited in time” and, thus, reasonable). 723
See EarthWeb, Inc. v. Schlack, 71 F. Supp. 2d 299 (S.D.N.Y. 1999) (one-year period deemed “too long given the dynamic nature of [the] industry, [] lack of geographical borders, and [the defendant’s] former cutting-edge position with [the company] where his success depended on keeping abreast of daily changes in content on the Internet”). 724
Karpinski v. Ingrasci, 28 N.Y.2d 45, 50 (1971).
725
BDO Seidman v. Hirshberg, 93 N.Y.2d 382, 390 (1999) (noting that “the application of the test of reasonableness of employee restrictive covenants focuses on the particular facts and circumstances giving context to the agreement”). 726
See Marine Midland Bank, N.A. v. United Mo. Bank, N.A., 223 A.D.2d 119, 123–24 (App. Div. 1996).
727
In re Liquidation of Midland Ins. Co., 16 N.Y.3d 536, 543 (2011).
728
See Yakin v. Tyler Hill Corp., 566 F.3d 72, 76–77 (2d Cir. 2009) (affirming remand of an action based on mandatory forum selection clause). 729
See A.E.P. Indus. v. McClure, 308 N.C. 393 (1983); Moses H. Cone Mem’l Health Servs. Corp. v. Triplett, 167 N.C. App. 267 (2004) 730
Hill v. Davenport, 195 N.C. 271 (1928).
731
Greene Co. v. Kelley, 261 N.C. 166, 168 (1964).
732
Amdar, Inc. v. Satterwhite, 37 N.C. App. 410 (1978).
733
RLM Commc’ns, Inc. v. Tuschen, No. 5:14–CV–250–FL , 2014 WL 7235086 (E.D. N.C. Nov. 7, 2014); Greene Co. v. Kelley, 261 N.C. 166, 168 (1964). 734
See Milner Airco, Inc. v. Morris, 111 N.C. App. 866, 869 (1993); Clyde Rudd & Assocs., Inc. v. Taylor, 29 N.C. App. 679 (1976); Safety Equip. Sales & Serv., Inc. v. Williams, 22 N.C. App. 410 (1974). 735
Hartman v. W.H. Odell and Assocs., Inc. 117 N.C. App. 307 (1994).
736
Hartman v. W. H. Odell & Assocs., Inc., 117 N.C. App. 307, 311 (1994).
737
See Hartman, 117 N.C. App. at 311–12.
738
See Jewel Box Stores v. Morrow, 272 N.C. 659 (1968).
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238 Fifty State Survey on Covenants Not to Compete
739
See A.E.P. Indus., Inc. v. McClure, 308 N.C. 393, 404 (1983).
740
See 117 N.C. App. at 312.
741
Farr Assocs., Inc. v. Baskin, 138 N.C. App. 276, 280 (2000); See, e.g., Welcome Wagon Int’l, Inc. v. Pender, 255 N.C. 244 (1961) (holding a five-year restriction limited to one city was reasonable). 742
Azko Nobel Coatings, Inc. v. Rogers, No. 11 CVS 3013, 2011 NCBC LEXIS 42 (N.C. Super. Ct. Nov. 3, 2011).
743
Masterclean of N.C., Inc. v. Guy, 82 N.C. App. 45 (1986).
744
Lloyd v. Southern Elevator Co., 184 N.C. App. 378 (2007).
745
Boice-Willis Clinic, P.A. v. Seaman, 175 N.C. App. 246 (2005).
746
Phelps Staffing, LLC v. C.T. Phelps, Inc., 740 S.E.2d 923 (N.C. Ct. App. 2013).
747
CopyPro, Inc. v. Musgrove, 754 S.E.2d 188, 192 (N.C. Ct. App. 2014)
748
Beverage Sys. of the Carolinas, LLC v. Associated Beverage Repair, LLC, 762 S.E.2d 316, 321 (N.C. Ct. App. 2014); Horner Int’l Co. v. McKoy, 754 S.E.2d 852, 857 (N.C. Ct. App. 2014); Outdoor Lighting Perspectives Franchising, Inc. v. Harders, 747 S.E.2d 256 (N.C. Ct. App. 2013); Henley Paper Co. v. McAllister, 253 N.C. 529 (N.C. 1960). 749
Sawyer v. Mkt. Am., Inc., 661 S.E.2d 750 (N.C. Ct. App. 2008).
750
A.E.P. Indus., v. McClure, 308 N.C. 393 (1983).
751
Eli Research, Inc. v. United Commc’ns Grp. LLC, 312 F. Supp. 2d 748, 754 (M.D.N.C. 2004).
752
See Internet East, Inc. v. Duro Commc’ns, Inc., 146 N.C. App. 401, 403 (2001).
753
A & D Envtl. Servs., Inc. v. Miller, No. COA14–913, 2015 WL 1530802, at *2–3 (N.C. Ct. App. Apr. 7, 2015).
754
Warner & Co. v. Solberg, 2001 ND 156, 634 N.W.2d 65 (2001).
755
Werlinger v. Mut. Serv. Cas. Ins. Co., 496 N.W.2d 26, 29 (N.D. 1993).
756
Hawkins Chem., Inc. v. McNea, 321 N.W.2d 918, 920 (N.D. 1982) (citation omitted).
757
Lire, Inc. v. Bob’s Pizza Inn Rests., Inc., 541 N.W. 2.d 432 (N.D. 1995).
758
541 N.W. 2.d 432 (N.D. 1995).
759
84 N.W.2d 297 (N.D. 1957).
760
134 N.W.2d 511, 519 (N.D. 1965).
761
Warner & Co. v. Solberg, 634 N.W.2d 65 (N.D. 2001).
762
Earthworks, Inc. v. Sehn, 553 N.W.2d 490 (N.D. 1996).
763
Id. at 755–56.
764
Daley v. Am. States Preferred Ins. Co., 587 N.W.2d 159 (1998).
765
Triple Quest, Inc. v. Cleveland Gear Co., Inc., 627 N.W.2d 379 (2001).
766
KaeRen Accommodations, Inc. v. Country Hosp. Corp., 243 F. Supp. 2d 993, 995 (D.N.D 2002). See, e.g., A Survey of State Law Regarding Forum-Selection Clauses, http://www.chipmanglasser.com/blog/2012/4/11/a-surveyof-state-law-regarding-forum-selection-clauses.html (last visited June 29, 2015). 767
See Lake Land Emp’t Grp. of Akron, LLC v. Columber, 101 Ohio St. 3d 242 (2004).
768
Try Hours, Inc. v. Douville, 985 N.E.2d 955, 961 (2013).
769
See Chrysalis Health Care, Inc. v. Brooks, 65 Ohio Misc. 2d 32, 39, 640 N.E.2d 915, 920 (Ohio Mun. 1994); see also Columbus Med. Equip. Co. v. Watters, 13 Ohio App. 3d 149, 468 N.E.2d 343 (1983). Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
239
770
See Rogers v. Runfola & Assocs., 57 Ohio St. 2d 5, 7, 565 N.E.2d 540, 542 (1991).
771
Economou v. Physicians Weight Loss Ctrs. of Am., 756 F.Supp. 1024, 1031 (N.D. Ohio 1991).
772
41 F.Supp.2d 950 (D. Minn. 1999) (applying Ohio law).
773
Robert W. Clark, M.D., Inc. v. Mt. Carmel Health, 124 Ohio App.3d 308, 315 (1997).
774
LCD Videography, L.L.C. v. Finomore, No. 2009-L-147, 2010 WL 5622055, at *13 (2010).
775
124 Ohio App.3d at 315.
Kyrkos v. Superior Beverage Grp., Ltd., No. 99444, 2013 WL 5676256, at *4 (Ohio Ct. App. Oct. 17, 2013) (internal alterations and quotation marks omitted) (citation omitted). 776
777
178 Ohio App.3d 432, 438, 898 N.E.2d 89, 93 (2008).
778
Cintas Corp. v. Perry, 517 F.3d 459, 466 (7th Cir. 2008).
779
Kyrkos v. Superior Beverage Grp., Ltd., No. 99444, 2013 WL 5676256, at *4 (Ohio Ct. App. Oct. 17, 2013).
780
Rogers v. Runfola & Assocs., 57 Ohio St. 3d 5 (1991).
781
Shury v. Rocco, No. 56214, 1989 WL 30538, at *3–4 (Ohio Ct. App. Mar. 30, 1989).
782
Try Hours, Inc. v. Douville, 985 N.E.2d 955 (2013).
783
Lexis-Nexis v. Beer, 41 F. Supp. 2d 950 (D. Minn. 1999) (applying Ohio law).
784
Michael’s Finer Meats, LLC v. Alfery, 649 F.2d 748, 756 (S.D. Ohio 2009).
785
Defiance Hosp., Inc. v. Fauster-Cameron, Inc., 344 F. Supp. 2d 1097, 1118 (N.D. Ohio 2004); see also Hamilton Ins. Servs., Inc. v. Nationwide Ins. Cos., 86 Ohio St. 3d 270 (1999) (finding reasonable a one-year covenant not to compete within a 25-mile radius). 786
Columbus Med. Equip. Co. v. Watters, 13 Ohio App. 3d 149 (1983).
787
E.P.I of Cleveland v. Basler, 12 Ohio App. 2d 16 (1967).
788
E.R. Moore Co. v. Ochiltree, 116 Ohio Misc. 45 (1968).
789
Schulke Radio Products, Ltd. v. Midwestern Broadcasting Co., 6 Ohio St. 3d 436 (1983).
790
Salehpour v. Just A Buck Licensing, Inc., No. CA2013–03–028, 2013 WL 5533113, at *3 (Ohio Ct. App. Oct. 7, 2013) (citation omitted). 791
See Loewen Grp. Acquisition Corp. v. Matthews, 12 P.3d 977, 982 (Okla. Civ. App. 2000).
792
Cardiovascular Surgical Specialists Corp. v. Mammana, 61 P.3d 210, 213 (Okla. 2003).
793
Thayne A. Hedges Reg’l Speech and Hearing Ctr., Inc. v. Baughman, 996 P.2d 939, 941 (Okla. Civ. App. 1998).
794
Cardiovascular Surgical Specialists Corp. v. Mammana, 61 P.3d 210, 213 (Okla. 2003) (holding that two sections of a non-compete provision violate section 217 and are therefore void and unenforceable, and modifying the agreement, without supplying any material terms, by striking the two offending sections). 795
61 P.3d at 214.
796
Cohen Realty, Inc. v. Marinick 817 P.2d 747, 749 (Okla. Civ. App. 1991)
797
61 P.3d at 213.
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240 Fifty State Survey on Covenants Not to Compete
798
Id. at 214.
799
See Oliver v. Omnicare, Inc., 103 P.3d 626, 628 (2004).
800
Dean Witter Reynolds, Inc. v. Shear, 796 P.2d 296, 299 (Okla. 1990).
801
See Bakhsh v. JACRRC Enters., Inc., 895 P.2d 746, 747 (Okla. Civ. App. 1995).
802
Id.
803
Id.
804
See Adams v. Bay, 60 P.3d 509, 510 (2002); see also Howard Family Charitable Found., Inc. v. Trimble, 259 P.3d 850, 862 (2011). 805
Or. Rev. Stat. § 653.295.
806
Or. Rev. Stat. § 653.020(3).
807
Or. Rev. Stat. § 653.295(1)(a)(A).
808
Or. Rev. Stat. § 653.295(1)(a)(B).
809
Or. Rev. Stat. § 653.295(1)(a)(B).
810
Or. Rev. Stat. § 653.295(1)(a)(B).
811
Nike, Inc. v. McCarthy, 379 F.3d 576, 581 (9th Cir. 2004).
812
Nike, 379 F.3d at 583.
813
First Allmerica Fin. Life Ins. Co. v. Sumner, 212 F. Supp. 2d 1235, 1241 (D. Or. 2002).
Volt Servs. Grp., Div. of Volt Mgmt. Corp. v. Adecco Emp’t Servs., Inc., 178 Or. App. 121, 126, (2001) (quoting N. Pac. Lbr. Co. v. Moore, 275 Or. 359 (1976)) (internal quotations omitted). 814
815
See Lavey v. Edwards, 264 Or. 331, 334–35 (1973) (“[A] noncompetition clause in an employment contract which includes no express limitation as to time or territory will be interpreted, if possible, so as to make the extent and character of its operation reasonable.” (citing Kelite Prods., Inc. v. Brandt, 206 Or. 636, 652 (1956))); see also Ocean Beauty Seafoods, LLC v. Pac. Seafood Grp. Acquisition, Inc., No. 14–35950, 2015 WL 2151842, at *1 (9th Cir. May 8, 2015) (noting that even if a non-compete clause covered an overly broad territory, “that does not automatically render it unenforceable under Oregon law” (citing Lavey, 264 Or. at 334)). 816
Kelite Prods, Inc. v. Brandt, 206 Or. 636; see also Eldridge v. Johnston, 195 Or. 379, 408 (1952) (“Whether or not the restriction as to time and territorial extent is reasonable must be judged from the standpoint of the time and place when and where the contract is executed, and from the general nature of the business involved.”). 817
Nike, Inc. v. McCarthy, 379 F.3d 576 (9th Cir. 2004).
818
Cascade Exch., Inc. v. Reed, 278 Or. 749 (1977) (per curiam).
819
N. Pac. Lumber Co. v. Moore, 275 Or. 359 (1976).
820
Jeld-Wen Holding, Inc. v. Ribas, No. Civ. No. 11–3043–CL, 2011 WL 3555768, at *3 (D. Or. Aug. 11, 2011).
821
Kennedy v. Wakenhut Corp., 41 Or. App. 275 (1979).
822
But see Young v. Mobil Oil Corp., 85 Or. App. 64, 67–68 (1987) (voiding a choice of law provision that New York law govern an agreement and finding Oregon law should be applied because the public policy expressed in the Oregon statute at issue was so important; noting also that there are “limits to parties’ autonomy in choosing” the law that is to govern their contracts (citing Restatement (Second) of Conflict of Laws § 187(2) (1971))); accord Machado-Miller v. Mersereau & Shannon, LLP, 180 Or. App. 586, 595 (2002).
Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
241
823
Citizens First Bank v. Intercontinental Exp., Inc., 77 Or. App. 655, 657 (1986) (citing Lilienthal v. Kaufman, 239 Or. 1 (1964); Seattle-First Nat’l Bank v. Schriber, 51 Or. App. 441 (1981); Restatement (Second) Conflict of Laws § 188 (1971)). 824
Reeves v. Chem Indus. Co, 262 Or. 95, 96–97 (1972) (en banc).
825
Id. at 100–01.
826
Hess v. Gebhard & Co., Inc., 570 Pa. 148, 157 (2002); Piercing Pagoda, Inc. v. Hoffner, 465 Pa. 500 (1976).
827
See, e.g., Socko v. Mid-Atl. Sys. of CPA, Inc., 99 A.3d 928, 935–36 (Pa. Super. Ct. 2014) (finding trial court did not err in its determination that a covenant not to compete was unenforceable where the employer conceded it did not provide valuable consideration to employee for his execution of non-competition agreement). 828
Modern Laundry & Dry Cleaning Co. v. Farrer, 370 Pa. Super. 288 (1988) (citing Beneficial Fin. Co. v. Becker, 422 Pa. 531 (1966)); 99 A.3d at 935 (“Language in an employment contract that the parties intend to be legally bound does not constitute valuable consideration in this context. We find significant the Supreme Court's refusal to recognize a seal as adequate consideration to support a covenant not to compete.”) (citations omitted); Gompers v. Rochester, 56 Pa. 194, 197 (1867) (an agreement in restraint of trade “is the only exception to the rule, that a contract under seal imports a consideration which a party is not permitted to deny.”); see also Newman v. Sablosky, 268 Pa. Super. 85 (1979) (“While a seal to an agreement imports consideration, the rule is inapplicable in a court of equity to enforce a restrictive covenant.”); see also, Dentsply Int'l, Inc. v. Benton, 965 F. Supp. 574, 579 (M.D. Pa. 1997) (employment agreement held unenforceable, employee signed the employment agreement when already employed with the employer; therefore, the pressure to preserve his job gave the employer superior bargaining power). 829
Insulation Corp. of Am. v. Brobston, 446 Pa. Super. 520 (1995) (employee’s $2,000 annual raise and change of employment status from at-will to written year-to-year term upon signing agreement containing noncompetition covenant was adequate consideration for employee’s promise not to compete, and therefore such covenant was “ancillary” to employment relationship); Modern Laundry and Dry Cleaning Co. v. Farrer, 370 Pa. Super. 288, 293, 536 A.2d 409, 411 (1988) (change in employment status from provisional to full-time and increased earnings on commission sufficient consideration to bind employee to restrictive covenant); but see Hess, at 922 (where employee challenged a covenant not to compete when he left his job following the acquisition, by asset purchase agreement, of his employer, Supreme Court held that “a restrictive covenant not to compete, contained in an employment agreement, is not assignable to the purchasing business entity, in the absence of a specific assignability provision, where the covenant is included in a sale of assets.” Court emphasized the trust between employer and employee, “[t]he fact that an individual may have confidence in the character and personality of one employer does not mean that the employee would be willing to suffer a restraint on his employment for the benefit of a stranger to the original undertaking.”). 830
Wellspan Healthy v. Bayliss, 869 A.2d 990, 997 (Pa. Super Ct. 2005) (internal citations omitted).
Nat’l Bus. Servs. Inc. v. Wright, 2 F. Supp. 2d 701, 707 (E. D. Pa. 1998); Gagliardi Bros. v. Caputo, 538 F. Supp. 525, 527 (E. D. Pa. 1982); Thermo-Guard, Inc. v. Cochran, 408 Pa. Super. 54, 596 A.2d 188, 193-94 (1991) (superseded by rule on other grounds); Pulse Techs., Inc. v. Notaro, 620 Pa. 322 (2013) (finding that restrictive covenant not contained in employment offer letter nevertheless valid and enforceable, as the letter was not a binding employment contract; employee signed employment agreement, which did contain the restrictive covenant, on his first day of employment, letter was part of hiring process). 831
832
Hess v. Gebhard & Co., Inc., 808 A.2d 912, 920 (Pa. 2002); see also J.C. Ehrlich Co., Inc. v. Martin, 979 A.2d 862, 864–65 (Pa. Super. Ct. 2009) (quoting Hess, 808 A.2d at 920); see also WMI Grp., Inc. v. Fox, 2015 PA Super 25, 109 A.3d 740 (Pa. Super Ct. 2015). 833
Insulation Corp. of Am. v. Brobston, 446 Pa. Super. 520 (1995) (dissolving injunction that enforced a two-year, 300- mile noncompete agreement); All-Pak, Inc. v. Johnston, 694 A.2d 347, 351 (Pa.Super.Ct.1997). But see AllPak, Inc. v. Johnston, 694 A.2d 347, 352 n.11 (Pa. Super. Ct. 1997) (citing with approval Insulation Corp., but surmising that courts would enforce restrictions if an employee tried to perform poorly in order to avoid noncompete). See also Labor Ready, Inc. v. Trojan Labor, Nos. 3264, 121759, 2001 WL 1807932, at *5 (Phila. Co. For more ACC InfoPAKs, please visit http://www.acc.com/infopaks
242 Fifty State Survey on Covenants Not to Compete
Jan. 25, 2001) (finding that there is no good will to protect by enforcing covenant where employee performed poorly), and compare Olympic Paper, Inc. v. Dubin Paper Co., 60 Pa. D. & C. 4th 102, 2000 WL 33711064, at *8 (Phila. Co. Dec. 29, 2000) (refusing to treat poor performance as dispositive against enforceability of noncompete, because of possibility that employee intentionally engaged in poor performance in order to avoid restrictive covenant on termination). 834
Wellspan Health v. Bayliss, 869 A.2d 990, 996, n.2 (Pa. Super. Ct. 2005) (enforcing covenant as to 2 of 5 counties specified by the covenant); Sidco Paper Co. v. Aaron, 465 Pa. 586, 594-95, 596 n.8, 351 A.2d 250, 254-55 & n.8 (1976) (“where the covenant imposes restrictions broader than necessary to protect the employer ... a court of equity may grant enforcement limited to those portions of the restrictions which are reasonably necessary for the protection of the employer.”); Mrozek v. Eiter, 805 A.2d 535, 539 (Pa. Super. 2002), appeal denied, 573 Pa. 691, 825 A.2d 639 (2003) (court of equity may grant enforcement limited to those portions of the restrictions which are reasonably necessary for the protection of the employer); see also Hillard v. Medtronic, Inc., 910 F.Supp. 173, 17677 (M.D. Pa. 1995) (concluding that overwhelming Pennsylvania authority supports the principle that a court sitting in equity may reform or "blue pencil" or "blue-line" a non-competition covenant). 835
Hess v. Gebhard & Co., 570 Pa. 148, 162–163 (2002).
836
Wellspan Health v. Bayliss, 869 A.2d 990, 996, n.2 (Pa. Super. Ct. 2005) (applying balancing test set forth in Hess v. Gebhard & Co., Inc., 570 Pa. 148, 162–63 & n.7 (2002), court upheld a two-year restrictive covenant governing a specialist in perinatology, but only as to two of the five counties specified by the covenant. In remaining three adjoining counties, doctor's former employer did not have an extensive practice and thus, the employer’s legitimate protectable interests when weighed against the competing interests was unreasonable and against the public interest). 837
WellSpan Health v. Bayliss, 869 A.2d 990, 1001 (Pa. Super. Ct. 2005) (applying balancing test set forth in Hess v. Gebhard & Co., Inc., 570 Pa. 148, 162-63 & n.7, 808 A.2d 912, 920 & n.7 (2002) (refusing to enforce covenant in counties where former employer did not compete). 838
See New Castle Orthopedic Assocs. v. Burns, 481 Pa. 460, 464, 467-78 (1978) (major factor in court’s decision to reverse a grant of a preliminary injunction against an orthopedic physician-surgeon was evidence of long delays experienced by patients who attempted to obtain appointments for orthopedic services led the court to conclude that there was a shortage of orthopedic specialists in the geographic area.) 839
See Gay v. CreditInform, 511 F.3d 369, 390 (3d Cir. 2007) (not a covenant case) (citing Kruzits v. Okuma Mach. Tool, Inc., 40 F.3d 52, 55 (3d Cir. 1994)); Smith v. Commonwealth Nat’l Bank, 384 Pa. Super. 65 (1989) (not a covenant case). In the covenant not to compete context, see AMG Nat’l Trust Bank v. Ries, Civil Action No. 06-CV4337, 2007 WL 2713218, at *6–7 (E.D. Pa. Sept. 13, 2007) (applying Colorado law); Intermetro Indus. Corp v. Kent, No. 3:CV-07-0075, 2007 WL 518345, at *2 (M.D. Pa. Feb. 12, 2007) (applying Pennsylvania law); Robert Half Int’l, Inc. v. Stenz, No. CIV.A. 00-2570, 2000 WL 1716760, at *1 (E.D. Pa. Nov. 17, 2000). 840
See Mixing Equip. Co. v. Phila. Gear, Inc., 436 F.2d 1308, 1312 (3d Cir. 1971) (holding that New York law would apply because the covenant not to compete was entered into between a person then residing in New York and a New York corporation, and it related to employment in New York (citing Griffith v. United Air Lines, Inc., 416 Pa. 1 (1964))). 841
See Griffith, 416 Pa. at 22, 203 A.2d at 805–06; see also Vector Sec., Inc. v. Stewart, 88 F. Supp. 2d 395, 399 n.3 (E.D. Pa. 2000) (covenant not to compete case; “Pennsylvania applies the law of the place with the most interest in the contract and that is most intimately concerned with the outcome”). 842
See Bioquell, Inc. v. Feinstein, Civil Action No. 10–2205, 2011 WL 673746, at *7 (E.D. Pa. Feb. 16, 2011).
843
Mettler-Toledo, Inc. v. Acker, 908 F. Supp. 240, 246 n.1 (M.D. Pa. 1995) (not a covenant not to compete case; customer list trade secret nondisclosure case; applying Pennsylvania law). See also SKF USA, Inc. v. Okkerse, 992 F. Supp. 2d 432 (E.D. Pa. Jan. 15, 2014) (finding forum selection clause in non-competition agreement valid); MTR Gaming Grp., Inc. v. Arneault, 899 F. Supp. 2d 367 (W.D. Pa. 2012) (enforcing clause selecting Hancock County, West Virginia, as forum for litigation over noncompetition covenant contained in settlement agreement); Centimark Corp. v. Jacobsen, 2011 WL 6000719 (W.D. Pa. Nov. 30, 2011) (upholding Pennsylvania forum selection clause under this test but 844
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243
analyzing broad set of public and private factors in weighing whether to transfer case to Northern District of Georgia); PGT Trucking, Inc. v. Lyman, Civil Action No. 11–300, 2011 WL 2462490, at *2 (W.D. Pa. May 16, 2011) (case remanded to state court; forum selection provision provided “any legal actions for the breach of this Agreement shall be brought only in the Court of Common Pleas of Beaver County, Pennsylvania”); SKF USA, Inc. v. Miller, Civil Action No. 10–4625, 2011 WL 940817, at *1 (E.D. Pa. Mar. 16, 2011) (employer's first-filed Pennsylvania action dismissed in favor of employee's later-filed suit in Illinois; referring to, but not discussing, Illinois forum selection clause); Select Med. Corp. v. Hardaway, No. Civ.A. 05-3341, 2006 WL 859741, at *4 (E.D. Pa. Mar. 24, 2006) (Pennsylvania forum selection clause upheld for adjudication of covenant). 845
Dentsply Int’l, Inc. v. Benton, 965 F. Supp. 574, 579 (M.D. Pa. 1997) (forum selection clause discredited an agreement which new management compelled an employee to sign in order to keep his job; “employer-employee relationship [was] so inherently unequal” the employment agreement was unenforceable); but see Behavioral Health Indus. News, Inc. v. Lutz, 24 F. Supp. 2d 401, 402–03 (M.D. Pa. 1998) (distinguishing Dentsply on the ground that the employee in Lutz signed the agreement at the time of entering the employment relationship while she still had a choice to enter that relationship). 846
See Dial Media v. Schiff, 612 F. Supp. 1483 (D.R.I. 1985).
847
Aim High Acad., Inc. v. Jessen, No. KC-2008-1384, 2008 R.I. Super. LEXIS 152, at *20 (R.I. Super. Ct. Dec. 10, 2008) (unreported) (holding gymnastics teachers’ continued employment at annual salaries of $34,000 each was adequate consideration for agreements containing noncompetition and nondisclosure covenants). 848
Nestle Food Co. v. Miller, 836 F. Supp. 69, 77, 77 n.32 (D.R.I. 1993).
849
Astro-Med, Inc. v. Nihon Kohden Am., Inc., 591 F.3d 1, 15–17 (1st Cir. 2009).
850
Id.
851
Durapin, Inc. v. Am. Prods., Inc., 559 A.2d 1051, 1053 (R.I. 1989).
852
Id. See Restatement (Second) Contracts § 188 (1981).
853
Id.; Durapin, Inc. v. American Products, Inc., 559 A.2d 1051, 1053 (R.I. 1989).
854
Cranston Print Works Co. v. Pothier, 848 A.2d 213, 220 (R.I. 2004).
855
See Koppers Prods. Co. v. Readio, 60 R.I. 207 (1938).
856
Oakdale Mfg. Co. v. Garst, 18 R.I. 484 (1894) (the clause objected to was mutually beneficial and equally restrictive). 857
Dial Media, Inc. v. Schiff, 612 F. Supp. 1483, 1490 (D.R.I. 1985).
858
Id.
859
Durapin, Inc. v. Am. Prods., Inc., 559 A.2d 1051, 1058 (R.I. 1989).
860
Id.
861
Saban v. Caremark Rx, L.L.C., 780 F. Supp. 2d 700, 712 (N.D. Ill. 2011) (citing Durapin, 559 A.2d at 1058).
862
Id. at *26–27.
863
Id.
864
Id. at *27.
865
Id. at 15.
866
Id.
867
Id.
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244 Fifty State Survey on Covenants Not to Compete
868
Dial Media v. Schiff, 612 F. Supp. 1483, 1488 (D.R.I. 1985).
869
Allen v. Creative Servs., Inc., 1992 WL 813643 (Super. Ct. R.I. 1992) (citing Owens v. Hagenbeck-Wallace Shows Co., 58 R.I. 162 (1937) (not a covenant case); Microfibres, Inc. v. McDevitt-Askew, 20 F. Supp. 2d 316, 326 (D.R.I. 1998) (covenant case) (citing Owens v. Hagenbeck-WallacShows Co., 58 R.I. 162, 192 A. 158). 870
R.J. Carbone v. Regan, 2008 U.S. Dist. Ct. LEXIS 81996 (R.I. 2008).
871
Id. at 322–23.
872
Id.
873
Id. at 323.
874
Id. at 326 (citing Owens v. Hagenbeck-Wallace Shows Co., 58 R.I. 162 (1937) (not a covenant case); see also Nguyen v. Lewis/Boyle, Inc., 899 F. Supp. 58, 59 (D.R.I. 1995) (not a covenant case). 875
Id. at *7 (reasoning that a waiver of objection would be meaningless “if it did not also contemplate a concomitant waiver of objection to personal jurisdiction”(internal punctuation omitted) (quoting Inso Corp. v. Dekotec Handselges, 999 F. Supp. 165, 166–67 (D. Mass. 1998)) (not a covenant case). 876
Poole v. Incentives Unlimited, Inc., 345 S.C. 378, 382 (2001).
877
Id.
878
Wolf v. Colonial Life & Accident Ins. Co., 309 S.C. 100, 109 (Ct. App. 1992) (per curiam) (finding a contract was supported by valuable consideration in the form of commissions, training and information (citing Rental Uniform Serv. of Florence, Inc. v. Dudley, 278 S.C. 674, 675–76 (1983)); see also Standard Register Co. v. Kerrigan, 238 S.C. 54, 74 (1961) (finding that while an employee had been employed by the employer for several years, “his position and duties were changed when he signed the contract,” this was a benefit to the employee in the form of a promotion and was a valuable consideration). 879
Oxman v. Profitt, 241 S.C. 28, 32–33 (1962) (citing Oxman v. Sherman, 239 S.C. 218 (1961)); see also Dudley, 278 S.C. 674. 880
Stringer v. Herron, 309 S.C. 529, 531 (Ct. App. 1992) (citing Dudley, 278 S.C. at 675–76).
881
Faces Boutique, Ltd. v. Gibbs, 318 S.C. 39, 42 (Ct. App. 1995).
882
Stringer, 309 S.C. at 531 (quoting Wolf, 309 S.C. at 111).
883
Poynter Invs., Inc. v. Century Builders of Piedmont, Inc., 387 S.C. 583, 588 (2010); see also E. Bus. Forms, Inc. v. Kistler, 258 S.C. 429, 434 (1972) (“We cannot make a new agreement for the parties into which they did not voluntarily enter. We must uphold the covenant as written or not at all, it must stand or fall integrally.”); but see Lampman v. DeWolff Boberg & Assocs., Inc., 319 Fed. App’x 293, 300 (4th Cir. 2009) (unpublished) (“If any provision fails to satisfy the standard set forth above, then the entire non-competition clause is void as a matter of law, although the clause may be severable from unrelated parts of a broader contract.” (citing Somerset v. Reyner, 233 S.C. 324 (1958)). 884
Team IA, Inc. v. Lucas, 395 S.C. 237, 246 (Ct. App. 2011).
885
Sermons v. Caine & Estes Ins. Agency, Inc., 275 S.C. 506, 509 (1980); see also Dudley, 278 S.C. at 676; Standard Register, 238 S.C. at 69 (“It is the general rule that the restraint as to time, in order to be reasonable, must not be injurious to the public.”). 886
Wolf, 309 S.C. at 109; see also Standard Register, 238 S.C. at 66 (To be considered reasonable, a territorial restriction must not cover an area any broader than is necessary to protect the employer's legitimate interest.). 887
Dudley, 278 S.C. at 676.
888
Hagemeyer N. Am. Inc. v. Thompson, No. C/A 2:05-3425, 2006 WL 516733, at *5 (D.S.C. Mar. 1, 2006).
889
Rockford Mfg., Ltd. v. Bennet, 296 F. Supp. 2d 681, 689 (D.S.C. 2003) (citing Caine & Estes Ins. Agency, Inc. v. Watts, 278 S.C. 207 (1982); Profitt, 241 S.C. 28 (1962); Wolf, 309 S.C. 100).
Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
245
890
Faces Boutique, 318 S.C. at 43.
891
Stringer, 309 S.C. at 532.
892
E. Bus. Forms, Inc. v. Kistler, 258 S.C. 429, 432 (1972).
893
Team IA, 395 S.C. at 248–49 (citing Nucor Corp. v. Bell, 482 F. Supp. 2d 714, 728 (D.S.C. 2007); Russell v. Wachovia Bank, N.A., 353 S.C. 208, 221 (2003); Ellis v. Taylor, 316 S.C. 245, 248 (1994) (“When the language of a contract is plain and capable of legal construction, that language alone determines the instrument's force and effect.”). 894
Stonhard, Inc. v. Carolina Flooring Specialists, Inc., 366 S.C. 156, 159 (2005) (citing Standard Register, 238 S.C. at 70–71).
Livingston v. Atl. Coast Line R. Co., 176 S.C. 385, 391 (1935), cited in Team IA, 395 S.C. at 249; see also Cantey v. Philadelphia Life Ins. Co., 166 S.C. 181 (1932). 895
896
But see Firestone Financial Corp. v. Owens, 309 S.C. 73, 75–76 (Ct. App. 1992) (noting approval of forum selection provisions (citing Lillard v. Searson, 170 S.C. 304 (1933)). 897
Loescher v. Policky, 84 S.D. 447 (1969).
898
Ctr. Monitoring Serv., Inc. v. Zakinski, 553 N.W.2d 513, 518 (S.D. 1996).
899
Id. at 517 (court’s emphasis).
900
Id. (citations omitted).
901
Id. (court’s emphasis).
902
Centrol, Inc. v. Morrow, 489 N.W.2d 890, 893 (S.D. 1992) (footnote and citations omitted).
903
489 N.W.2d 513, 518 (S.D. 1996).
904
Central Monitoring, 553 N.W.2d at 518.
905
650 N.W.2d 537, 539 (S.D. 2002).
906
Id.
907
Central Monitoring Serv. Inc. v. Zakinski, 553 N.W.2d 513, 518 (citing Centrol, Inc. v. Morrow, 489 N.W.2d 890 (S.D. 1992); American Rim & Brake, Inc. v. Zoellner, 382 N.W.2d 421 (S.D.1986)). 908
Id.
909
Id. at 521 (citations omitted).
910
Ward v. Midcom, Inc., 575 N.W.2d 233, 239 n.10 (S.D. 1998).
911
Hot Stuff Foods, LLC v. Mean Gene’s Enters., 468 F. Supp 2d 1078, 1102 (D.S.D. 2006).
912
Simpson v. C&R Supply, Inc., 598 N.W.2d 914 (S.D. 1999).
913
Ward v. Midcom, Inc., 575 N.W.2d 233, 239 (S.D. 1998).
914
Gateway 2000, Inc. v. Livak, 19 F. Supp. 2d 748 (E.D. Mich. 1998).
915
Pub. Op. Publ’n Co. v. Ranson, 148 N.W. 838 (N.D. 1914).
916
Am. Rim & Brake v. Zoellner, 382 N.W.2d 421 (S.D. 1986).
917
Simpson v. C&R Supply, Inc., 598 N.W.2d 914 (S.D. 1999).
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246 Fifty State Survey on Covenants Not to Compete
918
Commc’ns Tech. Sys., Inc. v. Densmore, 583 N.W.2d 125 (S.D. 1998).
919
State ex.rel. Meierhenry v. Spiegel, Inc., 277 N.W. 2d 298, 299 (S.D.1979).
920
941 F.2d 1361 (8th Cir. 1991).
921
S.D. Codified Laws § 53-1-4.
922
Great W. Cas. Co. v. Hovaldt, 603 N.W.2d 198, 201 (S.D. 1999) (stating this in a non-covenant case).
923
M.B. Rests., Inc. v. CKE Rests., Inc., 183 F.3d 750, 752 (8th Cir. 1999) (not a covenant case).
924
Push Pedal Pull, Inc. v. Casperson, 971 F. Supp. 2d 918 (D.S.D. 2013).
925
Baldwin v. Heinold Commodities., Inc., 363 N.W.2d 191, 194 (S.D. 1985) (stating this in a non-covenant case).
926
Central Adjustment Bureau v. Ingram, 678 S.W. 2d 28, 35 (Tenn. 1984).
927
Mark Rettinger, Covenants Not to Compete in Tennessee, 3 Transactions 25, 26 (Fall 2001).
928
Hasty v. Rent-A-Driver, Inc., 671 S.W.2d 471, 472 (Tenn. 1984).
929
Central Adjustment Bureau v. Ingram, 678 S.W. 2d 28, 36 (Tenn. 1984) (citations and quotations omitted).
930
Baker v. Hooper, 50 S.W.3d 463, 468 (Tenn. Ct. App. 2001).
931
Id. (quoting Allright Auto Parks, Inc. v. Berry, 409 S.W.2d 361, 363 (1966)).
932
Thompson, Breeding, Dunn, Creswell & Sparks v. Bowlin, 765 S.W.2d 743 (Tenn. Ct. App. 1987).
933
Hanger Prosthetics & Orthotics East, Inc. v. Kitchens, 280 S.W.3d 192, 202 (Tenn. Ct. App. 2008).
934
Outfitters Satellite, Inc. v. CIMA, Inc., 2005 WL 309370 (Tenn. Ct. app. Feb. 8, 2005) (reducing geographic area from all of North America to the United States). 935
Baker v. Hooper, 50 S.W.3d 463, 470 (Tenn. Ct. App. 2001) (temporal restriction modified from six months to two months). 936
Central Adjustment Bureau v. Ingram, 678 S.W. 2d 28, 36 (Tenn. 1984) (reducing restriction toone-year and to customers as of time of separation). 937
Suggs v. Glenn, 1989 WL 3114 (Tenn. Ct. App. Jan. 20, 1989) (reducing restriction to five years).
938
Vantage Tech., LLC v. Cross, 17 S.W. 3d 637, 650 (Tenn. Ct. App. 1999) (citing Ohio Cas. Ins. Co. v. Travelers Indem. Co., 493 S.W.2d 465, 467 (Tenn. 1973)). 939
17 S.W. 3d at 650 (citations and quotations omitted).
940
Lazer Spot, Inc. v. Hiring Partners, Inc., 387 S.W.3d 40, 47 (Tex. App. 2012) relying on Martin v. Credit Protection Ass’n, Inc., 793 S.W.2d 667, 669 (Tex. 1990) and Alex Sheshunoff Mgmt. Svcs., L.P. v. Johnson, 209 S.W. 3d 644, 651 (Tex. 2006). 941
Id.
942
Digital Generation Inc., v. Boring, 869 F. Supp. 2d 761, 775 (N.D. Tex. 2012) (citing Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W. 3d 644, 655 (Tex. 2006)). 943
Id.
944
Martin v. Credit Protection Ass’n, Inc., 793 S.W.2d 667, 669 (Tex. 1990); DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 681 (Tex. 1990); Alex Sheshunoff Mgmt. Svcs., L.P. v. Johnson, 209 S.W. 3d 644, 655 (Tex. 2006); Marsh USA Inc., v. Cook, 354 S.W.3d 764 (Tex. 2011) (deciding a stock option agreement was an enforceable agreement to which a covenant was ancillary, and provided sufficient consideration to support the non-compete.) 945
793 S.W.2d 667, 669 (Tex. 1990).
946
Digital Generation Inc., v. Boring, 869 F.Supp.2d 761, 775 (N.D. Tex. 2012).
947
Tex. Bus. & Com. Code Ann. § 15.51. Copyright © Greenberg Traurig, LLP & Association of Corporate Counsel
247
948
Justin Belt Co., Inc. v. Yost, 502 S.W.2d 681 (Tex. 1973).
949
Lasikplus of Tex., P.C. v. Mattioli, 418 S.W. 3d 210 (Tex. App. 2013).
950
See Sentinel Integrity Solutions, Inc. v. Mistras Grp., Inc., 414 S.W.3d 911 (Tex. App 2013).
951
Id.; see also Weatherford Oil Tool Co. v. Campbell, 161 Tex. 310 (1960); Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 663 (Tex. 1990). 952
Henshaw v. Kroenecke, 656 S.W.2d 416, 418 (Tex. 1983).
953
Tex. Bus. & Com. Code subchapter E §§15.50–15.51; Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex. 2011).
954
Merritt Hawkins & Assocs., LLC, MHA v. Gresham, No. 3:13–CV–00312–P, 2015 WL 179035, at *1 (N.D. Tex. Jan. 13, 2015). 955
AmeriPath, Inc., v. Herbert, 447 S.W. 3d 319, (Tex. App. 2014).
956
Daily Instruments Corp. v. Heidt, 998 F. Supp. 2d 553 (S.D. Tex. 2014).
957
In re Hilda E. Gomez, 520 B.R. 233 (S.D. Tex. 2014).
958
Gallagher Healthcare Ins. Servs. v. Vogelsang, 312 S.W.3d 640, 652–53 (Tex. App. 2009).
959
See, e.g., Investors Diversified Servs, Inc. v. McElroy, 645 S.W.2d 338, 339 (Tex. App. 1982).
960
Wilson v. Chemco Chem. Co., 711 S.W.2d 265 (Tex. App. 1986).
961
Wilson v. Chemco Chem. Co., 711 S.W.2d 265 (Tex. App. 1986).
962
French v. Cmty. Broad. of Coastal Bend, Inc., 766 S.W.2d 330, 333-34 (Tex. App. 1989).
963
Gillen v. Diadrill, Inc., 624 S.W.2d 259, 263 (Tex. App. 1981).
964
Eberts v. Businesspeople Pers. Servs., Inc., 620 S.W.2d 861, 862, 863 (Tex. App. 1981).
965
U.S. Risk Ins. Grp. Inc., v. Woods, 399 S.W.3d 295 (Tex. App. 2013).
966
Sentinel Integrity Solutions, Inc. v. Mistras Grp., Inc., 414 S.W.3d 911 (Tex. App 2013).
967
Posey v. Monier Res., Inc., 768 S.W.2d 915, 919 (Tex. App. 1989).
968
Cukjati v. Burkett, 772 S.W. 2d 215, 218 (Tex. App. 1989).
969
Diversified Human Res. Grp., Inc. v. Levinson-Polakoff, 752 S.W.2d 8, 12 (Tex. App. 1988).
970
Exxon Mobil Corporation v. Drennen, 452 S.W.3d 319 (Tex. 2014); DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 681 (Tex. 1990). 971
In re AutoNation, Inc., 228 S.W.3d 663 (Tex. 2007) (holding that forum-selection clause in covenant not to compete, designating Florida as forum, was enforceable in Texas). 972
See Sys. Concepts v. Dixon, 669 P.2d 421, 429 (Utah 1983).
973
669 P.2d at 429.
974
Robbins v. Finlay, 645 P.2d 623 (Utah 1982); see also Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951).
975
Robbins v. Finlay, 645 P.2d 623 (Utah 1982).
976
Sys. Concepts v. Dixon, 669 P.2d 421, 427 (Utah 1983).
977
Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951).
978
Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951).
979
System Concepts v. Dixon, 669 P.2d 421, 427 (Utah 1983).
980
Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951).
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248 Fifty State Survey on Covenants Not to Compete
981
Allen v. Rose Park Pharmacy, 237 P.2d 823, 828 (Utah 1951).
982
Id.
983
Allen v. Rose Park Pharmacy, 237 P.2d 823 (Utah 1951).
984
Summits 7, Inc. v. Kelly, 178 Vt. 396 (2005). See, e.g., Dyar Sales & Mach. Co. v. Bleiler, 106 Vt. 425 (1934) (enforcing a covenant not to compete signed two years after employment began). 985
See, e.g., Vt. Elec. Supply Co. v. Andrus, 132 Vt. 195, 315 A.2d 456, 457 (1974).
986
Vt. Elec. Supply Co. v. Andrus, 132 Vt. 195, 315 A.2d 456, 458 (1974).
987
Id.; 145 Vt. 324, 487 A.2d 173, 175 (1985).
988
Id. at 103 F.3d 243, 248 (2d Cir. 1996) (covenant barring competition in 100 mile radius from any of former employer’s offices reformed to only two-three offices where former employee actually worked). 989
178 Vt. 396 (2005) (citing A.N. Deringer, 103 F.3d at 248).
990
See, e.g., Dyar Sales & Mach. Co. v. Bleiler, 106 Vt. 425, 175 A. 27, 30 (1934).
991
See Abalene Pest Control Serv. v. Hall, 126 Vt. 1, 220 A.2d 717 (1966) (enforcing covenant barring soliciting former employer’s customers for five years). 992
See, e.g., Vt. Elec. Supply Co. v. Andrus, 132 Vt. 195, 315 A.2d 456 (1974); Abalene Pest Control Serv. v. Hall, 126 Vt. 1, 220 A.2d 717 (1966). 993
Dyar Sales & Mach. Co. v. Bleiler, 106 Vt. 425, 175 A. 27 (1934).
994
Fine Foods, Inc. v. Dahlin, 147 Vt. 599, 523 A.2d 1228 (1986).
995
Roy’s Orthopedic v. Lavigne, 142 Vt. 347, 454 A.2d 1242, 1243 (1982).
996
Int’l Collection Serv. v. Gibbs, 147 Vt. 105, 106, 510 A.2d 1325, 1327 (Vt. 1986).
997
Paramount Termite Control v. Rector, 238 Va. 171, 380 S.E.2d 922, 926 (1989).
998
Home Paramount Pest Control Cos., Inc. v. Shaffer, 282 Va. 412, 420, 718 S.E.2d 762, 766 (2011).
999
Motion Control Sys., Inc. v. E., 262 Va. 33, 37, 546 S.E.2d 424, 425–26 (2001).
1000
Id.
1001
Omniplex World Servs. Corp. v. U.S. Investigations Servs., Inc., 270 Va. 246, 249 (2005).
1002
Richardson v. Paxton Co., 203 Va. 790, 794–95 (1962).
1003
Omniplex World Services Corp. v. U.S. Investigations Services, Inc., 270 Va. 246, 250, 618 S.E.2d 340, 342-43 (2005). 1004
Motion Control Systems, Inc. v. East, 262 Va. 33, 546 S.E.2d 424 (2001).
1005
Meissel v. Finley, 198 Va. 577, 95 S.E.2d 186 (1982).
1006
Capital One Fin. Corp. v. Kanas, 871 F.Supp. 2d 520, 534–535 (E.D. Va 2012).
1007
Blue Ridge Anesthesia & Critical Care v. Gidick, 239 Va. 369 (1990).
1008
Roanoke Eng’g Sales Co. v. Rosenbaum, 223 Va. 548 (1982).
1009
Worrie v. Boze, 191 Va. 916 (1951).
1010
Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick. 239 Va. 369 (1990).
1011
Meissel v. Finley, 198 Va. 577 (1956).
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1012 W.L. Rochester, Jr. v. Rochester Corp., 316 F. Supp. 139 (E.D. Va. 1970). 1013
W.L. Rochester, Jr. v. Rochester Corp., 316 F. Supp. 139 (E.D.Va. 1970).
C.I.T. Corp. v. Guy, 170 Va. 16, 22 (1938); see also Lexie v. State Farm Mut. Auto. Ins., 251 Va. 390, 394 (1996); Woodson v. Celina Mut. Ins. Co., 211 Va. 423, 426 (1970); Boulware v. Newton, 59 Va. (18 Gratt.) 708, 711 (1868); Fant v. Miller & Mayhew, 58 Va. (17 Gratt.) 47, 59 (1866); Freeman’s Bank v. Ruckman, 57 Va. (16 Gratt.) 126, 127 (1860); Nelson v. Fotterall, 34 Va. (7 Leigh) 179, 201 (1836); Banks v. Greenleaf, 10 Va. (6 Call.) 271, 273 (1799). 1014
1015
Black v. Powers, 48 Va. App. 113, 128, 628 S.E.2d 546, 554 (2006).
1016
W.L. Rochester, Jr. v. Rochester Corp., 316 F.Supp. 139 (E.D. Va. 1970).
1017
Union Central Life Ins. Co. v. Pollard, 94 Va. 146, 151-52, 26 S.E. 421, 422 (1896); see generally Docksider, Ltd. v. Sea Technology, Ltd., 875 F.2d 762 (9th Cir.1989) (applying modern rule and enforcing contract provision vesting jurisdiction and venue exclusively in Gloucester County, Virginia); Bryant Elec. Co., Inc. v. City of Fredericksburg, 762 F.2d 1192, 1196-97 (4th Cir.1985) (applying Virginia law, determining that Virginia would follow the modern view, and enforcing a forum selection clause). 1018
Knight, Vale & Gregory v. McDaniel, 37 Wash. App. 366, 368-69, 680 P.2d 448, 451 (1984).
1019
Id.
1020
Pacific Aerospace & Electronics, Inc. v. Taylor, 295 F.Supp.2d 1205 (2003).
1021
Pacific Aerospace & Elecs., Inc. v. Taylor, 295 F. Supp. 2d 1205 (2003).
1022
Wood v. May, 73 Wash. 2d 307, 312 (1968) (en banc).
1023
Pacific Aerospace & Elecs., Inc. v. Taylor, 295 F. Supp. 2d 1205 (2003).
1024
Knight, Vale & Gregory v. McDaniel, 37 Wash.App. 366, 680 P.2d 448 (1984).
1025
Wood v. May, 73 Wash.2d 307, 310–11 (1968) (en banc).
1026
Wood v. May, 73 Wash.2d 307, 310–11 (1968) (en banc).
1027
See Reddy v. Cmty. Health Found. of Man, 298 S.E.2d 906, 907 (W. Va. 1982).
1028
See Weaver v. Ritchie, 478 S.E. 2d 363, 364 (W. Va. 1996).
1029
See Reddy v. Cmty. Health Found. of Man, 298 S.E.2d 906, 911 (W. Va. 1982).
Reddy v. Cmty. Health Found. of Man, 298 S.E.2d 906 (W. Va. 1982); but see McGough v. Nalco Co., 496 F. Supp. 2d 729, 757 (N.D.W. Va 2007) (refusing to ‘blue pencil’ a facially unreasonable covenant). 1030
1031
Voorhees v. Guyan Mach. Co., 191 W. Va. 450, 446 S.E. 2d 672, 676–77 (1994).
1032
See Wood v. Acordia of W. Va., Inc., 618 S.E.2d 415 (2005).
1033
Civil Action No. 2:15–cv–00361, 2015 WL 1400553, at *6–9 (S.D. W. Va. Mar. 27, 2015)
1034
Huntington Eye Assocs., Inc. v. LoCascio, 210 W.Va. 76 (2001).
1035
Chi. Towel Co. v. Reynolds, 108 W. Va. 615 (1930).
1036
Reddy v. Cmty. Health Found. of Man, 298 S.E.2d 906 (W. Va. 1982).
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250 Fifty State Survey on Covenants Not to Compete
1037 McGough v. Nalco Co., 496 F. Supp. 2d 729, 757 (N.D.W. Va 2007). 1038
Pancake Realty Co. v. Harber, 137 W. Va. 605, 73 S.E. 2d 438 (1952).
1039
Appalachian Labs. v. Bostic, 359 S.E.2d 614, 616 (W. Va. 1987).
1040
Bryan v. Mass. Mut. Life Ins. Co., 178 W. Va. 773, 777 364 S.E.2d 786, 790 (1987).
1041
New v. Tac & C Energy, Inc., 177 W. Va. 648, 650 (1987).
1042
Gen. Elec. Co. v. Keyser, 166 W. Va. 456, 461 (1981).
Runzheimer Int’l, Ltd. v. Friedlen, 862 N.W.2d 879, 892 (2015) (holding that “an employer’s forbearance in exercising its right to terminate an at-will employee constitutes lawful consideration for signing a restrictive covenant”). 1043
Wis. Stat. Ann. § 103.465.
1044
Cottonwood Fin. Ltd. v. Reid, 312 Wis.2d 481 751 N.W.2d 903 (Wis. Ct. App. 2008) (unpublished). 1045
1046
Star Direct, Inc. v. Dal Pra, 319 Wis. 2d 274 (2009).
1047
Star Direct, Inc. v. Dal Pra, 319 Wis. 2d 274 (2009).
1048
Farmers Ins. Exchange v. Sorenson, 99 F. Supp. 2d 1000, 1007 (E. D. Wis. 2000).
Pollack v. Calimag, 157 Wis. 2d 222, 458 N.W. 2d 591, 599 (Ct. App. 1990) (citing Chuck Wagon Catering v. Raduege, 88 Wis. 2d 740, 793 (1979) (“[a] covenant’s geographic restraint is reasonable if it is limited to the area actually served”)). 1049
1050
Star Direct, Inc. v. Dal Pra, 319 Wis. 2d 274 (2009).
1051
JT Packard & Assocs. v. Smith, 429 F. Supp. 2d 1052 (W.D. Wis. 2005).
1052
Behnke v. Hertz Corp., 70 Wis. 2d 818 (1975).
1053
Bush v. Nat’l Sch. Studios, Inc., 139 Wis. 2d 635, 642–43 (1987).
1054
General Med. Corp. v. Kobs, 179 Wis. 2d 422, 428-29 (Ct. App. 1993).
1055
See Urhammer v. Olson, 29 Wis. 2d 447, 450 (1968).
1056
Haines v. Mid-Cent. Ins. Co., 47 Wis. 2d 442, 446–47 (1970).
1057
Id.
1058
Leasefirst v. Hartford Rexall Drugs., Inc., 168 Wis. 2d 83, 87–89 (Ct. App. 1992).
1059
Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 541 (Wyo. 1993).
1060
Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 541 (Wyo. 1993).
1061
Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 546 (Wyo. 1993).
1062
Ridley v. Krout, 63 Wyo. 252 (1947).
1063
Hopper v. All Pet Animal Clinic, Inc., 861 P.2d 531, 541 (Wyo. 1993).
1064
Ridley v. Krout, 63 Wyo. 252 (1947).
1065
Dutch Maid Bakeries v. Schleicher, 58 Wyo. 374 (1942).
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1066
Resource Tech. Corp. v. Fisher Scientific Co., 924 P.2d 972, 975 (Wyo. 1996).
1067
Id.
1068
Cal. Cas. & Fire Ins. Co. v. Brinkman, 50 F. Supp. 2d 1157, 1166 (D. Wyo. 1999).
1069
Id.
1070
Durdahl v. Nat’l Safety Ass’n, 988 P.2d 525 (Wyo. 1999).
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