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C & L Indus. v. Kiviranta - 13 Neb. App. 604, 698 N.W.2d 240 (2005)

Rule:

A covenant not to compete in an employment contract may be valid only if it restricts 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. Covenants not to compete are unenforceable if they are not so limited, but, rather, are written to prohibit future solicitation of clients with whom the former employee never did business or had personal contact.

Facts:

Appellant employer challenged a decision of the District Court for Douglas County, Nebraska, which found that a covenant not to compete signed by appellee former employee was unenforceable as written. The employee cross-appealed the trial court's denial of her request for a directed verdict. The employer provided recruiting services for other companies. The employee worked for the employer for approximately seven years, and for the last three years, she was a senior staffing supervisor. She had signed a covenant not to compete during a performance review. She later resigned and began working for another business, where she contacted at least 70 percent of the clients that she worked with while with the employer. The employer brought this action, but the trial court found the covenant not to compete unenforceable. The employer sought review.

Issue:

Did the district court err when it found that the covenant not to compete was unenforceable as written?

Answer:

Yes

Conclusion:

The court reversed on appeal. The court found that the covenant was properly limited in scope and was not unduly harsh and oppressive when balanced against the employer's interest in protecting goodwill. The court found that the plain meaning of the term "clients" in the agreement was current clients and did not include former clients. Substantial testimony was presented highlighting the importance of Kiviranta's personal relationship with the clients of C&L with whom she did business and had personal contact. Kiviranta herself testified that her most important duties as senior staffing supervisor for C&L were to develop and maintain consistent personal relationships with the clients. Thus, C&L certainly has a legitimate business interest in protecting its existing client base from unfair competition from Kiviranta, a former employee. But a determination that C&L has a legitimate business interest in client goodwill does not automatically validate the covenant not to compete; the restriction in the covenant must still be no greater than necessary to protect that legitimate business interest.

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