Thank You For Submiting Feedback!
The general rule is that 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. Generally, a noncompete covenant is more restrictive than reasonably necessary if it restricts an employee from working for or soliciting all of the former employer's clients or accounts, regardless of whether the former employee actually did business with and had personal contact with those clients.
In 1992, Professional Business Services Co. (“PBS”) entered into a Professional Employment Agreement with appellee, Stephen J. Rosno. The Agreement included a noncompete covenant; however, during the course of the employment, the parties made several handwritten changes to the Agreement – one such change included a provision that the post-term noncompetition provision of the covenant shall not apply to clients “listed on Exhibit I.” Exhibit I listed approximately 95 clients of PBS. In 1995, appellee gave a notice of termination of the employment agreement. Appellee’s intention, had he been permitted to continue working for PBS during his 90-day notice period, was to continue working for PBS while simultaneously taking PBS' clients. Following appellee's termination, PBS copied thousands of client records and gave them to appellee pursuant to record release forms received from appellee and signed by PBS clients. Subsequently, PBS filed the present action alleging breach of the covenant not to compete and claiming damages pursuant to the liquidated damages provision of the employment agreement. The trial court sustained a demurrer filed by appellant, finding that the noncompete covenant in the employment agreement was more restrictive than reasonably necessary to protect PBS' legitimate interest and, thus, was invalid and unenforceable. The state supreme court reversed, and remanded with directions to reinstate the operative petition. Following a bench trial, the trial court found in favor of the appellee on PBS' claim for damages for the alleged violation of the noncompete covenant. The court, finding that PBS failed to show that appellee had substantial personal contacts with all of PBS' clients, held that the noncompete covenant was greater than was reasonably necessary. On appeal, PBS argued that the trial court erred because the noncompetition agreement was no greater than reasonably necessary to protect the employer's legitimate interest.
Did the trial court err in ruling that the noncompete covenant was greater than was reasonably necessary to protect the employer's legitimate interest?
The court noted that in a bench trial of a law action, the trial court's factual findings have the effect of a jury verdict and will not be disturbed on appeal unless clearly erroneous. In this case, the state supreme court found no error in the decision of the trial court, as the evidence established, inter alia, that the employer admitted that the employee did not have substantial personal contact with those clients listed on one list. Moreover, the employer was unable to definitively substantiate that the employee had personal contact with all of the clients listed on another list. Because the noncompetition covenant was greater than reasonably necessary to protect the employer, the employer was not entitled to relief.