Federal Court Cites Enforcement Of Customer Non-Solicit Provision To Deny Enforcement Of Non-Compete Provision

Last week U.S. District Judge Zobel denied a road assistance service provider’s motion to stop its former vice president of sales from working for a competitor, citing the employer’s enforceable customer non-solicitation and confidentiality provisions as a reason not to enforce a broad non-compete provision.  The ruling on the preliminary injunction motion in Agero Administrative Service Corp. v. Campolo allowed the former employee to work for the competitor but prohibited him from soliciting certain customers of his former employer.

The employee conceded the confidentiality provision was enforceable but contested both the customer non-solicit and non-compete provisions.  The court first determined that the customer non-solicit provision was reasonably tailored to protect the employer’s legitimate business interests.  Of note to the court, the non-solicit was limited in time to 12 months and in scope to only those customers with whom the employee had “material contact” or regarding whom the employee “had access to material confidential information.”  The court enjoined the employee from soliciting those customers.

The non-compete provision was also limited to 12 months, but lacked any geographic limit and would have prevented the employee from working in the “entire U.S. industry of roadside assistance services sales to insurance carriers.”  The court explained that enforcement of the customer non-solicitation and confidentiality provisions meant that enforcing the non-compete would protect the employer from only ordinary competition, which is not a protectable business interest.  The court also noted an unresolved dispute of fact as to whether the non-compete provision was voided by a change in the employee’s terms of employment and found that the enforcement of the non-solicitation provision meant that the balance of harms shifted to favor the employee.  The court denied the request to enjoin the employee from working for a competitor.

Employment agreements that include multiple post-employment obligations are neither novel nor unusual.  Typically, courts enforce non-compete provisions when the other covenants are insufficient to protect the employer’s confidential information.  But Judge Zobel’s opinion does not include any analysis of whether the employer’s confidential information required protection beyond that provided by the confidentiality and customer non-solicit provisions. It simply assumes the other protections to be enough (at least for employees in sales roles).

Rulings that axiomatically deem confidentiality and non-solicit provisions sufficient to protect employers, coupled with last year’s changes to Massachusetts’ non-compete law, are likely to diminish the role of non-compete provisions in employment agreements. They also place increased importance on drafting strong and enforceable restrictions on solicitation and the use of confidential information.

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