Non-Competes Unenforceable Unless they Protect Legitimate Business Interests

In Creative Dimensions, Inc. v. Laberge, 2012 Conn. Super. LEXIS 1464 (May 31, 2012), the Connecticut Superior Court rejected an employer’s attempt to enforce a non-compete and non-solicitation agreement because the company was unable to prove the agreement was tailored to protect a legitimate business interest.  In reaching its decision, the court relied on a five factor test previously articulated by the Connecticut Supreme Court to determine whether restrictive covenants are enforceable.

The factors include: the length of time of the restriction; the geographic area covered; the fairness of the protection accorded to the employer; the extent of the restraint on the employee’s opportunity to purse an occupation; and the extent of interference with the public’s interest.  More specifically, the court looked at the third and fourth prongs and found the agreement’s restrictions exceeded any needed to reasonably protect the company’s legitimate business interests, while seriously impeding the former employees’ ability to pursue their careers.

While restrictive covenant cases often hinge on the first two prongs, duration and geographic scope, this case emphasizes that the other factors must also be carefully considered.  Here the court noted several facts it took into consideration, including the special nature of the industry, and the company’s general conduct.

The company and its employees were engaged in providing signs, portable exhibits, custom exhibits, trade show services, and broadcast desks and sets to business clients.  Employees frequently moved from one competitor to the next. Companies often outsourced work to vendors and competitors. A company’s product designs were frequently on display at public trade shows, viewable by competitors.  Customer names were posted on company websites, and customers rarely worked exclusively with any one vendor.

Because of the close knit nature of the industry, employees rarely were asked to sign restrictive covenants, and the former employees were the only employees required to sign a non-compete and non-solicitation agreement by the company.  Further, because of the need to outsource work to competitors, the company regularly disclosed information such as client information, product information, and product design features that other companies would normally treat as trade secrets, or at least proprietary.  Based on its behavior, the court found little evidence to support the company’s claim that the restrictive covenants were necessary to protect its interests, when the company was freely sharing the same information it was allegedly trying to protect from disclosure through use of the restrictive agreements.

At the same time, the court held the agreement unfairly restrained the former employees from earning a living in their own occupation.  Given the transient nature of the market, the blanket restriction disallowing any work for any competitor, or the solicitation of any customer, effectively barred the former employees from earning a living in their industry during the 18 month period outlined in the agreement.

Given the overwhelming evidence showing the lack of a protectable interest, coupled with the unreasonable restraint on the former employees ability to earn a living, the court found the non-compete and non-solicitation agreement unenforceable.  It also rejected the company’s request to “blue pencil” the agreement to make it compliant because it found the unreasonable provisions formed the heart of the agreement, making it incapable of being reasonably modified.

This case points out the need to protect trade secrets and proprietary information, and carefully craft restrictive covenants in order to make them enforceable.