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Federal Court Enforces Non-Com...

Federal Court Enforces Non-Compete Agreement

In recognizing the enforceability of non-competition and non-solicitation clauses, a federal court in Marylandhas barred an employee from working for a former employer’s direct competitor.  The case isGeneral Parts Distribution v. St. Clair2011 U.S. Dist. LEXIS 145055 (2011).

During his employment with General Parts, the employee signed non-competition and confidentiality agreements and a Covenant Not to Solicit/Not to Disclose.  These agreements prevented the employee from working for a competitor of General Parts within a 15-mile radius of its principal location for 1.5 years after conclusion of his employment, and from disclosing General Parts’ customer lists or soliciting business from it during the same period.  Apparently undeterred by these agreements, the employee left General Parts and began working for a direct competitor within the restricted area.

Shortly after, General Parts filed a Complaint and a motion for a temporary restraining order (“TRO”) and preliminary injunctive relief alleging breach of contract and violation of the Maryland Uniform Trade Secret Act.  In granting its motion for TRO, the Court held that General Parts had successfully shown that (1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in its favor; and (4) an injunction is in the public interest.

Oftentimes the first prong of this standard is the most difficult for a plaintiff to establish, but the court held that General Parts had made a clear showing that it was likely to succeed at trial on the merits concerning all of its claims.  The plaintiff established solicitation because the former employee admitted that he had contacted at least one General Parts’ customer following his resignation.  The plaintiff established competition because several General Parts’ customers inquired about the employee’s departure and subsequent employment.  The restrictive covenants were enforceable because their duration (1.5 years) and geographic scope (15-mile radius) were reasonably limited to protect General Parts’ business.

Outside of the written agreements, the plaintiff also established a likelihood of success in its misappropriation of trade secrets claim because Maryland law recognizes customer lists as trade secrets if (1) they derive independent economic value, and (2) the employer takes reasonable efforts to maintain their secrecy.  The court was persuaded by General Parts’ argument that it made “reasonable efforts” to protect the confidentiality of its customer lists by executing the restrictive covenants.  Accordingly, General Parts’ motion for TRO was granted, and the employee was forbidden from continuing to work for its current employer.

This case evidences the very real consequences of violating non-competition or non-solicitation clauses, which should not be taken lightly.  In fact, the mere existence of these clauses is sometimes enough to establish a claim of misappropriation of trade secrets even if the restrictive covenants are overly broad and unenforceable under contract law.