Restrictive Covenants – A Close Call Goes The Employer’s Way

Richard-RobinsonA very recent federal court decision, A.H. Harris & Sons, Inc. v. Naso, 2015 WL 1420132 (D.Conn.), illustrates how judges weigh various facts when deciding to grant or deny a preliminary injunction in a restrictive covenant case.  In such cases, a judge must “balance the equities” between granting or denying an injunction based on the facts presented.

There were equities clearly favoring the defendant-employee in the case.  In April 2013, after 9 years with the plaintiff, she was offered the branch manager position in the plaintiff’s Baltimore branch.  The offer was contingent on her signing an agreement with covenants restricting her post-employment activities.  There was a non-disclosure covenant, a non-compete with a two-year durational restraint and a 100 mile of the Baltimore branch radius restriction, and a two year “no soliciting or accepting business” covenant from any of the plaintiff’s customers wherever situated, even if the defendant had no contact with them.  (The plaintiff operated several branches from Maine to North Carolina.)  The plaintiff told the defendant she was concerned that the defendant might close the Baltimore branch and that the covenants would then prevent her from earning a living.  The defendant responded with statements that were not deemed to be fraudulent, but which certainly gave her reason to believe that a closure was unlikely and that if the office eventually closed, the defendant would not enforce the covenants.

In November 2013, just six months into her new position, the company closed the Baltimore branch and terminated her employment.  It  opted to serve its Baltimore area customers from its Virginia branch. Shortly thereafter, the plaintiff went to work for one of the defendant’s competitors in the Baltimore market, but not as a branch manager.  She became an inside account manager.  The competitor’s offer letter disclaimed any intention to receive the defendant’s confidential information and required her to promise that she would not divulge or use any such information in her new employment.  She did quote and sell to some of the customers with whom she worked in the defendant’s Baltimore branch, but these were also existing customers of her new employer.  There was no evidence that she divulged or used any of the defendant’s confidential information in her new job or that any of the plaintiff’s customers followed her to her new employer.

There were also some equities on the plaintiff’s side.  Responding to her request, the defendant told her that it was willing to give her relief from the covenant.  While the non-disclosure would remain in effect, it would allow her to work for two of its competitors within the restricted area and actually helped her obtain offers from these companies.  It was also willing to let her work for the competitor she ultimately joined, but only outside the restricted area. At the same time, the plaintiff tried to persuade her to remain with it, offering her jobs in various branch offices in New England and New Jersey.

I have no doubt that many judges would have denied injunctive relief here, particularly because there was no evidence of any actual harm and seeing that the equities seemingly tipped in the plaintiff’s favor.  However, the judge in this case (Hon. Alvin W. Thompson) granted the injunction, requiring the defendant to relinquish her new job.  Suffice it to say, this judge exhibited a definite pro-employer view in applying the standards of covenant enforceability and for granting preliminary injunctive relief.  And, obviously, he failed to empathize with the defendant and her plight.  In the end, the employee signed the restrictive covenant, and she then failed to honor her promise.  It was almost as simple as that.