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Trading Secrets A Law Blog on Trade Secrets, Non-Competes, and Computer Fraud

New York Federal Court Denies Injunction to Enforce Restrictive Covenants Against Terminated Employee

Posted in Non-Compete Enforceability

Garrod, a salesman for more than 25 years in the field of elastomeric precision products (EPP), was terminated in mid-2012 after spending an aggregate of a dozen of those years working for manufacturers of EPP parts Fenner and a company acquired by Fenner.

He had signed both employers’ agreements containing non-compete and customer non-solicitation clauses–which appeared reasonable on their face–and Pennsylvania choice-of-law provisions. After Fenner discharged him, he was hired by Mearthane, another EPP company. When he began calling on Fenner’s customers, Fenner sued Mearthane and him in the U.S. District Court for the Western District of New York, seeking to enforce the restrictive covenants contained within the employment agreements.

Earlier this month, Fenner’s motion for a preliminary injunction was denied largely because the court found the non-compete and non-solicitation clauses to be unreasonable. According to the court, Pennsylvania law “disfavors enforcement of restrictive covenants against employees who are fired for poor performance” since the employer views those employees as “worthless.” Fenner Precision, Inc. v. Mearthane Products Corp., Case No. 12-CV-6610 CJS (W.D.N.Y., Feb. 4, 2013).

Garrod asserted that the agreements lack consideration, and that Fenner had not made a sufficient showing of irreparable harm, but the court rejected those assertions. He was more successful with his argument that the agreements are not enforceable because they are unreasonable. He pointed out that he is 58 years old, reducing the likelihood that he can obtain employment outside the EPP industry, and that Fenner gave no reason for his termination. He emphasized that he had worked in the EPP industry for more years before joining Fenner’s predecessor than he spent with that company and Fenner, and that he had significant contacts with, and knowledge about, EPP manufacturers before he became their employee.

The court concluded that Fenner’s concerns about Garrod’s ability to harm its sales “seem overstated in light of the fact that he yet to close any sales since commencing work for Mearthane.” Moreover, those concerns “are belied” by Fenner having “removed him from the company’s most profitable accounts” before firing him. In sum, “Considering all the relevant factors in the record, and weighing the parties’ competing interests,” the court found that “Garrod is likely to prevail in demonstrating that enforcement of the non-solicitation clause against him would not be reasonable.”

This case reminds us that employers can face an uphill battle in enforcing a non-compete clause against a terminated employee. However, there are courts that enforce such contracts as written regardless of the reason the employee left his or her prior employment.