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Non-compete with inconsistent terms may not be enforceable

A recent Superior Court decision warns employers of the pitfalls that result from using non-compete agreements that contain inconsistent terms. In ARS Services, Inc. v. Morse, 2013 WL 2152181 (Super.Ct. 2013), Judge Edward P. Leibensperger considered whether to issue a preliminary injunction to a company that sought to enforce a non-compete agreement against a former employee who began competing directly against it in its existing market. 

The former employee maintained that the company's non-compete agreement was unenforceable because he had signed it eight years earlier when he was employed by the company in a different position than the position he held at the time he of his resignation. The Court rejected his argument and relied on multiple factors in ruling that the agreement was enforceable. Among those was the fact that the non-compete itself contained terms pursuant to which the employee had acknowledged that the agreement would be enforceable notwithstanding any changes to his "duties, responsibilities, position or title." Furthermore, the Court concluded that, at the time he resigned, his duties did not differ materially from those he held at the time he signed the agreement. The Court also noted that employees in a wide range of positions were required to sign the non-compete.

However, the Court called attention to the fact that there were inconsistencies within the agreement's restrictions on competition. The agreement barred the former employee from working in the company's field within fifty miles of any of the company's offices for a period of one year. The Court held that this restriction was both reasonable and necessary to protect the company's good will, a legitimate business interest it was entitled to protect. The agreement also prevented the former employee from soliciting the company's customers or prospective customers or providing them with products or services that the company provided for a period of two years. These additional provisions did not specify a geographic area to which the limitations pertained. Contrasting the second provision with the one-year, fifty-mile restriction on competition, the Court concluded that the second restriction was not reasonable. Judge Leibensperger ruled that, by barring the employee from working in the field for one year, the company had implicitly acknowledged that its good will could be protected with a one-year, fifty-mile restriction on competition. On that basis, he ruled that the non-solicitation term would be enforceable for only one year from the employee's termination date, limited the non-solicitation restriction to the same geographic area and issued a preliminary injunction against the employee consistent with those terms. This ruling should serve as a reminder to employers to review their non-compete agreements to confirm that their terms are not inconsistent.

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