Wednesday, February 25, 2009

Connecticut Court Allows Non-Compete Agreement to Extend to Potential Customers (Webster Financial v. McDonald)

Non-compete agreements which contain activity restrictions - usually termed non-solicitation clauses - generally are viewed more favorably by courts than outright bans on employment with a competitor. I have previously written that for salespersons and those employees whose primary responsibility is client service, employers should consider utilizing a non-solicitation provision rather than a general non-compete clause.

Despite the fact these restrictions are inherently less problematic, a non-solicitation covenant still is a restraint on trade and must protect the employer's legitimate business interest rather than prevent competition. To that end, courts have taken widely different approaches in assessing the concept of reasonableness when a non-solicitation clause is challenged in court.

For starters, a geographic limit frequently does not work with non-solicitation clauses. Unless a salesperson is assigned a specific territory, a geographic restriction can appear arbitrary. In this respect, courts generally will uphold a non-solicitation clause without a geographic term. In Illinois, the rules are fairly strict - if there is no geographic term tied to a non-solicitation clause, then it must be narrowly drawn to prevent the employee only from contacting those customers with whom he or she developed a relationship during the course of employment. Other states permit non-solicitation clauses that capture a broader range of clients.

In Webster Financial v. McDonald, a Connecticut trial court had occasion to consider this issue when an employee tried to dismiss a non-compete claim at the initial pleading stage. The court refused to do so, holding that the clause, which barred the defendant from soliciting even "potential clients" of his ex-employer, could be reasonable. In Illinois, this would be too broad because the term "potential client" is vague and does not fall within the ambit of protectable relationships.

However, the court in Connecticut held that the case could not be dismissed - at least not without some discovery as to the agreement's reasonableness. The court gave the employer the benefit of the doubt on the contract language, relying on the fact that geographic-based restrictions would logically preclude contact with even potential clients. Because courts have always upheld geographic restrictions that are reasonable, there was nothing wrong with a non-solicitation covenant covering potential clients.

Again, because the was rendered in response to a motion to dismiss, the court had to take all facts as true and was left determining whether the covenant was per se unreasonable. At least at this stage, it could not make such a finding.


Court: Superior Court of Connecticut, Judicial District of Waterbury
Opinion Date: 1/27/09
Cite: Webster Financial Corp. v. McDonald, 2009 Conn. Super. LEXIS 169 (Conn. Super. Ct. Jan. 27, 2009)
Favors: Employer
Law: Connecticut

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