Friday, February 13, 2009
Kansas Court Enforces 2-Year, 250-Mile Non-Compete Agreement (Chem-Trol v. Christensen)
Often times, when a court enforces a non-compete agreement, the restraining order or injunction won't match up with the language of the covenant. This usually is the result of the blue-pencil or judicial reformation doctrine. In a previous post, I outlined where each of the 50 states stands on the ability of courts to pare back, or sever, overbroad non-compete covenants.
However, on other occasions, a court will issue an injunction where a non-compete is modified but there is no discussion of the blue-pencil doctrine whatsoever. And that's what happened in Chem-Trol v. Christensen. In that case, Chem-Trol was engaged in the vegetation management services business, servicing utilities and rural electric cooperatives in maintaining right-of-ways and utility easements.
The plaintiff, Lyle Christensen, was clearly a key employee for Chem-Trol, serving as Area Manager for the Iowa facility. He was discharged in August of 2008, and after a few months, began servicing his former customers, doing business as Midwest Spray Team & Sales, Inc. Chem-Trol filed suit, seeking preliminary injunctive relief.
The non-compete agreement at issue prohibited Christensen for two years from going "into business alone or in conjunction with one or more others, or in the employ of any other person or legal entity where the business of such employment shall be the same or similar to that of [Chem-Trol], within a 250 mile radius of Hamlin, Iowa."
The court enforced the covenant, finding it reasonable and supportive of a legitimate business interest. The latter issue was easy to resolve: Christensen had long relationships with key accounts, and he himself was Chem-Trol's face in Iowa. Moreover, the scope of the non-compete did not appear unreasonable under the facts: the 250-mile radius - though wide - was reasonable because the nature of vegetation management services frequently stretched hundreds of miles per job. The two-year term also did not appear problematic since Christensen testified that it takes one to two years to form solid customer relationships in his business.
(Parenthetically, the fact Christensen was terminated involuntarily did not matter in this case - Kansas precedent (which the court did not cite) makes no distinction in cases where an employee is terminated and faces a non-compete obligation. Other states, like New York and Illinois, view that issue differently.)
What was odd, though, was the court's conflation of the non-compete terms with a separate non-solicitation of customers covenant. The injunction order only prevented Christensen from soliciting or providing services to Christensen's Chem-Trol accounts (which was not, apparently, disputed), as long as those accounts were within 250 miles of Hamlin, Iowa.
However, the non-solicitation clause - on which the court remarked - had no 250-mile restriction on it. It was a separate paragraph in the agreement, and its scope was very broad; it barred Christensen from contacting any Chem-Trol account, not just his own. Also, the non-compete clause containing the geographic limit purported to bar Christensen from working for any entity or providing any competitive services, whether those activities concerned Chem-Trol accounts or not. In other words, it seems as if the court lost track of two separate covenants it was analyzing.
That said, the ruling makes some sense. Chem-Trol, for its part, did not appear hell-bent on putting Christensen out of work in the industry as long as he avoided his accounts. Given his key role in the company, that seemed to be a reasonable position to take. The end result was the non-compete was not really enforced, and the non-solicitation clause was enforced, but under the geographic scope written into the non-compete clause.
If that makes sense...
Court: United States District Court for the District of Kansas
Opinion Date: 2/10/09
Cite: Chem-Trol, Inc. v. Christensen, 2009 U.S. Dist. LEXIS 9894 (D. Kan. Feb. 10, 2009)