Friday, November 6, 2009

Employer's Statements About Limiting Scope of Non-Compete Barred by Parol Evidence (New Life Cleaners v. Tuttle)

It is not at all uncommon for an employee to ask questions about the scope of his non-compete agreement before signing it. Employers can, and often do, run into trouble by advising an employee that the agreement isn't as broad or restrictive as it appears on paper.

However, an employee who fails to secure such limitations in writing is also asking for trouble. A perfect illustration comes by way of a recent Kentucky case, New Life Cleaners v. Tuttle. In that case, the employer presented Chad Tuttle with an employment contract about two years after he started working for it. The agreement contained two garden-variety restrictive covenants - a two-year business covenant prohibiting Tuttle from rendering carpet cleaning services in certain Kentucky counties, and a two-year client covenant prohibiting Tuttle from providing carpet cleaning services to New Life customers.

Tuttle had issues with the contract's scope. During a discussion about the non-compete, one of New Life's owners indicated to Tuttle that the contract was only meant to prohibit actual solicitation of New Life's clients. Tuttle, apparently satisfied with what New Life said, signed the contract unchanged from the original language.

When Tuttle left about two years after signing the covenant, he opened up a competing cleaning service in violation of the business covenant. New Life, apparently, was okay with this. However, things changed when one of New Life's clients called looking for Tuttle and was told he was no longer there. The client actively sought out Tuttle, who took the business away from New Life. There appears to be no dispute that the client was the onle who actively sought Tuttle out, and that Tuttle did not solicit the client 's business.

After the trial court entered judgment in Tuttle's favor - holding in effect that the oral statement made "modified" the non-compete terms - the appellat court reversed and entered judgment for New Life. The court did so on the grounds that the parol evidence rule barred introduction of extrinsic evidence, in this case evidence about oral statements limiting the non-compete. Accordingly, the court found New Life's contract was embodied fully within the written document, not some outside modification pre-dating signature.

It should be noted Tuttle acted without counsel - even at the appellate stage. And in that regard, the court did not address any defense of estoppel that might have been available to Tuttle. Also, the court apparently did not consider a laches defense. New Life apparently was fine with Tuttle violating the business covenant, but only took action several months later when Tuttle was able to take away a client. Tuttle might very well have been lulled into believing New Life would not take any action at all since it was fully aware he had been violating the contract.

The case serves as an obvious reminder to employees to get any modifications to non-competes in writing before executing the contract. However, employers should read too much into this case. It appears New Life lucked out on appeal given its rather careless conduct before the dispute.


Court: Court of Appeals of Kentucky
Opinion Date: 8/7/09
Cite: New Life Cleaners v. Tuttle, 292 S.W.3d 318 (Ky. Ct. App. 2009)
Favors: Employer
Law: Kentucky

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