cases, commentary and news related to restrictive covenants
Monday, December 21, 2009
Failure to Identify Company on List of Prohibited Competitors Proves Fatal to Non-Compete Claim (Carrier Vibrating Equip. v. Andritz Separation)
Specificity in a non-compete agreement is certainly viewed by courts more favorably than vague, overbroad restrictions. However, it can create enforcement problems.
In Carrier Vibrating Equipment v. Andritz Separation, a district court in Kentucky granted an ex-employee and his new employer summary judgment on competition claims arising out of a narrowly tailored non-compete agreement he signed in 2005. As is sometimes the case, the agreement specifically enumerated a list of competitors for whom the employee could not work following the termination of his employment.
One of the listed competitors sold part of its business to Andritz Separation in 2004, before the employee signed the contract, but Andritz itself was not identified on the "Direct Competitors" list. In reality, it was a competitor; the dispute arose after the employee, Hauptmann, left in April of 2006 and immediately began competing with it on a bid for the sale of industrial machinery. The customer initially chose Carrier Vibrating, but because of Hauptmann's involvement, the customer switched and gave the job - at a price of $6 million - to Andritz.
Carrier Vibrating sued, contending that the list of "Direct Competitors" should be read to include Andritz based on the fact that it purchase a portion of a listed company's business as a compliment to its existing product line, in effect assuming the company's identity. The court found that the agreement was clear, and that evidence outside the contract was barred by the parol evidence rule. The court noted that Carrier Vibrating never sought to amend the list of "Direct Competitors" in the non-compete and that the sale to Andritz took place prior to the time Hauptmann executed his agreement. Because Andritz was not listed in the agreement, Hauptmann was not liable.
Attorneys representing employers walk a fine line between making an agreement too broad (and potentially unenforceable) and too specific (subject to circumvention). The practice the employer used in this case, drafting a "Direct Competitors" list, is a smart one - provided there is some contractual mechanism allowing for additions to the list and provided the employer is diligent about identifying its true competitors at the time the agreement is signed.
Court: United States District Court for the Western District of Kentucky
Opinion Date: 12/17/09
Cite: Carrier Vibrating Equipment, Inc. v. Andritz Separation, Inc., 2009 U.S. Dist. LEXIS 117600 (W.D. Ky. Dec. 17, 2009)
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