Wednesday, April 7, 2010
When the Dictionary Isn't Good Enough... (ACS Partners, LLC v. Caputo)
Ambiguity can be the death of restrictive covenants.
Common everyday words used in a non-compete agreement seem to take on a life of their own. Terms such as "solicit" or "compete" or "client" may intuitively be easy to define, but in hotly-contested competitive disputes, there is often room for defendants to parse these terms and claim ambiguity. If these claims are successful, an employer's non-compete could be at risk for non-enforcement.
One of the more common problems employers run into concerns the term "prospect" or "prospective client." In customer non-solicitation covenants, it is not unusual for the restraint to extend both to actual customers of the employer and prospects. The best practice is to define "prospective client" within the contract itself so as to eliminate the chance an employee will claim the non-solicitation provision is too broad or ambiguous to be enforced.
On this score, employers' counsel should define prospect so that it includes only identifiable prospective clients with whom an employee interacted or to whom he made a business proposal for services within a defined period of time, say, 6 months prior to departure. Including within the definition all prospective accounts in the company, even those not known to the restrained employee, is problematic due to lack of notice; that employee may simply not know who other salespersons' have been prospecting.
Absent a defined term like this, an employer is left to rely on the dictionary and argue the term be given its usual and ordinary construction. Unfortunately, this doesn't help much for some terms. As a federal district court in North Carolina recently noted, the dictionary definition of "prospect" means expected, likely or future. This clarifies nothing, since anyone could be a future client - regardless of whether they have been contacted or even identified within the records of the company. (The problem is particularly acute in states like North Carolina where its restrictive "blue-pencil" rule severely limits a court's ability to equitably modify the terms of an overbroad non-compete.)
It is cumbersome to load up an employment contract with defined terms. But certain core terms ought to be identified right away so an employee cannot later claim that the average construction of a key word within the non-compete is too ambiguous to be enforceable. The term "prospect" or "prospective customer" is one that always should be defined with some precision.
Court: United States District Court for the Western District of North Carolina
Opinion Date: 2/12/10
Cite: ACS Partners, LLC v. Caputo, 2010 U.S. Dist. LEXIS 19907 (W.D.N.C. Feb. 12, 2010)
Law: North Carolina